6 minute read 25 Apr. 2018
EY - Cannabis in jar

Six questions to ask about the retail cannabis market

Authors
Lance Mortlock

EY Canada Managing Partner, Energy

Forward-thinker. Strategist.

Monica Chadha

EY Retail Consumer Products and National Cannabis Leader

Defining success in dynamic industries. Passionate about creative writing and health and wellness.

6 minute read 25 Apr. 2018

The opening up of cannabis as a legal industry in Canada will be a signature development of our era. But how do you succeed in a largely undefined retail landscape?

When we look back at transformative shifts in the retail market, the introduction of cannabis as a legal industry in Canada will be a signature development of our era.

This long-anticipated move has created an entirely new sector of the formal economy, bringing enormous opportunity for Canadian retailers looking to lead. But how do you succeed in a largely undefined retail landscape?

It starts with a comprehensive market entry plan. With provincial regulations varying from full privatization to government-run cannabis stores, retailers must adapt their strategies to geographic-specific legislation, taking into consideration that their ability to adapt will be an integral part of their success — to changing legislation, taxation, and customer preferences.

Organizations that successfully capitalize on the potential for first-mover advantage in the market have the chance to become household names and key players in this new space.
Monica Chadha
EY Canada Cannabis Leader

The hype surrounding the cannabis market may make it seem like any retailer who can secure a license will experience success. But it’s the way that retailers define and execute their chosen strategies that will determine their ability to compete in the long term.

Success in retail cannabis will take a lot more than just securing a license, complying with regulations and setting up shop in a desirable location. Cannabis retailers will need to convert current customers of the established illicit market, while also compelling curious Canadians of the safety, convenience, and customer experience of the legal market.

Getting there means retailers need to craft customer experiences that delight their clientele by offering captivating customer service, omni-channel touchpoints, and quality product offerings. They must also build agility and resilience into their operating models, especially in the early days as the government continues to evolve tax policies and regulations. Companies that fail to be flexible will not struggle in this undefined market.

Success in Canada’s budding cannabis industry relies on having thorough knowledge and a clearly defined strategy, operating model, customer experience, government and stakeholder relations, community and social responsibility focus, and commitment to open innovation and collaboration.

Asking these six big picture questions now – and drilling down with the right follow-ups – can help you make the most of this emerging market opportunity:

1.  Where will we focus in the market – cost leadership, product leadership, or the best total customer solution?

Groundwork should start by creating a well-defined strategy anchored on an aspirational purpose. That’s how you establish the company’s overarching direction, set a clear vision for who you want to be, and how you’ll achieve it. The strategy aligns a company’s purpose with a set of design principles defining how it will operate. This early strategic thinking can make a difference in long-term success. Purpose-led companies have outperformed the S&P 500 from 1996 to2011 by a margin of 1,000%, and 75% of global consumers say they’d recommend a purpose-led company.

2.  Is our operating model dynamic enough to respond to a still-changing environment?

The operating model is the backbone of the business. It’s critical to building and scaling a successful customer experience. But how do you define it when the market is still nascent? The government opted for a phased approach to cannabis legalization, and consumption methods are evolving quickly. These factors converge and diverge on various points of the seed-to-sale spectrum, making it critical for both licensed producers (LPs) and prospective retailers to build robust operating models that allow for easy adjustments to product development and customer delivery channels.

3.  How will our customer experience set us apart?

More than ever, consumers actively search for product differentiators such as quality, price, design, and branding before they buy. Cannabis isn’t be any different, especially given that it is a newly legalized industry where there will likely be an influx of first-time consumers. Companies must create experiences that are continuously evolving, forward-looking, personalized and holistic along three platforms — social, physical, and digital. Factoring in elements like anytime, anywhere customer service; low costs; educating and empowering front-line staff; and making customer connections convenient and immediate can all play a part.

4.  Are we hyperaware of regulatory changes?

The novelty of the cannabis industry means less regulatory certainty and more regulatory scrutiny for retailers. Companies must stay hyperaware of regulatory changes to ensure they remain compliant. Retailers need to identify their key stakeholders, proactively reach out to them, hear their concerns, understand what is and isn’t working, and act when appropriate with transparency and accountability. Key stakeholders will vary from retailer to retailer, but could include landlords, lenders, owners and community groups. Listening and proactively engaging with them will be a key leap in stepping away from the shadows cast by the illicit black market. Planning and preparation, execution, and a clear feedback loop should figure prominently in your stakeholder relations plan. 

5.  How are we investing in community engagement and social responsibility?

Breaking the cannabis stigma should be a critical part of the go-to-market platform of any retailer or customer-facing brand. Some of the strongest platforms to help change the image of cannabis and improve adoption into mainstream lifestyles are effective community engagement and genuine social responsibility. While the research on the benefits and importance of both varies, several key themes emerge: improving trust and public image; increasing the likelihood of public acceptance; creating opportunities to discuss concerns; and empowering the public through education. Community engagement and the establishment of corporate social responsibility – as well as careful reputation management – are crucial to any retailer’s competitiveness, social acceptance, and long-term sustainability.

6.  How are we fostering open innovation and collaboration within and beyond our organization?

Open innovation seeks to bring in diverse thinking and ideas from outside the organization, and go beyond internal channels to commercialize them. This type of thinking must be incorporated into the organization’s culture to create products and services with consumer appeal. To become and remain competitive, organizations must start looking outside to create platforms that bring different organizations together. We’ve already seen many examples of this in the cannabis industry, such as licensed producers partnering with technology companies to deliver seamless services to their consumers, such as on-demand online prescriptions. Remember: most innovation comes from outside the company, not from within.

Start building your foundation for long-term success today.

The legalization of cannabis presents an enormous challenge and opportunity for Canadian retailers. Organizations that successfully capitalize on the potential for first-mover advantage in the market have the chance to become household names and key players as the cannabis industry continues to develop in the coming years. Beyond this, these businesses have unprecedented access to a larger stage as the world watches Canada step into exciting, uncharted territory for a G20 country.

Organizations must tactfully develop their market entry plan to fully realize this opportunity, taking into consideration the need for a strong strategy and dynamic operating model, the potential to differentiate in customer experience, the importance of robust stakeholder and community relations, and instilling values of innovation to succeed over the long term.

Summary

The legalization of cannabis presents an enormous challenge and opportunity for Canadian retailers. Organizations that successfully capitalize on a first-mover advantage have the chance to become household names and key players as the cannabis industry continues to develop in the coming years. Developing the right market entry plan based on six key components is a good place to start.

About this article

Authors
Lance Mortlock

EY Canada Managing Partner, Energy

Forward-thinker. Strategist.

Monica Chadha

EY Retail Consumer Products and National Cannabis Leader

Defining success in dynamic industries. Passionate about creative writing and health and wellness.