Exclusivity, discount bud and a Costco-style membership model are a few ways retailers are competing with the illicit market.

Around October of last year, the legal cannabis industry reached a turning point in Canada’s most populous province.

“Just like the Kirkland Signature (a private brand by Costco), we make our own accessories,” Grover says.

That distinction is one element that separates High Tide from other retailers. With the discount club concept, the company offers accessories to Canna Cabana members for up to 70 per cent off. And though consumption accessories make up about one to two per cent of sales for most retailers, for Canna Cabana it’s closer to 4.5 per cent, and Grover expects that to rise. 

“We see this increasing now with the club concept because we are going to shut down the sale of consumption accessories in Canada so we’re going to make it very exclusive to Cabana club customers only,” he says. “Wholesale is very much a secondary business for High Tide and now given the opportunity to create this club environment we’ve carved out these accessories only for our members.”

In mid-April, the company began piloting the club concept at three stores, offering exclusive discounts on THC and CBD products, as well as accessories. Over a six-month period, the sales of THC products increased 100 per cent, accessories by 184 per cent and loyalty by 227 per cent, Grover says.

Ultimately, he adds, the plan is to convert customers who still rely on the illicit market into the legal system.

“About 50 per cent of our sales are still happening in illicit channels. It’s not good for our company or for the market in general, or for the consumer in general, because these products are not safe, nobody’s doing testing of these products,” he says, adding that he would “welcome other legal retailers to come into the value segment to take down the illicit market quickly and efficiently.”

Late last year, the company began rebranding its stores in Ontario, Alberta and Saskatchewan as Value Buds. Bright and airy, the locations hold huge inventories and sell most products below the prices available from the provincial wholesalers. A recent visit to a Toronto location, for example, advertised 28-grams of Broken Coast’s Stargazer for $186.97. The same product is listed for $249.95 on OCS.ca.

Darren Karasiuk, the chief executive officer of Nova Cannabis, declined to comment for this story ahead of the company’s Q3 earnings report, but in August he said the conversion to Value Buds was allowing the company to acquire “market share at an aggressive pace.”

“Value Buds is clearly resonating with Alberta cannabis consumers and drawing customers from the illicit market as well as legal cannabis retailers. All signs suggest that our high-volume value-conscious consumer strategy is disrupting the market, and we expect to benefit disproportionately from the growth tailwinds in our markets.”

Nova is majority-owned by Alcanna Inc., Canada’s largest private liquor retailer, which was acquired by Calgary-headquartered Sundial Growers in October in a $346-million deal. That deal follows Sundial’s acquisition of cannabis retailer Inner Spirit Holdings , which operated more than 100 stores across six provinces.

In September, Ontario passed the 1,000 store mark, a measure that OCS interim president and CEO David Lobo warned about in the OCS’s 2020-2021 annual report. 

“Unfortunately, this rapid growth will likely result in some retailers being faced with increased competition and a crowded marketplace, which could result in some closures and market right-sizing,” he wrote in the report’s introduction. “Other retail stores may choose to participate in mergers and acquisitions to increase their size and scale, and presumably drive down their operating costs. However, at the core, all retailers will be challenged to further drive a relentless focus on targeted consumer segments and differentiating themselves from others.”

In an effort to stand apart from its competitors in the area, Axes had dedicated its interior wall space to paintings, photography and mixed medium pieces from local artists. The kind of neighbourhood touch that smaller retailers can provide.

“I figured, why not let people influence the interior of our store since we’re influencing the city and Queen Street with another cannabis store?” shop manager Jessica Zepeda told The GrowthOp  earlier this year.

But it wasn’t quite enough. In August, the store announced it was closing and it began clearing out its inventory, offering products at a 30 to 50 per cent discount. And though those sales quickly drew a crowd of price-conscious consumers to the shop, ultimately both the discounts and the customers arrived too late to save it.