Cannabis retail management is a challenge across North America—inventory efficiencies and staffing costs have stonewalled opportunities to connect with customers. With recent rumblings of multi-province retailers looking to expand into US markets, we’re here to help you understand the different regulation landscapes in the federally-legal market versus the state-by-state market. As you expand your business, we want to help you grasp what cannabis license models have been working, how the inventory rules differ, what new regulations to expect, and how to market appropriately.
These eight key areas can help you understand the differences between the US and Canadian markets.
Cannabis was federally legalized in Canada in October 2018. Soon after, Ontario granted 25 lucky lottery winners the opportunity to open their stores, and the first Canadian cannabis retailers opened shop in April 2019. Later that year, an additional 50 people were selected in the lottery's second round. The lottery process, while very democratic, was also very slow—and this kept the illicit market flourishing. As a result, the process was eventually modified to accept license applications.
A similar lottery system has emerged in the US, in states like CT, WA, CA, and MI. In some US markets, retail licensing applications are opened first to medical retailers hoping that the transition to recreational sales will be easy and efficient. For retailers in this situation, we’ve created a comprehensive, step-by-step guide on preparing for this transition. Moving from medical to recreational sales is less of a concern in Canada since most retailers already serve adult-use customers. Still, they must follow Health Canada’s standards.
The US also has two particular states with low entry barriers to new licenses, OK and NM. Both are affordable for entrepreneurs (or Canadian retailers) to get their foot in the cannabis industry’s door.
Retail operator licenses in Canada are relatively low, but they have more frequent renewal fees. In Ontario, the cost for a retail operator license sits around $6,000 with renewal fees ranging from $2,000 for a 2-year term to $4,000 for a 4-year term. The storefront authorization requires $4,000 every two years with a $3,500 renewal fee or a $7,000 renewal fee for a 4-year term. Each province requires retailers to complete provincial training, and Ontario requires another specific license for operational management.
In the US, licensing costs range from $2,500 (in Oklahoma) to $60,000. You also should consider application and renewal fees, which can send you into the six figures in conjunction with your application costs. Additionally, most states require all retail staff to be “certified” in handling and selling the plant. This usually takes the form of an individual permit and—you guessed it—is often accompanied by an added cost.
Generally speaking, it’s more expensive to apply for (and open) a dispensary in the US. To better understand your funding options, download our 8-Step Guide to Opening a Dispensary.
The regulatory authorities managed the rollout of products in Canada in segments: Cannabis 1.0 v. Cannabis 2.0. For those of us not familiar with the evolution of cannabis inventory in Canada, Mark Hillard, VP of Operations at Tokyo Smoke, explains:
“During Cannabis 1.0, flower, pre-rolls, and capsules were legalized. Then in the second round, what we call Cannabis 2.0, the government legalized edibles, beverages, concentrates, and vaporizers. It’s widened the consumption methods and legal product variety in Canada.”
Although this change occurred in October 2019, there’s often a delay before products are ready for wholesale—this is because producers need to finalize their product (and packaging) before seeking approval from Health Canada. For Mark, this meant that he and his team did not see these products until 2020-2021.
Unlike Canada, releasing approved cannabis products in legal US states is not broken into phases. There will likely be a delay in the supply chain, though. Like Canada, US processors need time to perfect their products: this involves growing and harvesting flower, testing it, and then packaging and selling it to dispensaries. On the other hand, a wholesaler can produce any variety of products once licensed—edibles, oils, topicals, flower—as long as every product adheres to testing requirements and package potencies.
The same parent company won’t be granted double-licensure to be a retailer and a producer in Canada. Instead, in most provinces—except for SK—the government is the gatekeeper of cannabis products and acts as either a direct seller or a distributor. Brands still exist, but the province is the middleman. Canadian brands can, however, partner with cultivators to co-market their product line. This mutually beneficial partnership allows brands to expand their customer base and obtain a larger market share.
Rather than going through government distributors, wholesale and retail distribution is privately owned in the US. This allows retailers to purchase multiple license types to grow and sell their own products in their own stores. These retailers have the power to build brand affinity by strategically prioritizing and highlighting their own brands.
There’s no deli-style or “weigh-as-you-go” shopping experience in Canada with measurable products like flower. Instead, each product handed to a customer is pre-packaged with child-proofing materials and proper labeling.
In the US, the flexibility around packaging varies by state. States like Oregon and Maryland, for example, use deli-style: a budtender presents the cured plant to a customer in a jar. The customer selects the buds they want, and the budtender then weighs, packages, and labels the flower before selling it directly to the customer. The deli-style sales model in the US became less popular during COVID-19, as dispensaries took measures to limit the spread of germs through social distancing.
Regarding government inventory traceability, Canadian provinces handle things manually and on a different timeline, whereas US regulators use seed-to-sale software on a more frequent basis. Both retailers must report every cannabis product sale, including important transaction details for tracking. The differences are how they report that, with most US states using integrated software systems and Canada requiring retailers to submit spreadsheets in a government portal.
Here’s an example of how the Alcohol Gaming Commission of Ontario (AGCO) would require a Canadian retailer to track their monthly reporting. These reports should include retail reporting details, federal reporting requirements, sale reporting, inventory checks and balances, and inventory transfers.
