Hamilton’s booming cannabis market a ‘dog-eat-dog situation’

To get a better understanding of the state of Hamilton's legal cannabis market, all you'd need to do is walk down a stretch of King Street East in the International Village.

Located within just a couple city blocks and nestled among cafes, vintage shops and restaurants, you'll find not one, but three dispensaries - two of which are just mere metres away from one another.

While this picture doesn't necessarily repeat itself across the city, the close-knit trio of stores stand as an example of Steeltown's oversaturated" market of dispensaries.

As of May 6, there were at least 91 legal cannabis shops operating in Hamilton - with that number including storefronts that stretch from the lower city to the Mountain, Ancaster to Stoney Creek and Waterdown to Binbrook.

If you do the math - based on the latest census data from Statistics Canada - it's about one dispensary per every 6,250 residents.

But what does it all mean?

Marvin Ryder, an associate professor focused on marketing, entrepreneurship and business strategy at McMaster University, said the situation currently playing out in Hamilton mirrors what's happening provincewide.

As of April 25, there were 1,463 cannabis retail stores operating in Ontario, with applications for 463 others under review, according to the Alcohol and Gaming Commission of Ontario (AGCO).

We're in a situation now where we're over capacity," said Ryder. We have more stores selling cannabis than are really necessary."

You may not think that if you read the latest quarterly report from Ontario Cannabis Store - the crown corporation which operates an online cannabis retailer as well as supplies product to privately owned shops.

In the last quarter, adult Ontarians purchased 59.4 million grams across all product categories - including dried flower, oils and edibles - marking a record high for legal cannabis sales in the province that reached nearly $399 million, according to the report.

Legal cannabis sales also continue to eat away" at the black market, with consumers opting to make nearly 60 per cent of their purchases at regulated dispensaries, up from 43 per cent in the third quarter of 2020.

Ryder said there is a market for cannabis in Ontario, but it's not infinite." The initial worries of what legalizing cannabis would result in also hasn't transpired, he noted.

We're not seeing everyone on the street smoking dope," said Ryder. It's not leading to any great expansion of the market."

In the last quarter, dispensaries across the province rolled in about 96 per cent of cannabis sales in the province, accounting for $383 million of Ontario's total sales.

At the time of the report, there were 1,333 dispensaries in the province. That means the average shop could bring in around $287,320 a year in sales.

Ryder said that would mean healthy numbers" for many of the stores - but as the number of shops continues to grow - often closer in proximity - the profitability of each shop will slump.

It's just like how you can't have variety stores on every corner," he noted. There is just not that much demand."

But even still, more stores are set to keep opening in Hamilton.

Nearly thirty potential shops have had their public notice period end, meaning their applications have been vetted with public concerns and resubmitted to the commission for formal review.

Some of those public notice periods ended as long ago as May 2020 - others as recent as the end of March.

A handful of other stores are currently in progress," which means the company or owner behind the store has yet to go into the public notice period.

However, not every planned cannabis store in the city has come to fruition. Since 2019, at least 18 applications have been cancelled or withdrawn by the applicant, according to the province.

And after years of tremendous growth, data provided to The Spectator shows that the cannabis market in Hamilton may be slowing down.

Hamilton has seen stores start to close, according to provincial data. Since the beginning of this year, at least three cannabis shops have closed their doors - a first for the city since legalization.

Those shops include Budget Bud on Kenilworth Avenue North, the House of Cannabis on King Street West and Spiritleaf on King Street East.

Ryder said it's the beginning of a trend that he expects will grow in the coming months as profit margins are squeezed," with the price of cannabis coming down and more stores getting approved.

Dispensaries are also stifled by government regulations that dictate product availability, pricing, advertising and operations. And not every store is opened by folks with the necessary business skills" to push through.

Ryder compared the current state of the market now to an old Western film in which the gunslinger comes to town, confronts the marshal and they duel on the street - one shop would die, and one shop would live.

It's a dog-eat-dog situation at this point," he said, noting some stores could last just a few months. It's inevitable that some of these stores will collapse."

To stave off complete closures, consumers may also see an increase in consolidation as companies and individual owners work to cut down overhead costs.

Ryder predicts that Ontario's cannabis market will eventually be dominated by about half a dozen chains, as it will be the only way to make money."

And for those looking to the cannabis market for their next venture, entrepreneurs should take a long, hard look at what the future holds and where they might fit into it, he noted.

If people think opening a cannabis store is their way to millionaire status, it's just not true," he said. Some people are going to lose a lot of money."

Fallon Hewitt is a reporter at The Spectator. fhewitt@thespec.com