Why Canadian cannabis retailer ShinyBud is buying pharmacies

Ontario, Canada, cannabis store chain ShinyBud is expanding its retail portfolio with a plan to acquire independent pharmacies and aspirations to synergize those pharmacies with its adult-use stores.

Aspects of ShinyBud’s approach would require certain regulatory changes, but, if successful, the strategy could serve as a novel model for diversification in the Canadian cannabis retail sector.

ShinyBud, which is planning a name change to Shiny Health & Wellness, hopes to be able to sell cannabis health products over pharmacy counters when Canadian regulations allow and perhaps eventually install separate adult-use cannabis stores within some pharmacies.

The company is targeting five to 10 pharmacy acquisitions by the end of January 2023, according to a regulatory filing.

Canadian pharmacies are currently not allowed to sell medical marijuana in its plant form or over-the-counter cannabis health products, although they may dispense cannabis-containing pharmaceuticals such as Sativex.

ShinyBud Chair and CEO Kevin Reed acknowledged that the strategy partially depends on regulatory changes in the coming years.

“We are working through what’s acceptable with the regulators,” Reed told MJBizDaily.

ShinyBud’s expansion into pharmacies is, in part, a bet on deepening consumer interest in cannabis health and wellness products enabled by anticipated regulatory changes.

“We think we will be an absolute leader in redefining the retail space under health and wellness by combining both adult-use (cannabis) and pharmacy,” Reed said.

“Where we can bridge the two, we will have stores-within-stores, subject to regulatory approvals,” he added.

In the meantime, Reed said, the pharmacy space offers easier access to capital for expansion than does cannabis retail, and ShinyBud management considers pharmacies a desirable stand-alone retail sector.

The company announced its first pharmacy acquisition in May, a deal to buy an independent drugstore in Cornwall, Ontario, for 900,000 Canadian dollars (roughly $690,000).

ShinyBud’s pharmacy unit will operate as Mihi Health & Wellness.

Moving from cannabis to pharmacy

Reed said ShinyBud is entering pharmacy for three reasons: “One is customer, one is regulatory, and one is capital markets.”

The company believes a significant proportion of adult-use cannabis consumers are motivated by health and wellness, citing its own customer data and third-party market research.

Meanwhile, with Health Canada working on new regulations that could allow health products containing cannabis to be sold over the counter, Reed sees an opportunity on the horizon.

“You can see, customers are looking for it – regulations are going to go there,” Reed said.

“In Canada, we’ve had the Cannabis Health Products review that started in 2019, where it’s now (gone) through consultation and they’re into the scientific review boards that are looking at what kind of products would be acceptable,” he continued, explaining that such products would be “heavy on CBD, light on THC.”

Reed anticipates that regulatory changes permitting over-the-counter sales of some cannabis health and wellness products will create “a pretty big market,” and he believes adult-use cannabis retail and pharmacies “will be the two main sales channels.”

The proposed reforms permitting nonprescription cannabis health products are part of Health Canada’s regulatory road map through 2024.

Finally, Reed said, capital is more readily available for pharmacy acquisitions than for cannabis transactions.

“Senior debt is really not available to us in the cannabis space, although there are a number of senior debt providers moving in from Alberta,” he said.

In contrast, major banks “readily finance pharmacies on senior debt transactions,” Reed added.

Combining pharmacies with cannabis

Pharmacy retail is “attractive as a stand-alone strategy” and “a competitive differentiator that effectively mitigates certain cannabis sector headwinds,” ShinyBud management wrote in a recent regulatory filing.

However, if regulations permit, ShinyBud’s strategy to align pharmacies with cannabis retail could open new possibilities.

Adult-use cannabis retail workers in Canada are not allowed to make medical claims about cannabis, but Reed said there’s nothing stopping a customer from calling a health professional, such as a pharmacist, from the store and getting advice.

“We believe we have a path to have people linked to, I’ll call it, advice (or) advisory services that (are) deeply grounded in science and help that customer get better access and better information to treating what their needs are,” said Reed.

One possible strategy is that adult-use cannabis shoppers could connect with a Mihi pharmacist for advice, he said.

Another possibility is that ShinyBud’s Mihi pharmacies could host small cannabis stores-within-a-store.

“This is always going to be subject to regulatory approval, with our primary regulator today being the (Alcohol and Gaming Commission of Ontario),” Reed said during a May investor presentation.

“The intent is to get our skilled labor, the pharmacists and (pharmacy technicians) into the adult-use (cannabis) side,” Reed explained to MJBizDaily.

“Inversely, we have adult-use stores, and we would like to have small pharmacies, where applicable, in the adult-use stores – so they would have their own entrance, they would have their own four walls, they would have their own systems, but it’d be a sublease.”

During the May investor call, Reed acknowledged that the store-in-a-store strategy wouldn’t work for every pharmacy.

ShinyBud also believes its pharmacy strategy might benefit from pending Ontario regulatory changes that, as of 2023, will allow the province’s pharmacists to write prescriptions for certain “minor ailments.”

Reed believes that could potentially include prescriptions for cannabis products.

“I’m confident that the writing of scripts will be on a professional basis … And if the pharmacist deems it appropriate that the solution is a cannabis-based solution, as opposed to a pharmaceutical-based solution, that they would write the script accordingly,” he said.

Canadian adult-use cannabis stores do not currently fill prescriptions, and the health care practitioners who now authorize medical cannabis for patients – defined under regulations as “a medical practitioner or a nurse practitioner” – technically write “medical documents,” not prescriptions.

One possible competitor for ShinyBud is major Canadian pharmacy chain Shoppers Drug Mart, owned by grocery giant Loblaw, which also operates recreational cannabis stores within Newfoundland grocery stores.

Shoppers already has an online medical cannabis sales platform, although it does not actually distribute cannabis from its pharmacies.

Growth plans

ShinyBud’s move into pharmacy retail comes as it revises its organic cannabis retail growth plans amid an increasingly crowded market.

The Toronto-based retailer has 31 corporate cannabis stores in Ontario plus 12 ShinyBud-branded stores run under franchise-like licensing agreements. (Reed said the company is working toward full franchise agreements with those stores).

ShinyBud is targeting 25-35 corporate stores and between five and 15 franchised or licensed locations for its fiscal year ending January 31, 2023, a regulatory filing shows. That represents fewer stores than ShinyBud’s previous target.

Reed cited about 6,500 independently owned pharmacies across Canada, with “about 3,600 that are owned by people who are either in the process of looking for succession planning or about to hit succession planning.”

“That’s a really big sector to look at consolidation,” he said.

ShinyBud is doing due diligence on five potential pharmacy acquisitions in addition to its Cornwall purchase.

Source: https://mjbizdaily.com/why-canadian-cannabis-retailer-shinybud-is-buying-pharmacies/