7 ELEVEn the next one to take a big gulp out of the Cannabis market?
Change is happening faster than ever around Cannabis reform in the United States. Elections are in full swing and cannabis reform is a major topic of conversation. It seems like the time for waiting may be coming to an end.
One can only imagine the big multinationals that have been sitting on the sidelines may be closer than ever to following the likes of Altria, Constellation brands, and Alimentation Couche-tard. With the latter being the focus of this conversation.
I would like to focus on a category Quebec based Alimentation Couche-Tard (the company behind Circle K) knows very well as does 7 ELEVEn, this category is called c-stores.
C-stores stands for convenience stores. These are stores that are packed to the brim with your everyday essentials. Coffee, snackfoods, groceries, magazines, tobacco, alcohol, soft drinks, OTC drugs, and many other items to fulfill your one stop shopping needs.
With Canada having legalized Cannabis at the federal level in 2018. Alimentation couche-tard was one of the first to see the upside potential in retailing cannabis with their investment in Canadian cannabis retailer Fire & Flower. The initial investment was for a 9.9% stake with the option to acquire 50.1% of the company in the future for a total of $380m CAD.
One of the very distinct advantages that make C-stores a great fit is they have experience dealing with age restricted products such as tobacco, and alcohol.
They are also a huge part of the CPG value chain. While big box stores lose their lustre c-stores have continued to perform relatively well.
C-store concepts from the big box retailers such as Target have seen great success. Target now runs over 100 small format stores that have contributed over 1bn in annual sales. Target has outlined plans in their recent earnings to increase that number to over 130 by the end of 2020 with plans for even smaller stores (under 12,000sqft) in the coming year.
Target to Test New Convenience Store Concept
7 ELEVEn is no stranger to change, and you don’t need to look much further than the new “Lab store” being tested in Texas. These stores are being tested to better align with the new consumer trends that are evolving. These trends include more demand for fresh and healthy, along with more locally focused offerings.
From on demand smoothies, to growler fill stations, taco stands, local craft beer on tap, kombucha taps, cold brew, organic slurpee flavors, dining areas including patios, a wine cellar, and many other unique offerings including digital initiatives.
With these changes it is only a matter of time before big players such as 7 ELEVEn make moves in the cannabis market following its c-store neighbour to the north Alimentation Couch-tard.
This would likely take place with a few pilot initiatives in adult use states, and in states where retail licenses are not required to be attached to any manufacturing, distribution, or cultivation licenses. If you look at the most recent c-store industry magazine, it is clear that CBD has gained tremendous traction. With the market expected to “keep steaming forward”.
With CBD having its day on the retail shelves, and commanding over 22% of sales from c-store locations and expected to grow further in the coming years. One could assume it’s only a matter of time until THC Cannabis could also be sitting on the shelves in a similar form to how Tobacco, and Alcohol is distributed through these channels today.
With the Tobacco RYO (Roll your own) category having seen increased demand in markets where cannabis is legal it’s another reminder that c-stores can certainly see the advantages of entertaining the cannabis consumer within the legal market.
As Cannabis reform gains steam politically and continues to become more socially acceptable as time progresses. It may be a perfect time for companies such as 7 ELEVEn to take a strong look at a cannabis plan and begin testing out the market in states such as California, and Nevada. This is the perfect sandbox to play in until the Federal Government takes actions to allow cannabis businesses to mature and evolve into more of a CPG type business.
In the meantime operating in California could provide much needed insight into how to best serve this growing and evolving sector that is estimated to grow to 40bn in annual sales within 4 years.
While some American companies are unable to make investments in American operators due to the illegality of Cannabis at the federal level which puts any company listed on the major US exchanges (NYSE, and NASDAQ) in a predicament.
7 ELEVEn appears to have a unique advantage due to the fact: 7 ELEVEn Inc is wholly owned subsidiary of Seven & I Holdings Co which is based out of Japan and trades on the US OTC markets under the Ticker SVNDY, and SVNDF.
With 7 ELEVEn Inc being a separate entity from the parent with its own CEO, and BOD based out of Texas. The restrictions from the NYSE, and NASDAQ would not apply. Which would likely allow 7 ELEVEn if they wished to enter the US Cannabis market much more easily and efficiently than those listed on the major exchanges currently.
7 ELEVEn ranks within the top 15 retailers globally. One can easily imagine a world where this retail juggernaut takes a very serious look at the cannabis sector.
As this industry matures and the federal government overtime loosens regulations you may very well find yourself shopping for cannabis at one of your local c-stores.
With over 9300 stores across the US they have a very attractive footprint and supply chain that could prove to be a big advantage in a mature cannabis market.
Whether the Japanese holding company parent would support this move due to the illegality of Cannabis in Japan, is unknown.
It is however important to remember that 7 Eleven Inc is a separate legal entity from the parent holding company. This keeps the US operations separate from other entities within the parent organization.
Subsidiaries are separate legal entities. They have their own concerns regarding the handling of taxation, regulations & liabilities. Subsidiary companies can sue & be sued separate from the parent company. the obligations of a subsidiary may or may not be obligations of the parent company. One of these companies can be undergoing legal proceedings, bankruptcy, tax delinquency or be under investigation without affecting other companies directly. though affecting public image is altogether an intangible thing. Source
With Cannabis brands growing faster than ever before and no signs of slowing down. The push towards a traditional CPG model is at the forefront of many cannabis executive plans today.
It’s only a matter of time before the big CPG companies take a shot at this massive market opportunity. 7 ELEVEn could be positioned very well going into the next chapter of cannabis normalization that is on the horizon.
With American cannabis operators approaching all time lows and cannabis reform closer than ever. The time might be sooner than many think for strategic investors such as 7 ELEVEn to take an early spot in this hyper growth industry.
Who knows maybe its time for another Slurpee Summit on capital hill? lol
Now that’s a big gulp!
Always do your own DD.