MJBizCon, the world’s largest marijuana industry conference, was big enough to be its own neighborhood. The event packed the Las Vegas Convention Center in November with 27,000-plus attendees and booths with club music and light-up flooring. At a hotel after-party some two-dozen floors above the city’s casino glare, someone joked about making T-shirts saying “Public In Canada,” a nod to the U.S. marijuana stocks crowding the Canadian Securities Exchange.
Participants pitched business deals at bars. They pitched deals at McCarran International Airport. In the convention center’s hangar-sized presentation hall, outfitted with a large screen displaying video above the stage, speakers reflected on the post-midterm election political demise of Jeff and Pete Sessions, to occasional applause.
But the swagger obscured a big problem facing the marijuana industry: How to get recognized when few recreational users know or care about the company making their weed.
Analysts say cannabis branding — the art of getting people to associate a corporation with a plant that gets you high — will determine who ultimately prevails in a still-messy legalized recreational marijuana industry. But as legal sales boom and investors jump in, researchers and executives say few consumers have heard of even the most well-known cannabis products in the U.S. or Canada. To stand out, top marijuana companies are turning to sleek packaging, cute names and even celebrities like Martha Stewart.
“One of the things that we’ve known for quite some time is that consumers right now in this industry don’t have any loyalty or preference for specific product brands,” Zeeshan Hyder, chief corporate development officer of U.S. pot retailer MedMen, said on an earnings call in late February.
Marijuana Stocks Face High Stakes
Takes vary widely on how long it will take for consumers to commit to cannabis brands the way they once committed to Marlboro or Budweiser. They also vary on what approach works best.
The stakes are high. Cowen & Co. believes that the U.S. market under full federal marijuana legalization could swell to $80 billion in sales by 2030.
Marijuana industry observers believe a handful of companies will control most of it. Macquarie analysts in November said that, “since cannabis and hemp are ingredients, we believe the sustainable value will be in branded products and that brand building will be costly and unpredictable.”
Meanwhile, more analysts are picking apart the valuations of the biggest marijuana stocks. Hefty investments in those marijuana stocks — like Constellation Brands‘ (STZ) $3.8 billion stake in Canopy Growth (CGC) and Altria‘s (MO) $1.8 billion bet on Cronos Group (CRON) — are on the line.
Lack Of Marijuana Legalization Adds To Problem
In the U.S., around 60% of cannabis consumers in states where pot is legal know of at least one brand, said Jessica Lukas, vice president of consumer insights at BDS Analytics. But on an individual-brand level, awareness tops out at about 25%. Most come in “well below” that, she added.
In Canada, GMP Securities took a survey the day recreational marijuana legalization took effect in October. It found that 95% of the time customers were “unaware of the brands they had just purchased.” That’s despite the millions that Canada’s biggest licensed producers spent to get their recreational product brand names in front of customers.
Instead of shopping by brand names, GMP found that customers sought a particular strain or effect, be it energy or relaxation. Others weighed THC payload against the price.
Martin Landry, the analyst who led GMP Securities’ survey in October, attributed the low awareness in Canada in part to timing.
Some brands didn’t launch until just weeks before marijuana legalization. He noted that some producers hired brand managers early last year and had to wait on research before proceeding. He said it could take years before a company becomes top-of-mind for consumers when deciding what to buy.
‘Too Many’ Brands In Marijuana Industry
There are other reasons for the low brand awareness. The marijuana industry is new, as pot was flat-out illegal in North America for years.
Conventional research, advertising and education also were informal or nonexistent. The product the legal marijuana industry is trying to dress up with labels, catchphrases and aesthetics was largely sold in plastic bags. Most Americans still buy weed from friends or dealers, according to research from New Frontier Data and MJ Freeway.
Weed, to a lot of people was, and still is, just weed. Some growers believed weed sold itself. But for those who don’t believe that, there are advertising restrictions. Canada’s marijuana advertising laws, broadly, prohibit endorsements or depictions of real or fictional characters. They also bar advertising that associates weed with particular feelings or lifestyles.
In the U.S., cannabis is still outlawed on a federal level even as more states opt for marijuana legalization. But in legal U.S. states, ads are often confined to roadside billboards. The situation on social media is precarious.
“Imagine you have, let’s say, 15,000 followers,” Lukas said. “Your account gets deactivated. You have to start a new account and build up that following again.”
Even as the marijuana industry legalizes, investors largely don’t distinguish among the marijuana stocks they own, executives have said. Being different will become more difficult as more growers pile into the market.
“The more choice you give for consumers, the less likely they are to make decisions,” said Jeff Yapp, chief marketing officer of Golden Leaf, which runs seven dispensaries in Oregon. He added: “If there’s one issue today, it’s that there are too many brands, too many options, too many choices.”
Huge Upside For Marijuana Stocks In Branding
A patchwork of legal states means a patchwork of tastes. Steve White, CEO of U.S. grower and retailer Harvest Health & Recreation, said consumer loyalty existed “regionally, and maybe even municipally.”
But companies often have to start from scratch when entering a new market. Popularity in one state doesn’t translate to popularity in another.
“Some of those companies come in like ‘Oh, we can be a little later to market because we’ve got all this good will and everybody knows us,'” Kris Krane, president of cannabis dispensary operator 4Front, said in November. “But the reality is nobody knows them.”
