Cannabis retailers know a not-so-hidden truth: Customers prefer purchasing weed from nearby locations whenever possible. Recent research focusing on Canada's regulated cannabis market reaffirms this belief, as it indicates that consumer proximity to government-regulated stores significantly raises the likelihood of people opting for legal market products.
As MJ BIZ first reported, the forthcoming paper, scheduled to be published in the Journal of Studies on Alcohol and Drugs, delves into the correlation between the distance of Canadian cannabis users from regulated retail stores and their decision-making process in acquiring marijuana products.
Of particular significance to the cannabis industry, the research revealed that participants residing within a distance of fewer than 3 kilometers (approximately 1.9 miles) from the nearest regulated marijuana retailer displayed a higher tendency to obtain cannabis from a legal store. Conversely, they were less inclined to acquire it through a regulated website, one of the alternative methods reported by survey respondents.
Elle Wadsworth, the lead researcher of the paper during her previous role as a postdoctoral student at the University of Waterloo and the Canadian Centre on Substance Use and Addiction, and currently a senior analyst with Rand Europe, noted that the findings suggest a potentially diminishing effect over time in terms of the proximity's influence on consumer behavior.
According to Michael Armstrong, an associate business professor at Brock University in St. Catharines, Ontario, who specializes in studying Canada's regulated cannabis market (and was not involved in Wadsworth's research), the abundance of cannabis stores might lose its impact unless they are in very close proximity. The study highlights the significance of convenience for Canadian cannabis users. Having at least one store close to consumers' residences could be a critical factor in driving them toward the legal market.
Armstrong suggested that retail chains in the cannabis industry should pay close attention to the study's findings, which indicate that a distance of approximately 3 kilometres holds significance for consumers. When planning store locations, this proximity factor should be taken into account.
However, Armstrong emphasized that while proximity is essential, other factors also play a crucial role in-store placement decisions. One key consideration is the financial viability of each location. Retailers must assess whether they can generate sufficient revenue to support the number of stores in a given area.
Additionally, finding the right balance between store density and profitability is vital. Retailers must determine whether concentrating stores in a specific area (higher density) or spreading them out across different regions is the more effective way to maintain profitability.
The Three-Kilometer Effect
The study investigated the impact of regulated cannabis store proximity between 2019 and 2021, encompassing the first full year following Canada's legalization of recreational marijuana in October 2018. To conduct the analysis, data from 15,311 Canadian cannabis users were utilized, and their locations were sorted based on postal codes. It's worth noting that Canadian postal codes generally represent much smaller geographical areas compared to U.S. ZIP codes.
The researchers investigated the various sources from which cannabis users obtained marijuana, including regulated stores, illicit stores, regulated websites, illicit websites, illicit dealers, home production, and acquiring from family and friends.
The study revealed that individuals residing within a distance of fewer than 3 kilometers from a regulated brick-and-mortar cannabis store were less inclined to purchase cannabis from regulated websites or engage in home cultivation than those living farther away.
According to the paper, the distance to the nearest legal store did not significantly affect sourcing cannabis from friends or family, dealers, illegal websites, or illegal stores. The lack of correlation might be attributed to these relationships being established before cannabis legalization.
The study highlights an interesting finding by comparing Alberta to Quebec, indicating a seemingly diminishing effect of reducing cannabis store distance for consumers. In 2021, Alberta's open market approach for private-sector cannabis retail resulted in a high density of cannabis stores, with 18.7 stores per 100,000 residents. On the other hand, Quebec's government-owned retail monopoly had a considerably lower density, with just 0.8 stores per 100,000 residents.
While Albertans did exhibit a higher likelihood of obtaining cannabis from regulated stores compared to Quebecois, the difference was not particularly substantial, with Albertans being only 1.6 times more likely to do so.
The study pointed out that the disparity could be attributed to the distinct approach taken in the two provinces. In Alberta, the market-driven approach resulted in a significantly higher number of stores per capita. In contrast, Quebec's government-planned retail store locations were strategically distributed to align with the population distribution, leading to a more geographically diverse setup.
The researchers also determined that Canadian respondents lived closer to regulated marijuana stores in 2021 than in 2019 – an effect explained by the increase in adult-use marijuana stores across Canada during that period. Additionally, regulated stores became the most common source of cannabis in 2020 and 2021, compared to family and friends in 2019.
Wadsworth said that's "important for legalization," noting, "The whole aim is to bring people into that legal market, and our paper shows that the movement seems to be there."
Finally, the research found that a higher proportion of respondents sourced cannabis through regulated channels – and a lower proportion sourced it through the illicit market – in 2021 versus 2019, in line with one of the stated objectives of Canada's recreational cannabis-legalization law.
The Impact of Consumer Proximity on Cannabis Store Selection
The association between consumer proximity to regulated cannabis stores and their likelihood of shopping at those stores may not surprise cannabis retailers. However, according to business professor Armstrong, who spoke with MJBizDaily, it is a groundbreaking finding in academic research.
This study marks the first time researchers have delved into this question, confirming that having a legal store nearby significantly increases the likelihood of consumers purchasing cannabis legally. Armstrong's prior research has already established a link between the number of legal cannabis stores in Canada and increased sales of legal cannabis.
From a business perspective, this finding is crucial, but it holds even greater importance for regulatory or government-policy considerations. Having a legal store nearby seems to drive more consumers into the legal market, aligning with the objectives of cannabis legalization efforts.
It's worth noting that the 3-kilometer distance used in the study represents a straight line between a respondent's postal code and the closest retail store, which may not accurately reflect the actual travel distance. Armstrong cautioned against interpreting the 3-kilometer figure as a "scientific magic number." While minor differences, such as 3.1 versus 2.9 kilometers, may not significantly impact, longer distances like 6 or 7 kilometers may make legal stores less convenient. This can potentially sway consumers towards other sources.
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