January 18, 2022

How Tokyo Smoke grew rapidly and won AGCO approval

Kat Kuchtjak
December 7, 2021
January 18, 2022

Tokyo Smoke, a chain of cannabis retailers in Canada, partnered with Dutchie to undergo an audit by the Alcohol and Gaming Commission of Ontario (AGCO). The AGCO is in charge of regulating Ontario’s privately-run cannabis operations: from licensing and authorizing cannabis retail stores, to enforcing the sale of recreational cannabis in a compliant manner.

The audit covered:

The audit was a success, and Dutchie became the first (and currently the only) ecommerce software approved for compliant cannabis operations across Ontario.

The store that helped with the audit is Tokyo Smoke’s original Ontario location. This chain has an impressive growth story of starting as a single shop on Yonge Street to an almost 50-store chain throughout the province of Ontario.

A recent exclusive interview with our own Head of Strategic Growth, Anne Forkutza, reveals how Dutchie puts compliance first after Ontario recently announced a proposal to make Curbside Pickup a permanent ordering option for cannabis retailers.

“[The accreditation] opens up retail operators to focus on their business and not worry about losing their license.” It’s a badge we wear proudly, as we help retail operators like Ontario’s Tokyo Smoke.

We virtually “sat down” with Mark Hillard, Tokyo Smoke’s VP of Operations in Ontario, to learn more about the retail experience they offer and its growing popularity.

Tokyo Smoke Ontario was at the forefront of Canadian cannabis licensing.

Cannabis was legalized in Canada in October 2018, and the first stores opened in Ontario in April 2019. At that point, the province had issued 25 lucky winners of a lottery the opportunity to open stores.

Mark says, “Two of the lottery winners worked with our brand to become licensed and open stores in Ontario. At that point, Canopy Growth, the master franchise license holder, had stores open in another province. Everyone was very excited about how the stores were laid out and the focus on education—that’s why we were able to attract two of the license holders.”

In the second round of the lottery in Ontario in 2019, 50 people were drawn.

“Another 12 of those license-holders approached us, so we had 14 stores live during the lottery period of cannabis licensing,” he explains.

This lottery got the brand to step out strong. The lottery process was very democratic, but also very slow, meaning the black market still flourished. So the process was changed to open applications in later years. This also added to Tokyo Smoke’s growth.

Tokyo Smoke is known as “an award-winning cannabis retailer in Canada that has earned praise for its focus on design and customer experience.”

Mark enlightens us on why their customer service is so highly-rated, and it begins with the brand calling their budtenders “educators.”

“We spend a lot of time and effort ensuring that our staff of educators are really well versed on all aspects of cannabis consumption… That translates into a very different experience for our customers. They have the ability to ask about the product and receive real insight into the effects, the heritage of strains, terpenes, the impact of cannabis, etc. The experience is much richer than just a transaction.”

He goes on to emphasize the importance of a consumer’s purchase intent. A staff member must think about why the shopper wants to achieve a certain sensation. Then you can bring the how into play:

“Once you understand what the intent is that they are hoping to achieve, you can then look at what format the cannabis can be delivered in. Are they looking for pre-rolls because they aren’t interested in rolling their own? Or flower because they are more experienced and do want to roll—or vaporizers, edibles, beverages?”

The brand divides the store into 5 cannabis intents:

  1. Go (highest energy)
  2. Rise (creative, inspiring)
  3. Equalize (balanced CBD/THC)
  4. Ease (high CBD products)
  5. Pause (heavy relaxants)
“Merchandising this way helps the customer find the right type of product for them, and from there, items are organized by consumption method. An educator’s job is to tailor their advice to the customer’s journey. There are thousands of products licensed by Health Canada, so narrowing it down to the ones that are relevant is important to us. Otherwise, the sea of options can be overwhelming, especially to those with little to no experience.”

This approach helps consumers understand the different effects and lets more advanced customers grasp an understanding of the entourage effect. It gives them a better idea of how they can consume cannabis and how it fits into their lifestyle.

“We provide information about the product’s terpene content as well and allow for customer reviews which help us keep all our intents accurate,” he states, knowing that customers rely heavily on the in-store and online product displays.

COVID-19 changed ordering methods for cannabis consumers.

Until the impact of COVID, the ability to purchase cannabis online was only allowed on a province-run organization called the Ontario Cannabis Store. If you wanted to buy online, you would purchase through that website and it was delivered to you 1-2 days after purchase via post. When COVID hit, only the essential retailers could stay open. At first, cannabis wasn’t deemed essential, but the consumer demand created the need for online ordering from the retailer.

