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Owner Fred Pattison of The Next Level cannabis accessory store in Calgary on Dec. 21, 2018.

Todd Korol/The Globe and Mail

Part of cannabis and small business and retail

Neighbourhood head shops have long been go-to destinations for bongs, pipes and other marijuana accessories, but some are struggling in the face of new competition since cannabis was legalized.

Government-run and private cannabis retailers across Canada are set up as one-stop shops, selling marijuana alongside paraphernalia, such as vaporizers and cannabis grinders. While bricks-and-mortar retail has been slow to launch in provinces such as Ontario and British Columbia, users can shop for accessories while buying cannabis online through government websites.

In the new legalization era, local head shops risk being forced out of business. While some have been community fixtures for decades, relying on word of mouth and loyal customers, the stores face growing competition from cannabis dispensaries as well as convenience stores, wholesalers and countless online retailers.

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“If clients can get cannabis in one place where they can just walk in, get their cannabis and get their pipe or pack of papers, that’s one sale less for me,” said Fred Pattison, owner of The Next Level in Calgary. “Why do you want to go to another store after that?”

Mr. Pattison opened his first head shop in 2004 and soon opened two more in the city. While 2017 was his best year on record, he said sales plummeted this year. Strict regulations have prevented Mr. Pattison from incorporating cannabis products into his existing accessory businesses, and he’s competing with 20 new licensed cannabis retail outlets in Calgary.

“I’m worried,” he said. “Letting cannabis stores sell accessories is a direct threat to existing businesses.”

Now he’s calling on the city to change its bylaws. Mr. Pattison started a petition in late September urging the City of Calgary to ban cannabis stores from selling accessories and instead focus on cannabis and cannabis-based products. To date, he’s gathered more than 1,100 signatures.

Mr. Pattison started a petition in late September urging the City of Calgary to ban cannabis stores from selling accessories and instead focus on cannabis and cannabis-based products.

Todd Korol/The Globe and Mail

Other long-time businesses are wary, too. Hi-Times, a London, Ont., head shop that opened in the mid-1990s, is one of the oldest in the city. Manager Mike Gin said he was arrested for selling bongs and pipes in 1996.

“It shows the hypocrisy of the government,” Mr. Gin said. “They took everything from us, and we had to fight back. Now they’re our competition.”

He said sales have been steady since legalization, neither rising or falling, but he worries about growing competition, especially from online retailers: Mr. Gin’s shop doesn’t sell its products online.

The Canadian Federation of Independent Business represents dozens of head shops countrywide with many in Ontario, and agrees with concerns from its membership. In May, the organization called on the Ontario Cannabis Store to exit the cannabis accessories market.

But while the accessory industry is anticipating new challenges post-legalization, some head shops see opportunity. Several are already aggressively modernizing and forging new business models.

One leader in the space is Toronto’s Friendly Stranger. The Queen Street West store opened its doors in 1994, and while the business was “a little taboo” when it first started, according to co-founder and CEO Robin Ellins, the company is planning a rapid cannabis retail expansion funded by a $10-million investment from Green Acre Capital.

The Friendly Stranger plans to open between 50 and 70 cannabis stores over the next two years, although its revising its strategy after Ontario’s decision to restrict the number of licensed cannabis stores to 25 by April, 2019 due to supply shortages. Mr. Ellins said the company has widened its focus from Ontario to across Canada.

“We're looking at cannabis as the missing product in our stores,” Mr. Ellins said. “We're going to take what we do now, which we do very well, and expand upon that; the same level of service, the same assortment of accessories.”

Puff Pipes in Vancouver also plans to eventually sell cannabis, opening new locations. Rather than anxious, owner Wes Kuitenbrouwer feels excited for the future. He’s working on a high-end Puff-branded glass line with a local artist, and doesn’t fear more competition. He said his stores have been competing with illegal dispensaries and corner stores selling accessories for years and it hasn’t affected Puff Pipes’ bottom line.

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Still, mom-and-pop-type accessory stores have reason to worry, said Brad Poulos, a lecturer in the business of cannabis course at Ryerson University’s Ted Rogers School of Management.

“I suspect there won’t be too many stand-alone head shops in five or 10 years,” he said. “A lot of business in that space will just move to the actual cannabis stores.”

The barriers for many accessory shops entering the cannabis retail space are sizable. Mr. Poulos said the high fixed costs of getting into the game, such as licensing fees, are prohibitive for single-store operations, and opening multiple stores requires a significant amount of capital.

For small businesses, he points to niche markets as a way forward.

“You have to do something to be different,” he said. “A store would have to be different enough that people will go out of their way, otherwise it’s not going to make it.”

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