How Canopy Growth's retail exit drives home 'very, very difficult' pot economics

In the early, heady days of cannabis legalization, owning a licensed pot store was seen as an easy way to make money. Today, it’s seen by many as a liability.

That sentiment was thrust into focus this week after Canopy Growth Corp., one of the biggest and most capitalized cannabis producers in Canada, announced it would divest its 28 Tokyo Smoke and Tweed retail shops to OEG Retail Cannabis, a firm controlled by Edmonton’s Katz Group, and Alberta’s 420 Investments Ltd. for an undisclosed sum. 

While the divestiture represented another attempt by Canopy to turn itself around and seek profitability following a series of money-losing investments, it also offered yet another example of how fraught Canada’s cannabis retail sector has become since the federal government legalized recreational sales of marijuana in Oct. 2018. 

“The majority of these retail businesses were built off of a model that wasn't going to be sustainable when we started to see pricing compression in addition to not being able to control the cost of goods,” said Krista Raymer, founder of retail consultancy Vetrina Group, in an interview. “The [retail] business structure was largely unknown and didn't plan for the flexibility when we would see more competition.”