Consumers are increasingly choosing to buy local produce, focusing on who they are purchasing from and the values they stand for. Farmgate stores provide a unique access point for consumers to buy their cannabis products on-site and connect directly with the producers.
Farmgate is a concept that has existed in the wine, craft brewery, and distillery industries. For the first time in Ontario, it is a concept that is becoming available to the Canadian cannabis industry. What will be the impact of farmgate retail on the industry and why is it important to understand it? Here’s why supporting this model is the first step in helping licensed producers reach their consumers in an authentic way that still adheres to Health Canada’s regulations — and why there is still work to be done to improve overall industry perception and supply chain demands.
What is farmgate cannabis retail?
Farmgate cannabis is a retail framework that allows producers to sell products on-site at a licensed production facility. This will be the first licensed framework implemented in Ontario designed to enable direct-to-consumer sales. In these retail locations, producers such as Thrive will have the opportunity to tell their story, build a connection with their customers, and develop loyalists to their brand. These retail locations will be age-gated and governed under the same regulations as any other cannabis retailer across Ontario. This model is not unique to the cannabis industry and has been successfully implemented across several industries, including wineries, breweries, and distilleries.
This approach will allow cannabis growers to build their brands in new and exciting ways. For producers like ourselves that cultivate outdoors, we can expand that storytelling experience and create an experiential connection to our company. This is where we can take the conversation a step further and discuss how our unique methods, outdoor environment, and the proprietary processes that play a role in making the premium products.
For cannabis companies participating in this framework, it’s important to understand how inventory transfer occurs. Producers first start by designating a location within their secure storage that is considered OCS property. The product will then transfer title to the OCS, although no physical inventory is moved outside of the secure storage. The retailer, who in this case is also the producer, will then purchase the product from the OCS. Once the title is transferred to the retailer, the product is considered sold, and the product can be physically moved from the production secure storage location to the retail store.
How does farmgate impact the cannabis industry?
Farmgate doesn’t change the landscape for how producers make their product, but it does affect the downward supply chain for how products move to retail. The farmgate model also provides opportunities for producers to develop additional revenue streams that were not available to them previously.
In a post-pandemic environment, farmgate stores have a promising future. With direct-to-consumer contact producers have a unique opportunity to tell their brand and corporate story firsthand. For premium producers, that opportunity to build a connection should be viewed as extremely valuable. We have learned that premium customers care about corporate values and what companies stand for. Although retail partners do an incredible job of telling producers’ stories, farmgate provides a unique opportunity to give customers a window to our family and our lives.
This way of connecting is in accordance with Health Canada’s limitations on promoting and advertising cannabis and it has done so in a highly-regulated fashion. Farmgate retail also offers an opportunity to reduce the stigma around cannabis and highlight its value to communities by expanding opportunities within the industry. For example, understanding product quality, safety, consumption methods and how that impacts a person’s experience can help dispel misconceptions about cannabis consumption. For communities, farmgate retail brings additional value to the surrounding areas in which they operate. Not only does it provide diversified job opportunities, but for areas like ours, it provides a rural jurisdiction with an access point for legal cannabis that didn’t previously exist.
While the farmgate approach represents a great first step in engaging with consumers in a different way, there are still many improvements to be made in how it is applied to improve the supply chain. This isn’t a new concept in other industries, but the farmgate model and its application to cannabis retail in Ontario can provide many exciting possibilities for the industry. Understanding how farmgate works in our current cannabis landscape will be the key to unlocking more revenue streams, new opportunities to educate and engage with consumers, and the chance to break down stigma around cannabis. We’re grateful to take this first step with the The Alcohol and Gaming Commission of Ontario (AGCO), and we look forward to seeing this framework advance.
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