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The cannabis business has been exponentially growing in the last few years — just look to the proliferation of dispensaries, and growing acceptance across state lines. But thanks likely in part to stress and stay-at-home orders, 2020 was a big year for the bud. According to a BDSA report, sales of legal cannabis in the U.S. hit $17.5 billion last year, a nearly 50% increase from 2019. And it’s projected to jump to more than $40 billion by 2026 as more and more states legalize cannabis overall or add adult use programs to existing medical ones.
That means standing out in the market is all the more important. Businesses can follow some parts of the consumer product playbook, but with wildly different rules and regulations from state to state, bringing a cannabis product to market is anything but traditional. That’s what InterimExecs RED Team executive, Leah Bailey — Chief Business Development Officer at Australis Capital Inc. an early stage, brand focused MSO that was originally an offshoot of Canadian LP Aurora and former CEO of Fluresh, a vertically integrated cannabis company based in Michigan — experienced when she made the pivot to cannabis.
“I’d worked for many years in consumer products and was looking to find new challenges and learn a new industry,” says Bailey, whose resume includes mass market personal care and beauty product providers Helen of Troy, Paris Presents and Unilever. “I love the fact that everything we do is a challenge. Many people are coming out of traditional consumer products companies like PepsiCo and Kraft and going into cannabis from a marketing standpoint. It’s become very accepted.”
What is the key to starting and growing a cannabis business? Here, Bailey explains how to translate traditional CPG skills to a cannabis brand, understanding consumers without traditional market research, and what the future holds for the industry.
Get to know the government, state, and local cannabis regulations
Fluresh initially started as a medical-use cannabis brand, but when Michigan pivoted to adult-use, the business flipped their licenses for many of their 1,500 plants. Coming in as an advisor already armed with the business know-how across retail and distribution in the CPG space, Bailey had to learn the ins and outs of cannabis quickly. A lot of that involved a continuous dialogue with people very experienced in the industry.
“I loved the regulatory political aspect and learning and meeting all of the people in the cities and counties,” she says. “We got to know them all really, really well. Even during COVID, when they weren’t having meetings, they all got on the phone and worked with us. You have to be totally involved with the local governments as well as the state government.”
That also means understanding the nuances from state to state. Michigan, for example, is an unlimited license market, while Illinois is a limited license market. And other markets like Florida are completely vertically integrated, so a dispensary can sell only its own products, but in Illinois a dispensary can sell other brand’s products.
Create your own focus groups
Fluresh originally set out to be a wholesaler, but when it transitioned to a vertically integrated business, the dispensary doubled as focus groups.
“I always thought that Bath & Body Works had a great model because they knew what was selling,” she says. “Now we can see what the consumers are buying. Talk to the budtenders, as they’re called, and find out what customers like and don’t like. The bud-tenders are your window to the consumer.”
She also points out that getting the best response from consumers means understanding that cannabis comes from live, cultivated plants, much like food products where consistency can be an issue.
“It’s a little easier in some of the processed products where you can follow more of a standard operating procedure, but it was a rude awakening when you think you know how to sell something to a consumer, and all of a sudden it’s a whole different distribution model and a lot of your tools that you would normally use are not available to you.”
Understand differences in distribution
“Whether you’re selling a hairdryer or cannabis, you have to understand the consumer — what they’re looking for and what they want and meet those needs,” Bailey says. “That part is exactly the same.”
But when it comes to distribution, the difference is like night and day. Typical consumer products can be sold to Walmart, Target, and other chains, but the same isn’t true for cannabis. Even if there is a chain, it is not national. Each state is unique, and you have to grow and sell all in that state. That means selling on an individual scale and following the limited guidelines for advertising, whether it’s billboards or social media.
“The pricing rules are different, the distribution rules are different, the communication rules are different. I had a very strong Chief Marketing Officer who had also come out of consumer products and the two of us had to learn to go to market in a many new ways.
Bailey says her winning formula boiled down to listening. She and her team looked to dispensary owners who could educate them on distribution and understanding the consumer. “We asked and listened to the people who knew what they were talking about.”
That’s when vertical integration can be key. She says that might be commonplace when cannabis is federally legal, but right now, rules still vary. Some guidelines dictate that companies can either cultivate or go retail, not necessarily both.
Is it too late to enter the cannabis market?
The early adopters in the Western states — Colorado, California, Washington, and Oregon — have already seen price drops due to more supply. But as Bailey notes, up to 50% of the market in these states is black market.
“Once you’ve seen cannabis tested, you see the kind of things that can happen even when you have a controlled environment,” she says. “It’s very scary that people are using cannabis that has not been safety-tested. Mold, mildew, spider mites— there are a lot of other things that can get in there.”
Because quality control is so critical, she still sees room for growth in the West — and even more for Midwestern and Eastern states, which are under capacity.
“If Texas ever expands medical or approves adult use, that’s a huge market opportunity,” she says. “The East Coast is growing quickly. Florida is still just medical. So, it’s a combination of which states aren’t in at all, which states are medical-only, and which states are now bringing in adult-use.”
Realistically, the cannabis market hasn’t reached alcohol market levels yet, Bailey says, and likely won’t even in the next 10 years. But brand growth comes down to appealing to audiences who can take the market to the next level.
“There’s a group that’s never going to try cannabis, a group that’s been using it for a long time, and at least a third of the adult market that accepts cannabis and thinks they want to try it but hasn’t yet. If you can bring in that third group, there is a lot more opportunity. There are many benefits to cannabis beyond fun and relaxation. It can be used to control pain and anxiety, improve sleeping, and for an aging population, there’s a lot of benefit. It’s way larger than I ever imagined.”
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