But other research shows that when a product takes off, it does so in huge proportions. In some markets, the most popular branded products outsell competition 10 to 1, said Jessica Billingsley, CEO of cannabis compliance software provider MJ Freeway. Still, she said customers value price, potency and popularity, in that order.
Aurora Cannabis (ACB), one of the biggest marijuana stocks, remains undaunted. Investor Relations VP Marc Lakmaaker believes a majority of customers will know about Aurora products within one to two years from now.
Branding Cannabis: Let A Thousand Flowers Bloom
Among the possible solutions to the branding dilemma is to better calibrate the product itself. Companies say a more scientific approach to production will deliver more precise, consistent effects. Better quality and consistency, they say, beget more commitment from customers.
Jefferies analyst Owen Bennett argues that most of the cannabis grown in the U.S. has been lower quality because of lax testing and labeling regulations.
Lower-quality, lower-consistency products, he said in a research note, “will be much harder to differentiate across growers.” That’s less so in the case of higher-quality stuff.
In addition, he and others dispute the characterization of cannabis as a mere ingredient or commodity. Bennett said “over 1,000 strains” existed, “each delivering a very unique functional experience.”
Marijuana Stocks Try Cute, Fancy Brands
In the quest for distinction, some companies are departing from the “take me to your dealer” tropes of years past. U.S. companies like Beboe and MedMen are trying to recast marijuana as functional and sophisticated.
Popular forms of consumption like vaping devices are easier to put a brand and a design on. And that offers greater branding potential.
Beboe sells rose-gold vaping pens and edibles in packaging with delicate, calligraphic artwork. Soon, customers will be able to order those in Barneys New York stores and have them delivered. MedMen’s in-house brand Statemade sports copper-accented packaging that resembles eyeliner kits and moisturizer-cream containers.
In Canada, the marketing on the website for Canopy Growth’s brand Tweed is cute, succinct, slightly deadpan. Its website offers weed with names like Argyle, Penelope and Herringbone. The website for Spinach, from Cronos Group, is a little campy, with jokes about “high expectations,” and “farm-to-bowl” production, along with close-up photos of lush, brightly-colored vegetables.
Some producers that run dispensaries try to circumvent the issue by stocking shelves with only their branded products. Others sell a mix of their own product and others’ to stay on top of new trends.
Marijuana Stocks Seek Retail, Celebrity Tie-Ups
Other branding strategies involve mainstream retail. Legal hemp-derived CBD has led Green Growth Brands to pursue locations in U.S. malls. Tilray envisions CBD foot balms at Nine West. Canopy Growth said big-box stores and corner stores were among those “interested” in speaking with the company about CBD products in the U.S.
Green Thumb Industries CEO Ben Kovler said borrowing marketing tactics from legal industries can help. But like others, he said product consistency is still crucial.
“I don’t think you can simply take a brand from the mainstream, slap it on a vape pen, and think you have a winner,” he said.
The marijuana industry is also teaming up with celebrities — from Gene Simmons to Martha Stewart to Jimmy Buffett. High Park, Tilray‘s (TLRY) recreational business, sells the official brand of Bob Marley. But other analysts question whether a real fit truly exists.
“We are wary that some cannabis partnerships are more about the headlines vs. actually making strategic/value creation sense,” Jefferies’ Bennett said in a research note.
Marijuana Industry Gatekeepers
Another front in the competition is the dispensary staff itself. Dispensary operators say many new customers seek guidance from budtenders. In turn, they influence what customers learn, buy and what products they ultimately stick with.
In the quest to create a better weed snob, MedMen has its own cannabis “curator.” California-based Harborside, known for being one of the oldest U.S. pot retailers, with a massive dispensary in Oakland, is building a room in that store to offer cannabis sampling events.
“A dab, a taste of a preroll joint — these are the kinds of things we envision,” said CEO Andy Berman. “So imagine coming in, like you would go to Napa Valley, with a small tasting of three different flights of one.”
How long it might take before people can dissect terpenes the way wine drinkers dissect tannins is anyone’s guess. Berman said many customers start figuring out their tastes in three to four visits. Krane, of 4Front, said that process occurs over a few months.
Scott Campbell, Beboe’s co-founder, said it took him between six months to a year to hash out what worked for him.
“But that was because my education was through a green-haired bike messenger who was delivering weed every Tuesday,” he said.
Seeking Cracks In Marijuana Legalization Limits
To stand out, others have considered approaches with a broad interpretation of the word “function.”
Canada’s cannabis packaging guidelines enforce a level of minimalism normally relegated to pharmaceuticals. But Nick Kovacevich, CEO of U.S. cannabis packaging, equipment and materials supplier KushCo, said in an interview in November that his company worked with one of Canada’s big producers that was apparently seeking the slightest victory against the forces of sameness.
The project, which ultimately fell through, was to develop a bottle with a plastic flap on the side. The goal: To have something that looked different but also passed muster with regulators. But the designers needed to show the design had practical use.
“So what we’re having to do in our design work is demonstrate functionality,” he said. “So if we have a flap on this bottle, we say, ‘Well, the reason we have this flap: Not just for looks. Not for aesthetics. There’s real function here. When you lay it on its side, the flap stops it from rolling.'”
He added, dryly: “Very important.”
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