EDMONTON—The city opened its first-come, first-serve permit application process for cannabis retail stores on Tuesday, amid questions from industry insiders around how many will actually survive.

Kyle Murray, vice-dean and professor of marketing at the University of Alberta’s business school, said it’s likely the market will not be able to support the expected influx of stores when legalization hits Oct. 17.

“There’s going to be more stores, more retailers than the market needs, so quite a few will fail,” Murray said.

He said cannabis legalization will likely be similar to liquor privatization, when there was a mad rush to get into the business, but many operations failed and consolidated into larger players.

About half of the hopeful business owners in Edmonton already appear to be dropping out.

In June, the city unveiled 242 expressions of interest for cannabis retail stores that were chosen through a lottery system. Of those, 180 submitted applications.

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Only 43 have been approved out of the 96 that have been processed so far. Fourteen applications were withdrawn, six were refused, and the others are incomplete or waiting on a response from the applicant.

Murray said it’s hard to know how many cannabis users will move over to the legal market in October because there is little reliable information on how big the market is and what customer loyalty is like.

He said it will likely come down to how well retailers are able to change age-old, anti-pot attitudes.

“I think the big impact will be how successful they are in destigmatizing the product. If it becomes something that’s used regularly, the same way alcohol is, I think you can expect the market to grow, and maybe grow pretty quickly,” he said.

“If it continues to have that stigma attached to it and it doesn’t grow quickly, then I think you’ll see a large percentage of stores close — maybe a third of them.”

He added survival could depend on business owners having something unique to offer and an ability to build strong relationships with customers.

Tom Neumann, who grows cannabis legally for medical use on a farm south of Edmonton, said destigmatization will be challenging with the federal government’s regulations and restrictions around cannabis use and marketing.

A recent Statistics Canada survey showed 4.6 million Canadians, or about 16 per cent of those aged 15 and up, reported using cannabis in the last three months.

With a proliferation of online retailers, and prices expected to be higher for legal weed — the federal government is estimating $10 a gram, compared to a current average of less than $7, according to StatCan — Neumann is skeptical current users will switch to legal retailers.

“The market is being served today,” he said.

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“In Canada, they only let the big players in and none of the little guys got in (to the legal market) — we’re all waiting and hoping and crossing our fingers. Their customers, are they going to change just because it’s legal?”

Neumann said at-home growing will also keep potential customers away from the legal retail market, once every household is allowed to grow four plants.

He said four plants could yield enough product for a whole year at less than 20 cents a gram.

However, in a recent Alberta government survey, less than one-third of pot users said they would grow their own once it’s legalized.

The survey also found more than 50 per cent of those who use the drug would “definitely” switch to retail stores, and more than 30 per cent “might” buy from storefronts once it’s legalized.

Cannabis at Work founder and CEO Alison McMahon said those numbers show the market has room for an influx of cannabis stores.

While she says it’s likely Canada will see a “shakeout” of retailers, or some form of consolidation, she sees that as the natural evolution of a new market, rather than a supply-and-demand issue.

She did say destigmatization will be a challenge, however, given that retailers will be restricted on what they can say about cannabis. They won’t be allowed to say, for example, that a certain strain will help a customer sleep.

“I think that’s where this is going to be really challenging ... the public is going to be looking to these retail associates, and to the retailers in general, as a source of information, but the retailers are feeling like they are sort of handcuffed in terms of the information that they can provide because they don’t want to get in trouble with the regulator,” McMahon said.

“So, that doesn’t help the destigmatization process.”

In the Alberta government survey, only seven per cent of respondents who had never used cannabis said they would try it once it’s legal.

When asked for reasons why they might not buy from retail stores, more than half said high prices, and about one-third said they expect the quality of legal product to be low.

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