Cannabis: Land Of Exploding Business Models
Pennsylvania-based Tom Newmaster of FORCEpkg set out to explore the wild west for an exclusive series on the evolving business of legalized cannabis.
Right now, the industry is an indie paradise. It’s easy for craft brands to get attention when only competing in one state. However, once marijuana is legalized on a federal level, the playing field changes, and you can expect big CPGs to make their move. In fact, many are sitting on the sidelines waiting for the flag to drop. In the meantime, startups are engaged in the learning process. You might think it’s to ready themselves for acquisition, but that’s not necessarily true. There’s a strong culture of independence among cannabis brands—not unlike the craft beer business—but the picture is changing and evolving almost daily.
What’s Specialized Now Could Commoditize Later
Right now, in Colorado, there are a lot of smaller independent growers and dispensaries—in part determined by the regulatory reality. Dispensaries can only collect revenues from within their state, which precludes a lot of national or international players from getting in on the game. The result is variety and pride in expertise and product, along with the connoisseur quality I mentioned in my last article. This extends to the nature of the high itself when talking about recreational cannabis. There are two strains, sativa and indica. The first delivers a more energizing effect while the other produces a deep-body sense of relaxation. And there are countless hybrids of the two, plus a wealth of exotic flavors and aromas. Key questions facing Colorado dispensaries are this: What happens to all this richness of product choice if it goes the way of Canada and becomes legal on a federal level? Will this lead to mass production and standardization like the beer industry before the craft revolution? Remember, mass production typically drives down cost—and competition—resulting in a more commoditized approach.
California, Washington and Canada—Hints of a Big Business Future?
Concern about a big corporate takeover of the cannabis industry is no mere stoner’s paranoia. There is evidence of such a trend already happening out west and to our neighbors up north. In Canada, eight growers are predicted to control up to 70 percent of the industry. In California, 20 percent of the cultivation licenses now belong to 12 licensees. In Washington, there has been a consolidation. By September 2017, the 10 largest cultivators were producing more than the 500 smaller independents combined. The result has been plunging prices, something that has pressured a lot of the smaller guys out of the market. Will this happen in Colorado?
Such a pattern is not unusual. The same model played out in the beer industry. At first there were small breweries that got knocked out or absorbed by the big brands who dominated until the current craft revolution. Will the same history play out in the cannabis industry? Perhaps, but canny growers have a card up their sleeve that is proving to be effective.
Meet the Social Justice Warriors — Pot with a Conscience!
Corporate responsibility or brand activism is a point of pride for those in the cannabis business. Many have garnered a loyal fan base by establishing themselves as more than growers and dispensaries. They are advocates for people serving long prison terms for pot use. They support sustainable farming and provide opportunities for students to learn entrepreneurship. Two great examples are Marley Natural and Rebel Spirit. The mission of Marley Natural, as stated on its website, is to align “…with causes that reflect Bob Marley’s vision of positive social change, environmental sustainability and social justice.” Among its many ventures is helping those formerly incarcerated for pot use to get jobs and training.
Rebel Spirit takes inspiration from the founder’s Uncle Mark, an early pot grower who died in prison in the ‘90s. The brand concentrates its message around environmental responsibility—all packaging is reusable and recyclable. The company uses rainwater and well water to grow crops and recycle it to prevent waste.
How Does this Score with Consumers?
The commitment to social responsibility has helped brands like Marley Natural and Rebel Spirit establish a secure foothold in their respective markets. Marley is actually in two states, California and Washington. Will big CPGs be able to dislodge consumers loyal to the smaller brands if they enter the marketplace? I think it will be a fight, and some of the existing “craft” brands are well positioned to protect their turf.
I spoke about craft beers earlier and how they disrupted the beer market. But current statistics show a stunning change in beer purchasing that might signal opportunity for pot-infused beverages. In just the last two years, AB InBev (Budweiser) dropped more than 4 percent. Molson Coors saw a 3.8 percent drop as consumers moved to wine and other spirits. Forbes quoted a recent study that found this: “Over the ten years studied, counties located in medical marijuana states showed a 15 percent reduction in monthly alcohol sales.” I think that spells opportunity for cannabis.
Part I of this series appeared in the October/Novembr 2018 issue. Read it here. My next article will explore regulations around child proofing for cannabis packaging.
If you want to know more about FORCEpkg, visit forcepkg.com.