Most people in the cannabis industry would likely agree that legalization is a good thing. After all, it stops growers from worrying about state authorities confiscating their crops. It opens the market wide open, allowing growers and distributors to reach more people.
But can you have too much of a good thing? In the case of legalization, some growers have profited, but others have fallen victim to increasing commoditization. For growers in states moving from medical to recreational, it pays to look at those who have gone before.
From Medical to Recreational
Medical marijuana was first legalized in California in 1996. Other states followed, and today, 33 states have medical or recreational legalization. In states where medical isn’t legal yet, there may be exceptions for CBD.
Advocates have used medical marijuana programs to push for full legalization. Producers, growers, and others in the industry have also advocated for legalization.
Colorado became the first state to legalize recreational marijuana. California, Washington, Oregon, and others followed. In June 2019, Illinois became the 11th state to put recreational marijuana on the books. New York and New Jersey, among others, are still tabling bills.
As Illinois and other states put their frameworks in place, industry players should look to the West Coast states that led the charge. While legalization has its upsides, it’s also created some unintended consequences.
The Wild, Wild West of Weed
California and other West Coast states were the first to legalize adult-use cannabis. This led to a switch from medical programs to recreational markets.
This meant a switch from a controlled market to one that’s much more wide open. Medical marijuana programs are often limited. This is not only in terms of producers, but also who is buying. Both cannabis companies and medical patients need to have licenses.
A recreational market has fewer barriers to entry, both for consumers and companies. Consumers can be almost anyone over the age of 18.
Companies may still need to get a license. The restrictions on who can get one or the standards for the product may be relaxed. Medical marijuana programs may limit the number of licenses. Companies may also be held to high standards for their products. There may also be restrictions on how much a company can produce under a license.
Recreational regimes tend to relax these regulations a bit. The rules about who can get a license are often more lax as well.
The end result is a wild, wild west situation. Consumer demand drives intense competition between companies. The low barriers to entry allow anyone to toss their hat in the ring. Product would be able to cross state and country borders opening up a domestic and global market. Loosened controls on product quality can enable low-cost producers. These companies then flood the market with cheaper product. The result is a race-to-the-bottom as cultivators fight to cut their prices as much as possible.
Market Gluts and Price Drops
Lower barriers to entry can encourage companies to start up. Higher growing limits, easier licensing, and expectations about consumer demand can also play a role. These factors may cause companies to overproduce. Some companies may try to maximize their yields to reduce the cost of their product as well.
So many companies entering the market can flood the market with cannabis. Look at what’s happened in Oregon. There is so much cannabis being produced and not enough of a demand in the Oregon market that prices are very low for consumers and the state approved a bill that allows for export across state lines. No other state has approved such a bill, but Oregon is ready for trade. A market glut, where the supply of a good far exceeds its demand, was expected in Canada after legalization. Growers had done so much to prepare for anticipated consumer demand. Some worried demand might not materialize.
A market glut causes prices to plummet. In turn, the falling prices make the race-to-the-bottom situation that much worse with growers unable to turn a profit after the high start up costs.
Stabilizing the New Marijuana Market
With all these factors, it’s not surprising that many cannabis companies go under after legalization. Some invest too much in making sure they meet the high standards of the medical program. As a result, their overheads are too high. They can’t compete with smaller producers with lower overheads.
Some use more expensive organic processes. The higher costs demand a higher price. So companies couldn’t compete with the prices set by new, low-cost producers. The market glut reduces the price. Consumers turn elsewhere if they feel the price is too high.
Most cannabis companies suffered from another problem: lack of brand identity and differentiation. People searching the newly minted legal market aren’t familiar with the dozens of brands they find. They’re not able to discern the differences between products as easily.
In this situation, all consumers can use to decide is price. They may choose cheaper products over organic products because they’re unfamiliar with brands and benefits.
Price should never be the be-all, end-all for choosing cannabis. The recreational market is now starting to break into segments. Consumers are demanding different products to meet their needs.
How to Differentiate a Brand
There is good news for those cannabis growers facing down legalization. Lack of brand recognition is a very fixable problem.
It just means differentiating your brand. You need to stand out from your competitors, both new and old.
That sounds easy, although it requires some hard work behind the scenes. The first thing any cannabis grower has to think about is what sets their company apart from others.
For some, a focus on the product is key. Some growers use organic processes. Some are concerned with sustainable practices. Still others may be innovating, using new growing techniques or new processing methods. Some growers may be experimenting with new strains.
Other growers will focus on the folks running the show. The diversity of the showrunners might be a point of focus. Cannabis companies owned by people of color, women, or disabled people are few and far between.
The company may also be set up as a co-op, which gives back to its workers. Some companies may run as non-profits or not-for-profits. These companies may also focus on how they give back to their communities.
Companies may also choose to focus on their environmental efforts. Some may look at advancing the rights of minorities in their hometown or around the world.
There’s also a question of what sets a company apart from its competitors. Growers producing low-quality weed are a dime a dozen. A company offering high-quality products or luxury cannabis has to develop its brand in order to demand a higher price for its product. When it does, its customers will recognize it instantly.
Getting the Word Out
Of course, differentiation only works if you can actually stand out in the crowd. If Company A’s product looks exactly the same as Company B’s, the consumer will use price-point to make a choice.
Many of the packaging rules in adult-use states make it difficult to stand out. In some states, you can’t use branding elements, such as logo and color scheme, in your packaging, which makes it hard to differentiate your product. That’s why it’s important for cannabis companies to do what they can to develop their brand identities. While packaging and logos are key, brand identity goes much further.
A position statement is a good starting point. This statement can be added to a website or social media pages, as well as hard-copy literature. It may contain brand values and vision statements.
These values should be used to inform the brand identity. Is this company one that produces high-quality products aimed at the luxury market? Maybe it offers products with a focus on health and wellness. Is the company fighting for environmental justice? Is it supporting people in the community?
In short, what does your company believe?
These values then inform company messaging. Values are used to craft everything from social media posts to blogs. Values might even determine what community causes you support or which charities you partner with.
Then it’s time to tell everyone. It’s not necessary to shout from the rooftops. Crafting social media posts around brand identity and values is an effective way to get the word out. If it’s possible, add messaging to packaging. This can give consumers a point of reference when they’re deciding between Brand A and Brand B.
Build Your Brand Identity Now
The good news for growers in states like Illinois is that there’s no need to wait to cultivate a brand identity. You can start right now with content marketing and social media marketing.
Building a strong brand identity will help growers across America grow their customer base.
Want more cannabis industry predictions? See more in our Crystal Balls and the Future of Cannabis Industry Series: Pt. II What Will Happen to Cannabis in 2020? and Pt. III A Wide World of Cannabis.