Cannabis retailer Star Buds is expecting gains made during the pandemic will only continue once Canada emerges from COVID-19.
Licensed cannabis retailers were considered essential businesses during the lockdowns along with liquor stores, and Manitoba-headquartered Star Buds was a major benefactor of this. They started 2020 with one store and are set to finalize tripling their size in the coming weeks with the opening of a 3rd location.
According to John Arbuthnot, Star Buds co-founder and CEO, the bud is just beginning to bloom.
“There’s still a significant amount of growth left,” he said. “The government figures the retail sales market in Canada is likely $6-10 billion. Last year we hit $2.5 billion.”
He added it will likely take another two to three years to get to that point.
Perhaps the biggest step forward for the industry during the past 12 months is they are now able to compete head-to-head with the black market, due to lowering the cost of production.
It currently costs Star Buds 67 cents per gram to produce their product, which means they are able to turn around and sell it for $3.50 in wholesale with an average retail sale at $5.81 a gram — a far cry from the $10-12 per gram when pot was legalized in 2018.
“It’s just scale,” he said. “We’ve always said the way we would beat the black market is by getting bigger.”
This helped lead to record revenue of $52 million in 2020, up from $31.8 million in 2019, leading to a gross profit of $17.8 million, up from $8.7 million the previous year.
Part of this is due to their ability to maximize the efficiency in their production while reducing wasted product.
When cannabis was first legalized in Canada there was a rush to growth for growth’s sake which resulted in many companies hemorrhaging money and unable to move product. There has been a culling within the industry since and setting the stage for more consolidation. Star Buds now has the ability to produce about 8,300 kg of cannabis a year and will sell just about all of it.
Like many companies, Star Buds was forced to focus on their e-commerce platform which has opened many doors for them, as that side of the business has gone from 4-5% of their business to more than 10%.
“People are looking at socially distances options, they’re looking for contactless options,” said Arbuthnot. “People didn’t realize how easy it could be to order something online and have it delivered to your door a few hours later.”
The next frontier for companies like Delta 9 is looking south of the border as cannabis laws begin to soften in the U.S. Arbuthnot sees the opportunity for potential expansion, but more immediately selling equipment to startups.
“That opens up a massive market opportunity for companies like Delta 9 to get into the U.S. and participate in legalization,” he said.
The local company is also not losing sight of their own backyard with plans to continue expansion in Canada, up to 20 stores while also increasing production capabilities.
He says Manitoba is only seeing about 50% of the monthly retail cannabis revenue they will see once the market is fully saturated.