Retail cannabis ban delivers blow to Donnelly Group’s Ottawa expansion plans

Hobo cannabis

The Ontario government’s decision late last week to change course and order pot stores to close in a bid to help halt the spread of the coronavirus feels like a bit of a double whammy to the owner of Hobo Cannabis.

Several weeks ago, Donnelly Group had to lay off 700 employees in its hospitality sector after physical distancing restrictions required it to close its pubs and nightclubs in major cities such as Toronto and Vancouver. 

Now, the Vancouver-based operation has been forced to shutter its brand-new Hobo Cannabis flagship store in the ByWard Market and halt a long-planned Ontario expansion drive in light of the province’s decision last Friday to pare down its list of essential businesses that can remain open during the COVID-19 crisis.

Harrison Stoker, Donnelly’s vice-president of branding, said the company is doing its best to roll with the punches.

“The rug got pulled out from under us, and then it beat us over the bottom,” he told OBJ on Monday afternoon, noting the company had to lay off 50 employees as a result of the retail ban. “The gust of wind that we had in our sails has reversed course, that’s for sure.”

The middle of a pandemic might have seemed, at first blush, to be the worst possible time to open a new retail store of any kind. 

With regulations shutting down all but the most essential services and public health officials pleading with Ottawans to stay home to prevent further spread of the novel coronavirus, businesses that rely on foot traffic are increasingly at great risk.

But it’s a risk that Hobo Cannabis felt it had to take to gain market traction after a tumultuous first year for the industry in Ontario.

The pandemic has served to compound the industry’s struggles since the brick-and-mortar cannabis market first launched on April 1, 2019. Producers and store operators alike have bemoaned the slow rollout of licences through the province’s licencing lottery, a system which Ontario has since scrapped in favour of a more merit-based application program.

Before the Ontario government announced its lottery approach, Donnelly had dozens of lease offers on potential storefronts ready to go. In an interview with OBJ before Friday’s update from the province, Stoker said the company was “feverishly excited” about tackling Ontario’s newly opened market, where the company announced plans earlier this year to launch 15 stores, largely concentrated in Ottawa and the Greater Toronto Area.

Then, with COVID-19 shutting down retail stores left and right in March, Stoker told OBJ last week the company’s executives initially wavered on whether to continue with the expansion blitz.

“We had to really ask ourselves, ‘Do we continue to grow?’” he said.

Hospitality business shuttered

With its nightclub business sidelined, the Donnelly Group’s cannabis stores ​– it also has retail operations in Alberta and British Columbia that remain open ​– became not just a growth opportunity, but integral to the company’s longevity.

“What we realized pretty quickly was, the future of the group rested on cannabis’s shoulders,” Stoker said.

“We put the pedal down even further to see how quickly we could get a couple stores open with the understanding that, provided we're operating them in a safe and responsible manner, they would become a source of income to float the rest of the company, hopefully.”

Now, much of that potential revenue stream has dried up, at least for the time being. 

Stoker said Monday his company is banding together with other Ontario pot retailers in an effort to convince the Ford government to put cannabis back on its list of essential services – or at least permit private retailers to offer curbside pickup and delivery. They hope to find out this week if their lobbying is successful.

New environment for cannabis retail

In each of Hobo’s operating markets, the provinces have a monopoly on online ordering. While Canada Post has put a temporary hold on door-to-door cannabis delivery and any other packages that require age verification, consumers can stop in at post offices to pick up their orders.

Stoker said the COVID-19 regulations, while prudent for public health, will present illicit market dealers with a “silver platter.” He believes that provinces would be wise to open up online orders to licensed private retailers in an effort to boost their sales and reduce the black market’s hold over the cannabis sector during the crisis.

“We’re trying to get a little piece of that pie,” he said.

“We are really hoping that some provincial regulators make some move to enable private licensed cannabis retailers like ourselves to take advantage of online sales and delivery, especially in this time, where it's more important than ever to be able to bring the access to the doorfront.”

– With additional reporting by David Sali