By Nicolas Jose Rodriguez Via El Planteo.
While the legalization of cannabis advances globally, opening new markets, there are other markets already developed that show the complexity of the industry. Technology allows cannabis companies to generate the optimal marketing and capture retail segments, consumers have become more refined and the market has become more competitive.
Understanding adult consumption trends can help to regulate better cannabis’ markets. In other words, we can regulate the market for adult use, but without an interesting cannabis offer, nothing guarantees that users will resort to it.
Consumers look for something else than psychoactive potency: they want complex flavor and smell, bud density, trichome population, and transparent cultivation practices. Jessica Lukas is Senior Vice President of Consumer Insights at BDSA, a leading market research firm that covers legal cannabis globally. Before BDSA, the market intelligence expert performed data analysis on alcoholic beverages. She believes that to survive in a crowded market with contradictory and inefficient regulations, cannabis brands must differentiate their product and improve the customer experience.
Lukas tells us about a change in the industry: selling legal cannabis is about selling an experience, a journey tailored to the consumer.
Differentiating Market Offer: The 'Premiumization' Of Cannabis
“Sativa is no longer a primary indicator of the experience you are going to have. We can talk about THC and CBD all day, but the appearance of more and more products that promote the benefits of other cannabinoids drive the search for a personalized experience by consumers," Lukas said in an exclusive interview with El Planteo. “The terpenes and the genetic makeup of the plant define that experience. If you can convince consumers that you can deliver a better experience, you can often ask for more money for your product.”
Lukas offered an example of the premiumization of cannabis: “We know that if a product within a category has CBD promoted on the label, it can be sold for up to 20% more. Even THC (psychoactive component) enters the equation of the message to the final consumer. Whether it's a resin cartridge or an edible, everyone is talking about secondary cannabinoids, CBG, CBN, etc. In other words, we are going through a premiumization of the product.”
Another factor that plays a predominant role in the premiumization of cannabis is technological innovation, as is the extraction segment with the emergence of live resin.
“Five years ago it was all oil, then the distillate hit the market and everyone was, you know, the marketing message… The communication to consumers of the distillate: it's cleaner, it's better. It is more powerful. Now we have live resin and rosin, coexisting at different price levels. Most of the higher-priced products are resin cartridges.”
Capture markets and build customer loyalty
Lukas explained that, since there is no consistent federal regulation of cannabis, and interstate commerce is not allowed, cannabis brands produce and sell in a certain state blocking production at scale (they are inefficient) often forming dominant market positions.
To deploy an efficient cannabis marketing strategy, cannabis businesses must reach the local consumer and build loyalty. “In the last decade, the state markets were opened and the supply increased. Many brands became strong in one state and consolidated customer loyalty.”
“For example, in every dispensary in Colorado, you will find one or two products from the brand Wana, the number one edible brand in the state. Consumers tell us it's a well-known brand and a product that someone they trust recommends to them, which matters more than the brand itself. This is how loyalty is built”, explained Lucas.
—But, what will happen if the market gets too crowded? How will brands survive?
—Look, we can go back five years, when oil cartridges dominated the market, before giving up the podium to distillates. Back then, everyone had to differentiate themselves. Unfortunately, that often means a race for lower prices. As the number of brands in our space increases, it becomes more competitive. So I think it boils down to two questions: “Can you differentiate your offer?” and “can you offer something that consumers can't get from another brand?”
Cannabis and Big Brands
Cannabis brands are beginning to gain traction in other states, either by selling their products directly to consumers or through a brand license agreement with a licensee. However, the path to success has its pitfalls. "One of the main factors for the success of a cannabis brand is obtaining distribution points."
“A few years ago, we predicted that with the passage of the 2018 Farm Bill, the CBD market would explode and mainstream CPG, beverage and food brands, skincare companies like Unilever, they would enter the CBD market, and this was going to be the springboard for THC.”
However, Lukas admitted that the delay in the authorization of CBD hemp products by the FDA in the US has shattered that prediction.
“We expect the tobacco and alcohol companies to jump right in. In fact, it is already being seen that they enter through large investments. In most cases, they are Canadian producers acquiring companies in the US. It is still the licensed cannabis producers who are leading the charge towards that kind of… of… I hate to say dominance, but global dominance of the cannabis market,” Lukas explained.
Since CBD is not regulated as a food additive by the FDA, Walgreens, Target, Wal-Mart, 7-Eleven, or K-Mart, do not carry these products. Thus, those looking for products with CBD often have to buy them online. The current market often attracts consumers who are proactively searching for cannabis products. In other words, consumers are not deciding to try a new product, they were looking for cannabis products before arriving at the store.
“Mainstream retailers are not going to take the risk of selling a product that hasn't been approved by the FDA. If the FDA goes so far as to say, we are going to regulate hemp-derived CBD as a food additive, the market changes. How many states have already regulated the sale of marijuana products? It will impact the small natural entrepreneurs who entered this market early because they still do not have mass distribution points.”
How Does The Legalization Of Cannabis Impact The Sales Of Other More Established Industries Such As Brewing?
Although a few years ago it was said that cannabis was going to be the end of the beer industry, Lukas makes it clear that cannabis has uses other than alcohol and that it does not compete in the same market segment, although it can replace its consumption.
“A lot of people use cannabis for reasons other than consuming alcohol. If you have a medical condition that is treated with cannabis, you are looking for health and wellness. If you have a headache or menstrual cramps, you're not going to turn to alcohol. Again, the cannabis segment is the wellness segment. Alcohol doesn't play a starring role in this segment."
At the same time, the expert warns that in "recreational social occasions" there is a tendency to replace alcohol with cannabis.
“We turn to cannabis for pain management. Cannabis is replacing other pain management products, medications, sleeping pills, and multivitamins. For this reason, it does not necessarily affect the area of alcoholic beverages”, Lukas noted.
Cannabis or Ibuprofen
Lukas and her team understand that cannabis competes in sales with pharmaceutical products. She considers that by increasing the supply and forms of administration of cannabis products, the number of occasions fitted to consume cannabis also increased, "either to sleep better, to relax, to disconnect, to control anxiety, to have fun, to be happy, to manage the pain”.
“We have demographic profiles by state, but overall in the older legal markets like Colorado, Oregon, and Washington, about 50% of the adults consume cannabis. Over time, the percentage of the population that uses cannabis in some form is growing.”
According to Lukas, the growth of the market comes from new consumers, but also from existing consumers who consume more. "It's a growing base of consumers who consume at least daily."
—"One cartridge per person per day?!"
"Oh, no, no, no! I mean, some people, but not that often. Most inhalant users are using at least once a day. I like to compare this to alcoholic beverages, where yes, there is a part of the population that consumes daily, but it is not the 70% of alcoholic beverage consumers that consume at least daily.”
