A Look Into Cannabis Retail Challenges

The global cannabis market could be worth $32 billion by 2022, and consequently presents huge opportunities for retailers. While the transition from prohibition presents huge opportunities, it also presents huge challenges. BDS Analytics commented that 2018 was a year of "constantly diminishing forecasts," as retailers struggled to compete against the black market in a heavily regulated and high tax environment.

Restrictive Regulations

Strict regulations were introduced to ensure socially responsible cannabis retail and guarantee product safety. While this was essential to protect communities and legitimize the industry, this regulation has come at a price.

The cannabis supply chain is strictly controlled, and in some instances publicly owned. As the free market economy is restricted, the industry has consequently struggled to effectively match supply with demand. As cannabis also can’t legally be transported between regional jurisdictions, retailers are unable to establish a nationwide distribution system, hindering their ability to efficiently move products. This has led to widespread product shortages, which have not only damaged the customer experience, but also the legitimacy of the new industry.

In the face of ongoing product shortages, retailers need to develop mutually beneficial relationships with both suppliers and shipping partners. This will not only build resiliency and better position retailers to meet demand, but also increase the opportunity to optimize pricing and reduce costs.

With the ability to meet demand where others can’t, retailers can create a competitive advantage and build customer loyalty. This is essential in an industry where "most cannabis consumers have minimal (if zero) brand loyalty," according to market analysts.

In addition to supply chain issues, heavy regulation has significantly inflated overheads for cannabis retailers — with enforcement costs passed onto companies through higher taxation and business fees. While cannabis retailers are eager to demonstrate they can make a lasting contribution to society, increased costs make it difficult for them to compete on price against the buoyant black market.

Criminal Competition

While a myriad of rules and regulations have been created to establish the recreational cannabis industry, little has been done to destabilize the unregulated market. The illicit market flourished under prohibition, and is forecast to control 71 percent of cannabis sales in Canada in 2019.

As illegal retailers don’t have to abide by the policies or taxation of the legal cannabis market, they can offer a wider product selection at a lower price than their regulated competition. To compete against the unregulated market, which can significantly undercut legitimate retailers, companies must instead add value for customers beyond the transaction, and ensure the legal cannabis retail experience surpasses expectations.

Value Beyond the Transaction

To provide exceptional customer service, cannabis retailers must invest in best-in-class training for their employees. Doing so will help them to become product experts, and customize the cannabis retail experience. This is crucial to driving sales and building customer loyalty, as nearly half of consumers said they would likely become repeat buyers after a personalized shopping experience.

Customizing the cannabis retail experience enables companies to target key demographics and attract newcomers to the industry. However, it requires retailers to strategically curate their product portfolio to appeal to both the curious and the connoisseur. As everyone is unique, with different levels of familiarity with cannabis, employees need to be able to guide the curious through the product inventory, and expand on strain genetics and terpene profiles for the connoisseur.

By focusing on adding value beyond the transaction and ensuring supply chain resiliency, retailers can maximize the huge opportunities presented by cannabis legalization. With a personalized cannabis retail experience that appeals to a wide range of consumers, companies can drive sales and build customer loyalty. This is vital to compete against the black market, despite a heavily regulated and high tax environment.

Eleanor Lynch is the senior vice president of operations at Kiaro, a Canada-based cannabis retailer.