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Blowing Smoke About Cannabis

22/10/2018
Group745
Branding and Marketing Agency
Toronto, Canada
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INFLUENCER: LP/AD's Alex Shifrin says Canada's cannabis legalisation might not offer as much opportunity as we think
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With Canada’s legalisation of recreational cannabis use on October 17th, a great deal of time and money is being spent on advocating about and entering into the cannabis space. The potential is huge, but I would argue not as huge as it’s being made out to be. 

The opportunity is immense. Think about it. A whole new category will come into being practically overnight in a developed market. This isn’t about someone growing cannabis and someone else being able to buy it. This is about a whole set of administrative, logistical and financial layers. Insurance, ERP systems, transport, SKU listings with major retailers, storage, IT support, financing, regulatory lobbying and approvals, merchandising, specialist media and an amazingly vast array of everything that goes between the production and consumption of any consumer good, which has to be in place almost immediately. It’s mind-boggling to consider how this is going to take shape. Having said all that, I question whether there really is as much opportunity as is anticipated. Will legalisation really be the (ahem) spark that ignites cannabis’ vast possibilities? Perhaps. Or perhaps not. Perhaps in some way legalisation is the worst thing to happen to cannabis in the long run.

A big part of cannabis' allure, certainly on the recreational side, is that it's illegal. A joint is something you’re not supposed to have. It’s something you do to take a literal and figurative break from the status quo. There’s a mystique and a perceived value to anything that you’re not allowed to have. So what happens when that’s gone? When cannabis consumption is finally legalised, and we’re given permission to consume it, the product arguably loses that which sets it apart from any other crop. A few years ago, all I wanted was a massage chair. That was it. Then I got a massage chair. A few weeks later, it sat lonely in the spare bedroom as I craved for a new Gibson Les Paul. One really shouldn’t get everything they want.

And we shouldn’t forget that it’s just a crop. And a rather common one at that. Not only is it common, it has a very rapid renewal cycle, meaning that it’ll be much easier to produce in mass quantity. Even if grown at home, one can have a fully mature plant ready for consumption within 6-8 weeks. Shorter if this is in a controlled, purpose engineered environment. 

This isn’t a binary argument against the value of cannabis. Not at all. After legalisation, there will be a lot of initial interest in finally getting access to something you may not have in the past. However, will this have staying power? Will cannabis really replace all the categories it plans to be in? The ambient conversation in this market talks of cannabis striking at the heart of pet care, pain relief, nutritional supplements, staple food products, alcoholic beverages, non-alcoholic beverages, fashion, on-trade, off-trade. It promises to cure your dog’s anxiety, to be the best part of a night out, to make you abandon what you know about pharmacology. Cannabis will be everything to everyone. Everywhere. I have a hard time believing that in two years, people will have stopped buying Purina Dog Chow and Aspirin and have swapped it out for universal cannabis.  

What we’re essentially doing here is legalising broccoli. It'll be amazing at first because it's forbidden broccoli but essentially, it's just broccoli and while it's very healthy, it doesn't displace a nice chicken curry or steak. Or frozen burrito. Or cauliflower. Let’s not make the mistake of underestimating cauliflower.

There will always be a market for cannabis, but I suspect that after the hype has died down, it will be accepted as an ingredient or a niche category product and will stay limited in demand as a result. This may take a couple years. At first, we'll see a consumer spike followed by an immediate drop off. This may come from a production glut or a curb in sales as the demand markets adjusts to actual needs. Or a combination of the two. 

Today, even before the market opens up, we’re seeing acquisitions that place based valuations that simply don’t add up. Some as high as 25 times that of Amazon. There’s a lot of money being spent well before it’s made. How does one even begin to protect this type of investment? I think that ultimately on the brand side, this will become a play for the strategic planner.  

On the retail consumer side of this conversation, cannabis’ shotgun strategy is to displace multiple products and brands across disparate categories. Despite today’s interest, this will eventually result in too thin a spread across too much space. Ultimately, cannabis brands will have to choose their battleground. And that choice will likely either be to create its own category and drive users there or to pick an existing category such as premium spirits or perhaps pain relief and fight to displace incumbent brands. This still means a tough battle is ahead and most likely we’ll see great losses before any great gains are made. 

My belief is that Canada is a SOB (share of business) market, meaning that revenue streams are already spoken for. If you’re going to get new business you’re going to have to do so by taking it away from someone else. This means that you’re going to go after some segment’s revenue, so you may as well challenge them head on. And do it as a challenger brand. For example, if you choose to go after alcoholic beverages, define the soft spot (calories, hangovers) and chip away at that. And stick to it. Forget about the pet care pot distractions, get serious and focus. There’s a lot of money on the line and the well isn’t as deep as it’s being made out to be. On October 17th, Canada legalised recreational cannabis. Let the sparks begin.

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