California, the largest cannabis market in the U.S. is experiencing challenges such as an overregulated environment, a fractured nature and low profitability. In this context, many wonder how cannabis companies build and become profitable in a market as challenging as California?
To analyze this question, Andrew Thut, CIO from 4Front Ventures and Jon Purow from Zuber Lawler joined George Allen, chairman of the board at Lowell Farms, Troy Datcher, CEO of The Parent Company (TPCO) and Steve Gutterman, CEO of Falcon Brands, at Benzinga’s Cannabis Capital Conference, held in Miami on April 20 and 21.
Reduce Costs, Identify Consumers, Add Value To Cannabis
Andrew Thut explained that 4Ventures has thrived in California by leveraging its production capacity and scale while reducing production costs. An alternative valid for times like these in which cannabis buyers see their purchasing power reduced by inflation.
“We have done that through very little branding, it is all about low-cost production for us, and we think the sweet spot in the market is having low-cost production and being a CPG producer,” Thut said. “In December we opened a 175,000 sq-foot production facility -no cultivation, where we can produce at the lowest cost we have ever seen.
We’ve just introduced pricing for our 10-pack 100mg gummies, at $4 -wholesale. There is a lot of elasticity in the end markets in cannabis, and there are a lot of opportunities for low-cost producers to go in and take a lot of [market] share,” Thut added.
More For Less
“The consumer is telling us that the way to win, is to give them more for less.” Allen of Lowell Farms concurred. “The consumer will tell you where you want to go.”
Lowell Farms is focused on identifying, following and understanding consumers, their needs, likes and dislikes.
“Not because it is competitive for the folks on this stage, but there is probably another competitor way bigger than all of us”, he said, in reference to the illicit market. “We have to lure the daily smokers into our store and the way to do that is to give them value [for their money] they can't refuse."
Thut agreed, stressing the importance of brands. “Probably some of the best cannabis brands are going to come out of California, but you have to be solvent to do that. We are seeing a lot of opportunities for folks who come to our low-cost production [model] on steroids for California, and we had the opportunity to bring them on, cut costs and penetrate a retail base, making them profitable.”
Delivery Promises Consistently
Troy Datcher of The Parent Company (TPCO), a vertically integrated California cannabis company with 8 brands, 11 dispensaries and 6 delivery depots, is concentrated on building TPCO’s brand and end-to-end relationship with consumers as well as driving innovation.
“What we learned during the pandemic is that brands matter... delivering on a promise matters. The reason we own dispensaries is because we want to build brands. The reason why we do deliveries is because it tells us about the experience our consumers are having," Datcher said. "Our uniqueness in California is that we're taking all of that data about consumers and using it to be better innovators and drive a personalized experience. I do believe that in some segments, price matters too, but if you can deliver on a promise at a better price point and be consistent about it, they [consumers] will pay for it. That's our best bet.”
Building Jay-Z's Monogram Brand
"It's about luxury, it's about a quality experience delivered consistently,” Datcher said. “Our brands are built out of authenticity. Jay-Z was a dealer, so Monogram comes from a very authentic place. Marketing and advertising are about pointing out the hypocrisy of the [cannabis] laws in this country.”
Steve Gutterman, CEO of Falcon Brands, one of the largest vertically-integrated brands in California, agreed that to thrive in the current markets, delivering on the brand's promise is essential because consumers are smart.
“We have a lot of small brands that come to us and say ‘can you take our product and deliver it to dispensaries?’ or ‘look at how fine our weed is,’ and we say no, thanks because what we’ve come to learn is that delivering on a brand promise is about creating an authentic product and doing 100 little things really well to make sure that you're consistently getting that product into the market day after day,” Gutterman said. “If you tell a dispensary that you are going to be there at 10 a.m. with a pallet of goods, you’d better be there by 9:58 a.m. with a pallet of goods.”
Photo by Dez Smith for Benzinga
