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Alberta Cannabis legalization: what should retailers know?

By ATB Financial 19 October 2018 5 min read

Meet April Pyne—ATB’s Strategic Markets Analyst—as she weighs in on what producers and retailers need to know when entering the recreational cannabis industry.

 

Some words of warning and advice

“As an emerging industry in Canada, many are viewing it as an opportunity to get rich quick,” explains Pyne. “As with the producing side, we’re seeing lots of investors with money entering the industry who have no management experience. I would ask retailers, ‘Do you have a defined target market? Do you know how to manage inventory? Do you have industry relationships and partnerships?’ In this industry, it’s not just about having the money to be successful.”

Pyne also explains that for smaller retailers, entering the industry is still a shot in the dark. “You’re opening a business when the legislation is still being designed, costs are just estimates, we don’t know what strains will sell the best in your region or demographic, and you’ll still be competing with a highly developed black market. This is not going to be easy.”

This may seem daunting, but Pyne has a few suggestions for retailers to maximize their potential for success. With laws just being enacted now, things aren’t going to look the same three months, six months, or one year from now. “To be successful, you need to be embedded in this industry, to know how you can compete against large players who may have access to more resources.”

“Be up to date with what you can and cannot do. Just to remain competitive—let alone excel—you need to know! At a time when new information is coming out by the week it’s crucial to have partners to lean on and have conversations with so you stay in the know.”

Pyne says the cannabis industry is like any other industry—success relies heavily on who you know. “It’s an industry where you want a really strong network—with other retailers, producers, mentors, chambers of commerce—to leverage their expertise to remain competitive and innovative. For both producers and retailers, this is a must.”

 

Let’s talk financing

“We at ATB can finance cannabis retailers under the Canada Small Business Financing Program (CSBFP),” Pyne explains. “The program is available to businesses before your full licence is granted, with the intent of being used for the store build.”

“The big hurdle for retailers to receive additional financing at this point is that no one has a license yet. Between AGLC approval and the municipal development permit, we need to have confidence the business will be successful in getting that final license before we can offer financing.”

Opening a storefront has been a little complicated—up until October 17, it was illegal to sell recreationally, but retailers still needed to conduct business to prepare for opening day. “We want to help retailers be prepared,” adds Pyne, “so we do offer opportunities for them to open accounts and receive Mastercards now. And once they’ve received their licenses and are up and running, we can offer the same kinds of products that we’d offer any retail store.”

Because of the many nuances that come with legalization, additional due diligence and compliance reporting may be needed for financial institutions (FIs) to get behind entrepreneurs in the industry. This may cause some retailers trying to get licenses to assume that FIs are hesitant or purposefully putting up barriers to complicate the process. ATB’s Amanda Hiebert—Marketing Manager for Business Markets—presents a different perspective.

“From a financial institution’s perspective, compliance is necessary,” Hiebert explains. “In doing our due diligence, we’re also protecting the sector from getting a bad reputation in an already polarizing conversation.” Our experts unanimously agree and want retailers to know that this is in no way personal or an attack on entrepreneurs.

“When serious entrepreneurs with well-developed business and sustainability plans are the face of the sector, the conversation surrounding cannabis may turn around at a faster rate,” Hiebert adds.

At the end of the day, ATB supports Albertan entrepreneurs across all industries. “Given cannabis’ arrival to the business market, and its expected contributions to the economy and labour force, we’re here to help the entrepreneurs in the space not only succeed, but thrive,” shares Hiebert.

 

What to know about cash flow

We’ve said it a thousand times, but once more can’t hurt—this industry is very capital intensive. For retailers, this means that you need startup capital to get into industry, and to sustain yourself in those months before you can sell. “There are going to be pretty big supply shortages that are strain-specific,” warns Pyne.

So, how much should you have saved up? “Retailers need capital to sustain them in those first three to six months, because they may not have the supply to sell anything,” notes Pyne. “I’d recommend at least three months of liquid capital equivalent to their fixed operating costs.”

 

So, about October 17

“Everybody has been excited about the October 17 date—people started building up their storefronts, and purchasing property before they have a license,” says Pyne. But is all this hype well-grounded? Pyne begs to differ. “Just because you didn’t start on the same day won’t impact you in the long run,” explains Pyne. “The trendy coffee shop that opened up blocks away from two other coffee shops isn’t concerned that they didn’t open on the same day," Pyne illustrates.

She recommends that retailers take their time to be thorough and create a solid foundation for their business based on finances, industry expertise, and management, rather than rushing. “It’s not a sprint. Of the 700+ people who applied for a license, less than half will get it. On October 17, there weren’t 250 businesses opening their doors all at once.”

So if you’re feeling behind in the game, relax. “If you open your store a month after legalization, it won’t kill you or your business,” Pyne assures. At the end of the day—just like in every sector—a good business plan, paired with deep industry knowledge, strong cash flow and a great brand are what will set your business up for long-term success.

For more information on how to get the funding you need for your business pursuits in the cannabis industry, contact April Pyne for retail guidance at apyne@atb.com and Max Herrera for enterprise or producer level advice at mherrera@atb.com

 

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