As Ontario’s proposed cannabis retail plans may irk producers that are capped to just one storefront, Ottawa-based CannaRoyalty Corp. is aiming to make itself a leader in the province with its move to buy a vape shop chain.
CannaRoyalty is purchasing 180 Smoke for $25 million with an additional $15 million to be awarded upon completion of certain targets by the end of 2020, the company said in a statement released late Thursday.
In an interview on BNN Bloomberg, Afzal Hasan, president and general counsel of CannaRoyalty, said the purchase will help it draw customers as 180 Smoke’s established base of users are already aware of smoking products through vaping.
“When we took a look at the customer streams that were coming through the door in various businesses, 180 Smoke was appealing because they surveyed their customers and 80-per-cent-plus were cannabis users too,” Hasan said. “It’s a very interesting, captive market.”
180 Smoke and its subsidiaries, including 420 Wellness, currently have 26 locations in Canada – 15 of which are in prime locations throughout Ontario – that sell vaping, nicotine-related products and parts.
Marijuana for vaping – along with other pot products like edibles and beverages – will remain banned until October 2019 when Canada legalizes the drug next month.
“180 Smoke has already targeted prime locations where … they see large amount of foot traffic and pedestrian attraction into these stores,” Hasan said.
CannaRoyalty said it expects the “vast majority” of 180 Smoke’s retail portfolio to be eligible for retail cannabis sales after marijuana becomes legal on Oct. 17. The vape chain’s revenue grew more than 50 per cent in the eight months to August from a year ago to $6.78 million, CannaRoyalty said.
“When we took a look at this market and also started to see extremely onerous restrictions on advertising and marketing taking place, we realized that retail is when you’re going to win consumers in Canada for cannabis products,” Hasan said.
CannaRoyalty’s acquisition comes after Ontario introduced legislation Thursday governing the licensing and regulation of the province’s private cannabis retail model, which is scheduled to be in place by next April.
While Ontario’s new regulations will limit cannabis producers to just one retail storefront at their production locations, effectively putting the brakes on their provincial retail plans, some industry observers suggested they could use a franchise model to circumvent Queen’s Park’s legislation. Even so, Hasan poured cold water on the viability of a cannabis franchise model succeeding in Ontario over the short term.
“The benefit of franchising typically tends to be buying a brand that’s recognized and pulling customers in the door,” Hasan said. “In the cannabis industry right now, it’s very hard to see a franchise that could see that customer pull power just yet. Maybe in a year or two or three, that could be the case.”
Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.
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