WORKWEEK

The Future of Cannabis Brands

Brand loyalty doesn’t exist in cannabis. 

Okay, maybe that’s a little dramatic, but it certainly doesn’t exist on the same scale as other Consumer Packaged Goods (CPG). 

As many as 97% of traditional, non-cannabis consumers are loyal to at least one brand, and up to 65% of a company’s overall revenue comes from existing loyal customers. 

You won’t find those same stats in cannabis.

A brand’s reputation is not even a top-10 influencer for U.S. cannabis consumers. Just 18% of consumers say a brand’s reputation matters when they make their final purchasing decision. 

Why? A few reasons:

1. THC Content: Americans, in particular, are looking for a certain percentage of THC. They are going for the THC-rich products, regardless of the brand.
2. Taste or Flavor: Just like wine, every cannabis consumer has a preferred taste and flavor. This matters more to consumers than staying loyal to one brand. 
3. Price: Consumers are price sensitive. Cannabis is expensive, and price matters to 27% of U.S. consumers and 34% of Canadian consumers. 

This is why Headset’s state-by-state brand data often changes. One brand might take 8 out of the top 10 spots, but 90 days later that same brand might take 2 or 3. 

This is the fundamental reason why I believe Chris is correct on all points. His major points are:

1. This industry is nascent & has limited product choices 
2. Sales numbers don’t equal brand traction
3. Brand leaders today won’t necessarily be brand leaders in 5 years

If you work in cannabis, it’s easy to feel overwhelmed and like there’s an unlimited number of brands to choose from. Consumers might even feel that way. 

As of July 2019, there are 2,650 cannabis brands. There were 166 brands in 2014.

That’s a 1,496% increase in 5 years. And some states have still yet to come online, much less legalize cannabis in any fashion. 

While I don’t think we’ll see another 1,000% increase in the number of cannabis brands (though I can’t be too sure) – I believe we are poised to see even more explosive growth in brands, as markets mature, the transition from medical to recreational, and legislation is passed in new states.

In other words: don’t get too comfortable, you leading brands of today. You just might get passed up by a brand that doesn’t even exist yet. Always listen to your consumer and tailor your preferences to meet their needs and desires. 

Who Wins The Fight To Be #1? 

This tweet from Matt Lamers was part of a Twitter thread, sharing a 2020 Wall Street Journal article predicting Mexico to become the world’s largest legal cannabis market. 

Mexico legalized recreational cannabis in 2021, and they are hoping to become the world’s largest legal cannabis market. 

“Today we are in a historic moment,” said Simey Olvera, a lawmaker with the governing Morena party, as reported by the New York Times. “With this, the false belief that cannabis is part of Mexico’s serious public health problems is left behind.”

There is hope that Mexico’s legalization will counteract cartel activity and violence, but not everyone is convinced it will make an impact. 

Cannabis has become a small part of the drug trafficking business in Mexico since more and more U.S. states are legalizing it. The drug cartel is mostly focusing on products like fentanyl. 

I don’t necessarily agree that Mexico will never become the world’s largest cannabis market, as Matt said in another part of this thread. We never know what the future holds, and that’s especially true in cannabis. 

With that being said, Matt makes a solid point. Valuing a company based on production capacity over sales isn’t a marker of success. 

In fact, focusing more on the production metric than actual sales can lead to oversupply, like in California. 

California’s problems are rooted in high taxes and policy more than pure oversupply, but it’s currently the largest legal cannabis market in the world and it’s by no means considered the pinnacle of success in cannabis.  

One estimate suggests California’s licensed cultivators grow more than 3x as much cannabis as sold in dispensaries. Cultivators, and California businesses in general, are just trying to break even. Production doesn’t equal success. 

Cannabis sales aren’t interstate, much less international, so there’s no chance of selling to international markets aside from tourism in the country. 

Mexico’s success will mostly depend on the consumers, and nearly 60% of citizens oppose cannabis legalization in Mexico. 

And like we’ve seen in Canada, federal legalization isn’t the ticket to success, either. Canada legalized cannabis at the federal level in 2018, and cannabis remains federally illegal in the U.S. 

But, the U.S. legal market generated $17.5 billion in legal cannabis sales in 2020, compared to Canada’s $2 billion. 

Supply doesn’t create demand. It’s up to consumers in Mexico to drive the legal cannabis market or not. 

The Resilient Cannabis Industry

Talks of layoffs are in the air, and there’s confident hope that American cannabis will come out unscathed. 

I agree that cannabis workers will become a larger and larger part of the economy, and maybe we will keep a steady rate of hires. 

However, I don’t think we can safely say the American cannabis industry won’t be affected by any future hiring slows or freezes – despite what we saw in 2020. 

We were declared essential business during the COVID-19 pandemic, and sales spiked as a result. It was further proof that the cannabis industry is resilient and can survive economic downturns. 

However, surviving isn’t the same as thriving. 

The Canadian cannabis industry cut 6,000 jobs during the COVID-19 pandemic, because as I mentioned above: Canadian cannabis isn’t as lucrative as American cannabis. 

And while American cannabis businesses didn’t take nearly as hard of a hit, they were still impacted. Marijuana Business Daily temporarily furloughed about 30% of its staff due to COVID-19. They also temporarily reduced salaries.

The COVID-19 pandemic also came with different conditions that cushioned some of the economic blow, including stimulus checks and unemployment benefits. That’s a large reason why cannabis businesses saw a large spike in sales. 

With the current economic situation, there’s no guarantee we will receive the same help. 

As a medical cannabis patient, I can tell you it would take a lot of economic turmoil for me to give up buying my medicine. Medical cannabis patients are probably the last type of consumer we need to worry about.

And even recreational consumers might not be too keen on the idea of giving it up. The alcohol industry saw a 9% spike in sales in 2008, with an unemployment rate of 5.8%. When the unemployment rate hit 9.6% in 2010 and 2011, alcohol sales grew 10%. 

We have to keep in mind, though, that the cannabis industry doesn’t just consist of plant-touching operations. 

The success of ancillary companies like Marijuana Business Daily and even The Green Paper don’t necessarily depend on the industry’s sales. We make money through ads and other revenue streams – whether customers are purchasing or not.

We have to remember, though we are a vital industry to millions: we aren’t totally immune to the repercussions of a struggling economy and should be prepared to weather impending storms – should they hit us.