“That’s when we partnered with Dutchie to create a website for each of our stores,” Mark concludes and further explains, “Up until then, cannabis retailers were only allowed to sell the product directly to the customer in the store. That began an influx of pickup and delivery orders in Ontario. It expanded the regulations and possibilities in our province.”

We fully expect “curbside” ordering to become permanent.

In Canada, curbside transactions are rarely made at the curb. Instead, Tokyo Smoke has cultivated such a connection with their consumers, that they prefer to come in and chat.

“I call it “click and collect,” Mark says, “because customers would often prefer to pick their order up inside rather than the carport. I’m certain it’s here to stay, we are just waiting on the province to catch up with legislation. I think they will wait until we are clear of COVID restrictions to do that.”

Regulations and changes over time: Cannabis 1.0 v. Cannabis 2.0

Outside of COVID, the other recent change was about the types of products that retailers could sell in Canada.

For those of us not familiar, Mark explains how the cannabis evolution in Canada rolled out in two phases:  

“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 really widened the consumption methods and legal product variety in Canada. Particularly, vaporizers, edibles, and beverages are now growing in popularity too—which is a new phenomenon. Many people don’t wish to smoke, so having non-smoking options opens the market up to new users.”

Although this change occurred in October 2019, there is always a lag time between production approval and products being ready for wholesale because producers need to make, perfect, and package their products before having them approved by Health Canada. So, Mark notes, in his friendly demeanor, that they didn’t see these products until 2020 and 2021.

Cannabis trends for our neighbors to the north.

Mark kindly shared his observations on the changing trends that the Ontario market is now seeing. Like in the US, customers are craving higher THC, and the lower THC products (besides CBD-rich products) are becoming less popular among consumers. He also points out:

“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 were launched, we saw a huge increase in sales. Beverages spiked during summer when people wanted a cold drink, and that has continued once they started liking that method of consumption. It is also a product you can sip on at your own 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.”

To grow at this rate, a retail chain must have a plan to streamline opening new locations.

Mark points out Tokyo Smoke’s success has a lot to do with its carefully selected locations. The company chooses high-profile locations to get its brand seen. For example, their flagship store at 333 Yonge Street is located in the “Times Square” of Toronto. This strategy, plus strong customer experiences, is Tokyo Smoke’s recipe for success. Most recently, the franchise has branched out to malls as well.

“We were the first brand to open a store in an indoor mall, in some of the most prestigious malls in Ontario. The fact of the matter is that malls are not as busy due to COVID, but it shows our commitment to the industry that we’re not just interested in what is happening now but we are interested in the business going forward. It also helps remove the stigma by placing our brand next to major retail names, like Saks 5th Ave. I think having a brand like Tokyo Smoke in some of the most important malls in Canada next to some of the biggest names in retail, really expands people’s understanding of cannabis as a retail option.”

Currently, Tokyo Smoke Ontario operates 5 locations in malls and has 4 more planned to open by February 2022.

Besides hard-to-miss locations, Tokyo Smoke pointed out some other growth strategies:

  • Strong relationships with licensed producers give retailers an advantage. You can know what new products are coming and use consumer behavior to meet the demand.
  • When working in a franchise, the brand vision needs to be very clear, so it can be consistent among all the stores. For this branding task, Tokyo Smoke uses an operating and store design manual called the Green Book:

“Our stores are described as the ‘Apple stores’ of cannabis in Canada. High-end displays, and a consistent shopping experience and education for all of our customers, offers a similar high-level look and feel.”

Mark elaborates on the inviting design of the stores.

He says that it starts with the modern choice of materials, metal, glass, and marble—so the store is colorful and interactive for shoppers. Creating a welcoming vibe is also key.

“We limit the use of video screens so customers can connect with the products. Our stores are focused on being retailers, letting customers see the products and showcase accessories, read information while browsing: about the product, the brand, and the method of consumption. One of the biggest benefits is that it does not intimidate customers who may be new at trying out cannabis. It feels warm—no ego, just educational. We’re ready to talk to everyone at any point in their consumption journey.”

The AGCO audit with Dutchie Ecommerce helped Tokyo Smoke track for compliance.

You may be wondering what this accreditation really means. It means that all of the Dutchie Ecommerce tools are safe to use, maintain compliance for your operations, and keep your business information and your customers’ information secure.

For the VP of Operations at Tokyo Smoke, “[The audit] makes record-keeping way easier and helps us feel confident on the back-end of our business.”

Mark Hillards
About the author
Kat Kuchtjak