Most US retailers use state-appointed seed-to-sale software that they’ll be required to report to or sync their POS and ecommerce technology daily. One of the most popular US traceability systems is called METRC. This service tracks all the necessary inventory movement for you, as packages are transferred, and transactions are made. Integrating your other dispensary tools can make this tracking system more efficient, even with the required frequency. METRC can also alert you of product discrepancies or recalls rather than receiving separate provincial notifications.
While Canada is ahead of the US with the federal legalization of cannabis, some provinces are still establishing their delivery and online ordering operations. Delivery is already available in several provinces, including British Columbia, Saskatchewan, Manitoba, Ontario, and (most recently) Alberta—many of which legalized an increase in cannabis ordering options to comply with COVID-19 lockdown demands. Saskatchewan was the first, launching same-day delivery in 2019. On March 8, 2022, the AGLC (Alberta Gaming, Liquor, and Cannabis Commission) removed their website's cannabis online ordering section, enabling private cannabis retailers to conduct online sales and delivery in Alberta.
Previously, direct mail delivery by post came from the province-owned website. Customers would pay online, and retailers would ship the products through a common carrier. This order fulfillment method was offered in many provinces across Canada. Other ordering methods for shoppers included: click-and-collect (reserve products online and pick them up in-store), pay online and come in to pick up the order, or pay online and receive the delivery the same day or the next day.
On the other hand, the US delivery of cannabis products through the mail is illegal. The state government doesn’t manage distributors; instead, they’re privately owned by licensed companies that adhere to each state’s unique regulatory and compliance laws. Delivery is permitted in most legal US states, but businesses' types of delivery models vary. Some states, like Michigan and California, offer dynamic delivery, which is known as the “ice cream truck model.” Other states allow bulk delivery, which allows drivers to take on multiple deliveries simultaneously—but they can’t store excess inventory in the vehicle.
Here are four examples of how the laws change across the US:
To get a feel for how rigid Canada’s advertising guidelines are for cannabis, you’ll want to familiarize yourself with The Cannabis Act. It states:
“Unless authorized under this Act, it is prohibited to promote cannabis or a cannabis accessory or any service related to cannabis, including:
These rules—and the fine print that follows—ban the use of paid ads on social media, celebrity endorsements, price incentives, and even outdoor signage. The US’s guidelines on advertising cannabis are slightly more lenient.
While differences can be observed from state to state, most US dispensaries can entice shoppers with:
Popular product trends, of course. Throughout North America, customers are craving higher THC, and the lower THC products (besides CBD-rich products) are becoming less popular among consumers. As Mark at Tokyo Smoke in Ontario confirms:
“Customers are also looking for innovative, higher-quality products with a longer-lasting, entourage effect. That’s the push towards craft that we are seeing. Once edibles launched, we saw a huge increase in sales. Beverages spiked during summer when people wanted a cold drink, and that continued once they started liking that method of consumption. It’s also a product you can sip on at your leisure, so the effect can last longer based on prolonged consumption. And, of course, vaporizers are still big due to convenience and consistency in the product.”
As Forbes points out in New Cannabis Pricing Analysis Report Reveals Similarities—And Differences—In North America Markets, the price point is a concern for most shoppers.
“In both the U.S. and Canada, consumers consistently indicate price is a key factor in decisions about what cannabis product to buy. Recently, BDSA found that in states where cannabis is legal for adult and medical use, low price was consistently identified as among a top driver in product choice.”
Cannaseuirs still add some nuance to the market with their willingness to pay more for the entourage effect or a longer-lasting experience.
“Discerning consumers will pay a premium for superior products and/or benefits. For example, in the California market, gummies that also contain CBD are, on average, priced 18% higher—and their sales have increased by 41% from the second quarter of 2020 to the second quarter of 2021. In Canada, meanwhile, craft dried flower commands a price premium ranging from 16% to 41%, depending on its THC level.”
How can you optimize sales based on your market? The groups focusing on the customer and their experience tend to be market leaders. This doesn’t mean just fancy retail environments but companies focused on staying close to the customer have the best chance of coming out on top.
Retailers should enhance the online and brick-and-mortar experience for a specific group of customers. Building a brand fit for everyone when there is so much complexity in the business doesn’t always seem to work.
So, invest in the teams that touch your customer every day. What does this mean for markets as they continue to go recreational across the United States? Your retail team is going to need three types of training to make your brand successful and profitable. Examine your:
These need to translate not only on the retail sales floor but at any customer touchpoint.
While the two countries hold different regulatory standards, not everything is wildly different between the US and Canada. The solution is similar by focusing on education, and the general strategies are the same—serving craft vs. low price cannabis. The main comparison points include licensing, pricing, inventory availability timelines, permissions between types of producers, packaging, reporting, order fulfillment methods, and marketing rules. If you understand the landscape of both markets, you’re in the right starting place to expand your operations or understand what’s coming as legalities change.
Dutchie is here to help. With a team of specialists in each market, our Ecommerce, POS, and Payment products were built to scale as your business grows.