That the cannabis industry is growing by leaps and bounds is not new news. Over half the United States has legalized some form of medical marijuana, with nine states enjoying full adult-use legalization. All of Canada is set to enjoy recreational cannabis in a few short months.
The cannabis business is tough. At first, maybe, the product just sells itself, but the novelty wears off pretty quickly.
As the market grows and settles, so too do prices. At first, because supply is limited and the market is small, prices are pretty high. We’ve seen those prices drop over 2016 and 2017, but eventually stabilize.
However, while prices are lower overall, consumers are still spending about the same amount per transaction ($30-32). Basically, the industry is delivering a lot more value to the consumer.
However, that decreased cost to consumer comes out of someone’s pocket, and in Washington it appears to be the producers. There are far more licensed producers and processors in Washington than retailers, creating something of a glut. As with any commodity, too much cannabis on the market means low wholesale prices, and we’ve heard of producers selling for as low as $0.20/gram.
Producers that are insulated from this a bit are ones who have developed a brand that resonates well with consumers, enabling them to ask more from retailers. Variety is key.
The products that continue to show high growth rates are niche ones like tinctures, topical, and capsules. Companies looking to break into the market later in the game would do well to look outside of the flower category. For producers with a long history in flower, like Humboldt’s big medical growers, thinking early on about other ways to use that flower is wise.
Branding is a big part of success in the mature cannabis market. In Washington, the top 10 brands currently command 20% of the market. And that’s just brands, not companies. We estimate that there are about 900 currently operating producers in Washington, and many of the top producers have multiple brands.
Successful brands also tend to have a lot of products in their portfolio, so they’re meeting every different need their customer base might have. Once they’ve won people over with one product, they can keep them interested in the brand with other products.
The top 10 brands in Washington all share similar characteristics. Distribution is one of them. In Washington, the state is divided into east and west sides by the Cascade mountain range, and the top brands have a solid retail presence on both.
Perhaps most importantly, they all focus on building a consumer relationship with their brands, be it by commissioning custom art for their packages, or pushing to engage budtenders, who serve something like gatekeepers of brand loyalty.
Because cannabis brands can’t depend on most social media to communicate with their customers, focusing on in-person marketing, like the visual appeal of packaging or the human interaction with budtenders, is crucial. The big brands do that very, very well.
We’ve also seen is that the best brands combine business savvy with a good understanding of cannabis culture. Lots of entrepreneurs who came from the black or grey markets suffered for a lack of business acumen, and lots of companies who came from outside the cannabis community have found it difficult to connect with consumers. The best companies can do both.
Originally via Ganjapreneur