Cannabis café a hazy relic as marijuana’s new retail paradigm takes over

Peter Horvath does not particularly like the idea of a cannabis cafe. He does not like a lounge either — or a bar, or any place to buy and sit and use cannabis.

“It sounds like a repulsive experience to me,” the chief executive of Green Growth Brands, a cannabis producer with a burgeoning retail division, said over the phone from Columbus, Ohio.

Low-margin cafes and smokey consumption lounges, Horvath said, are just impractical. “So how do you make money?” he asked. “It’s like saying, ‘I want to own bars.’ Have you ever watched a Bar Rescue episode? What a mess bars are.”

For decades, the gritty, hazy coffeeshops of Amsterdam have been an archetype of legal cannabis sales. But with restrictions on where you can consume cannabis yet to be sorted out in Canada — and indoor smoking likely a non-starter — the café’s cachet has been giving way to another paradigm: the sleek, sophisticated retail outlet.

“I guess I still sort of struggle to understand what a cannabis café is,” said Trevor Fencott, chief executive at Fire and Flower, a chain of cannabis stores mostly in western Canada, with locations set to open in Ottawa and Kingston.

“Are we actually talking about a bar or restaurant that also serves cannabis?” Fencott said. “Because that’s potentially interesting versus a cannabis consumption lounge where the only thing on offer is for me to sit in this room and consume cannabis.”

Fire and Flower is one of the many cannabis retail operations that have drawn comparisons to the Apple Store format — a comparison Fencott shrugs off, saying it’s only because his stores follow basic retail design concepts and are “bright and inviting and safe.”

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He’d prefer if someone compared Fire and Flower to Whole Foods. Cannabis, at this stage, is more like a raw material than a product, he said, and customers need help understanding its different forms and uses.

“If you think about a Whole Foods customer who maybe doesn’t understand all the pieces of health food,” he said. “They need some help in the beginning. And Whole Foods becomes their guide on that healthy living journey. So it’s similar in that way.”

Tokyo Smoke is a growing retail network owned by Canopy Growth Inc., with four cannabis stores in Manitoba.

It also has six coffee shops in Toronto and Calgary — but there’s a catch.

The cafés are designed to introduce the brand to consumers in markets where the company doesn’t yet have retail licences. The shops sell coffee, and Tokyo Smoke-branded clothes and cannabis accessories, but no cannabis. The plan is to convert them into dispensing stores if licences become available.

Felicia Snyder, Senior Vice President of Tokyo Smoke brands, said she does believe the concept of pairing coffee and cannabis makes some sense, in part because there’s something similar about people who are serious about coffee and people who are serious about pot.

She said she’d consider getting a consumption licence for a coffee shop — if such a thing exists in the future — but only if a retail licence isn’t available.

“I don’t necessarily think that this idea of consumption lounges is the end-all be-all,” she said.

What’s clear is that tastes are already shifting away from smoke and vapour, toward “derivative” products like cannabis-infused food and drink.

“I actually think the long-term goal is to have cannabis products available for purchase in regular restaurants, bars, cafes, concert venues,” Snyder said.

Even the Second Cup, which last year entered into a “strategic alliance” with National Access Cannabis (NAC), to turn some Second Cup locations into “dispensaries and lounges,” does not appear sold on the cannabis café concept.

While the agreement allows for the two companies to “explore” the prospect of adding Second Cup-branded cafe element to cannabis stores, when regulations allow for it, for now the plan is retail only, said Matt Ryan, NAC’s vice president of marketing

Lawmakers are expected to make room for some form of cafe in the coming years, but it’s not yet clear what the rules will allow.

In most provinces, cannabis stores are currently confined to selling cannabis products and accessories, and in most jurisdictions are restricted from allowing consumption on the premises.

Once the federal government releases its rules on cannabis edibles and concentrates in October, she said it’s likely provincial and municipal legislators will start to turn to regulating public consumption — a process that could take “years,” said Brenna Boonstra, who leads the retail division at the consulting firm Cannabis Compliance Inc.

In the interim, there will be consumer confusion, said Abi Roach, owner of the Hotbox Cafe in Toronto’s Kensington Market (billed as the longest operating cannabis lounge in Canada). Through the transition to legalization, she said her lounge has served as an “educational post.”

“People come to us; they are lost,” said Roach. “The government should be really looking for us to assist them in doing this. They should be opening their minds, and not closing them, to the idea of cannabis cafes and cannabis lounges.”

For Horvath and Fencott, and others approaching cannabis from a big business point of view, the economics of retail are hard to argue to with.

A cafe serving edibles — which currently are slow to take effect — would not have the same turnover rate as a bar serving alcohol, Fencott said.

Fire and Flower stores also have the advantage of being able to sell high-end accessories and “do-it-yourself” equipment, like rosin presses for cannabis extractions.

“Certainly accessories are much, much higher mark-up,” Fencott said, “than regulated products like cannabis.”

That question, of profit margins, is what nags at Green Growth’s Horvath, who spent decades helping run major retailers like Victoria’s Secret and American Eagle Outfitters.

“I think the people are talking about (consumption lounges) because they don’t actually understand how to make money,” he said. “How much are people going to spend? I mean, sure you could mark everything up. You can have small units, you can have high-margin product. But is that really a business model?”

“Maybe it’ll work,” he said. “But nobody is going to be a multi-billion dollar valuation based on that.”

Horvath said he is happy to leave the concept to someone else.

“I think lots of people will do it,” he said. “Good luck to them.”

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