Independent vs. Franchise Retailers
May 1, 2024
Did you know that many of the large corporate retail cannabis franchises make more money selling “data packages” than they do selling cannabis?
As an example of a large franchise retailer: from Value Buds own investor deck their corporate strategy is to operate on an unsustainable profit margin in the short term (even operating at a loss on many products) to intentionally and strategically and undercut independent retailers who cannot compete with their corporate deep pockets. Once they put many independent retailers out of business, these franchises will then raise their prices to a more sustainable (profitable) level. These are essentially the same predatory pricing tactics many big box stores use to drive out competition which ultimately creates less diverse industries and destroys the local economies of our communities.
According to a recent article by Stratcann, “Cannabis retailer Nova Cannabis Inc. (who owns the Value Buds retail chain, among others) reported its first year of net revenue in 2023… the company saw some of its largest increases in revenue from the growth of its “data licensing program.”” This “data licensing program” essentially provides a loophole in the system, allowing the franchise stores to operate on a “pay to play” model where cannabis producers are required to purchase proprietary “data packages” to get on their shelves. The thing is, most of the smaller micro-cultivators simply cannot afford to play this game, which is why you will be hard-pressed to find a lot high quality, small-batch products on the shelves at these franchise stores and, in a sense, this model actually works in favour of the smaller independent retailers who are focused on presenting high quality craft cannabis products by these smaller producers!
Reference:
Some jurisdictions are starting to crack down on this scheme. In Ontario, regulators issued a $200,000 fine to Cannabis Xpress for alleged “data deals” claiming “violations of the province’s rules that disallow cannabis stores from asking for or accepting inducements from cannabis producers as a condition of selling or giving preferential treatment to products in their stores, also known as paying for shelf space.”
Reference:
https://stratcann.com/news/ontario-issues-200000-fine-for-data-deals-to-cannabis-retailer/
We would like to offer you some inside secrets of the cannabis industry to show that comparing franchises to many independent retailers is not an apples to apples comparison. While the franchises are marketing themselves on the lowest price model, at Enlightened Herb, we believe that what customers are actually looking for is value, meaning the highest quality products at a fair price, and that these factors represent TRUE VALUE.
INDUSTRY SECRET #1
In Alberta, all cannabis retailers, regardless of size, have to order all of their cannabis products directly through the AGLC as the sole distributor of cannabis in the province. All stores order from the same order form, which lists the products and number of cases available each week. If there are only 100 cases available of a product and 200 stores try to order that product, we go into a lottery and retailers are not guaranteed their inventory. Because the larger franchise stores are operating on a “lowest price” model, they need to sell on volume in order to make money, therefore the majority of the product on their shelves is cannabis grown by mass producers who are releasing a large number of cases to the market. This cannabis is typically grown in large facilities with the use of pesticides, the cannabis may not be properly flushed or cured and is often irradiated, and the cannabis is trimmed using large trim machines that knock all the trichomes off the plant (where all the good stuff is!), which they then process into concentrates such as hash or kief.
Conversely, the best cannabis on the market is typically grown by passionate micro-cultivators who got into the cannabis business for the love of the plant. They grow in small batches, emphasizing quality over quantity and use superior cultivation techniques to ensure optimum growing conditions for their plants, and hand-finish their products to bring forth the best aromas, flavours, and effects and preserve the delicate trichomes of the plant. Because these producers are growing in small-batches, it means only a small number of cases are released to the market, which means they often fall under the threshold that larger franchises need to take a chance on winning the lottery on these products. This is why you will typically only find these superior products at smaller independent retailers, and why we a hyper-focused on Craft Cannabis products at Enlightened Herb. In other words, we can confidently say “We’ve Got the Good Stuff!”
INDUSTRY SECRET #2
For independent retailers who are hyper-focused on craft cannabis products, our menus rarely overlap with the larger franchises, meaning you cannot compare prices between craft-focused, independent stores and franchise retailers because we are talking about different products and a different calibre of quality. At Enlightened Herb, if we order ten products of the finest craft cannabis on the market and we only win the lottery on eight, we are still happy because our shelves are filled with only the best products.
INDUSTRY SECRET #3
Independent retailers generally operate on a different set of values than the corporate franchises. We are small businesses created by passionate individuals who want to make a positive impact in our communities, which contrasts greatly with the corporate greed model of the franchises. Independent retailers are more focused on quality, education and community. We are typically integral members of our communities, we have a passion for the industry and are more focused on customer service, ensuring you have a better experience both in store and with the products you consume.
In addition to providing access to higher quality products and services, research shows that supporting local, independent businesses creates more than double the economic impact of chain competitors. For every $100 spent with a local business, $63 is re-circulated back into our their economy (vs $14 for multinational corporations). They re-circulate 4.6 times more revenue in the local economy:
Local retailers re-circulate 63% compared to 14% for chains
Local restaurants re-circulate 68% compared to 30% for chains
Local suppliers (e.g. office supplies) re-circulate 33% compared to 19% for chains
For all these reasons, we will always advocate for:
SUPPORTING LOCAL
SUPPORTING INDEPENDENT
SUPPORTING CRAFT
SUPPORTING SMALL BUSINESS