Written by: B William Ison
Is it possible to build a national powerhouse cannabis brand in 2020?
I saw a cannabis purchase study recently that came to the conclusion that right now consumers are purchasing cannabis products first by THC content and next by price with retail location and brand as distant purchase drivers.
Is this possible? As a long time brand builder in the CPG space, I am hard-wired to believe that people purchase brands. Brands are anchors of trust, and in their best instance, friends that understand us and reflect our lifestyle and beliefs. So is it really possible that in a new, emerging industry like cannabis that brands don’t really matter? Perhaps but there are significant external factors driving what I believe to be a short-term phenomenon.
Industry trend #1: The “growth consumer” vs. the “actual 2020 consumer” As I applied traditional CPG segmentation techniques to the cannabis consumer universe (“using cannabis” or “open to using cannabis” acceptors). I found that even though the current user base is classified as either “recreational” or “medical” in fact there is a very large segment of potential consumers who are sitting out the category because of either the legal status, stigma of using cannabis or frankly knowledge of how to get their desired effect. I’m not the only person who has noticed this. There are a number of brands out there that cater to this growth consumer — @Dosist and @Besisto to name a couple. These brands put education and experience above THC:CBD ratios and heavy price promotion. However, when you ask dispensary workers who is walking through their doors RIGHT NOW, it’s not the growth consumer — it’s the recreational or medical consumer. These consumers are typically very experienced on what they want or need. For the recreational user, up until recently they may have been buying on the illicit market where not only do brands not exist, but you’re basing your purchase on a strain or hybrid that you may have experienced before. The implication — although the growth consumer is there, she is not shopping YET. Companies need to cater to the consumer walking through their doors TODAY but also keep an eye on the slowly emerging growth consumer.
Industry trend #2: Brands keep changing. Over the past year, I have been fortunate to travel to LA about 4–6 times. Each time, I made sure that I had time to check out as many dispensaries as I could. My go-to competitive shopping target happened to be the Med Men location in Venice on Abbott Kinney. Now to someone from New York, California seems like a candy store of cannabis — tons of brands, forms, formats. However what I noticed is that the turnover of brands was staggering — about 50% of the brands were new from 4 months earlier! With that kind of brand turnover, it’s impossible to build any sort of loyalty. Imagine if you went to your local 7–11 and found a new drink that you loved but couldn’t find it on a return trip. Brands are built on consistent awareness as well as consistency of the product experience (and repeat purchase). If you try a product once and can’t find it again, you just move on.
Industry trend #3: Brands are landlocked. This is an issue of simple economics. Right now, product cannot travel across state borders. If you’ve built a successful brand in California, that’s great! The challenge is that your topline sales have a natural ceiling. Unfortunately for most businesses that means their P&L is not throwing off enough cash to justify significant brand building activity. In a competitive CPG category like skin care, marketing spending is in the range of 24% to net sales. For small P&Ls, this level of investment is just not possible. So the solution is to grow beyond a single state like California. Great idea, but very complex given that there’s a new set of regulations, suppliers, partners, competitors and pricing to deal with which makes it very difficult to juggle.
So what does this all mean? Unfortunately in my estimation a number of factors need to establish themselves in the industry before brands can truly flourish.
- We need products that are created for all segments of the market and actively build the unique audiences and communicate appropriately to each.
- Trust and consistency are key. Until I can reliably purchase the same brand at the same quality time and time again, it will be impossible to really build long-term brand value and loyalty
- We need to move to canna retail 2.0 — where the shopping experience becomes more than just a product and a price. Much like I prefer to purchase at Costco vs. Sam’s Club — even though many items are the same — cannabis retail needs to become more curated and differentiated.
- Brands need to be able to scale beyond one state. This may take the form of regional consortiums with contiguous borders (think the pacific northwest) that allow the free flow of product and the establishment of a larger regional market with common regulations and competitors.
I love this industry and the growth consumer can’t come fast enough. I just hope that new emerging brands for her can hang on until she becomes a serious purchasing force.