Part 1 of a 2 part series by Smoketown Consulting covering the cannabis industry's transition from fringe rebellion to Consumer Packaged Goods goldmine. Co-Written with brand builder & cannabis entrepreneur Aniefre Essien (@Aniefre Essien).
Cheech & Chong would have been proud and insulted all at the same time. Here we were at a cannabis shop in Oakland, Ca., the epicenter of the legal marijuana universe, and the Founding Fathers of marijuana pop culture had been ghosted.
For those too young to know the reference, Cheech & Chong were an irreverent comedy duo in the '70s and '80s that elevated weed to demi-god status in pop culture. They were the People's Potheads, helping usher marijuana into its tenuous position as America's most ridiculed pastime.
So, as we walked around Harborside, one of California's most successful cannabis retail stores (known as "dispensaries" in industry lingo), there were no pop cultural references to Cheech & Chong or Bob Marley or tie-dye bongs. In fact, after spending a week studying cannabis dispensaries in the San Francisco Bay Area, it was clear that those touchstones of stoner culture, when present, were actually negative indicators. The more present they were, the fewer customers the cannabis dispensary tended to have.
This may seem counter-intuitive. Didn't California and other states simply legalize the ever-baked lifestyle represented by Cheech & Chong and their more sophisticated contemporaries, Snoop Dogg and Wiz Khalifa?
No. Something far more profound is happening with cannabis, driving a potential market opportunity of $75 billion dollars, by some estimates.
Why? Because legalized marijuana is not a pothead's wet dream. It is the creation of a new Consumer Packaged Goods and Pharmaceutical marketplace unlike anything we've seen in decades, all happening in real time. It will be much more than a recreational competitor to wine, beer and spirits. It will also spawn highly disruptive innovation in Food & Beverage, Health & Wellness, and Personal Care.
But we've skipped a few steps.
News flash: Cannabis will eventually be legal everywhere in the United States. It is already fully legal in seven states and D.C., and it is legal for medical use in 21 more. As others have persuasively argued, the political tipping point has been reached to replicate California's open market in every state. Key headline: Even devout Catholic and former Republican House Speaker John Boehner sits on the board of a cannabis business.
Even without national legalization, 20% of American adults can already buy cannabis for medical or recreational use. In other words, the market opportunity is significant even if nothing else changes.
For some, this observation is not new. California first pioneered the legalization of medical marijuana in 1996 and, by 2008, 15 states had followed. Then the Obama administration graced the industry with eight years of "look-the-other-way" enforcement policy at the Federal level. The window was open, and entrepreneurs didn't miss it. They partnered with farmers, R&D teams, investors, and lawyers -- lots of lawyers -- to lay the ground work for the rapidly maturing market that we visited in the Bay Area in May.
Expansion of Forms & Factors
In the intervening years since legalization began, there have been dozens of major innovations -- from strains of various potency to form factors to microbiological breakthroughs. All the innovations can be summarized by focusing on three fundamental consumer problems that needed a solution.
1. Get Rid of the Smoke
Smoke had baggage. Beyond the obvious carcinogenic risks, clouds of malodorous weed smoke cued college dorm rooms and, well, Cheech & Chong.
This drove a host of form innovations including: vaping; edibles like cookies and candies; and tinctures.
2. Give Me Control and Discretion
According to a Yahoo News/Marist survey, 78 million Americans adults have tried marijuana but didn't stick with it, and 115 million more have never tried it. Setting aside its legal status, one of the biggest barriers to usage is fear: fear of judgment and fear of unwanted side effects. In other words, consumers need control. They need to control who knows that they're using it, and they need to control the level of high.
To address this problem, a new generation of micro-dosed edibles emerged, each designed to deliver a precise kind of high that users could control. LEVEL's tablinguals -- tablets that you put under your tongue -- are just one example.
In addition, smokeless delivery systems evolved further to be incredibly discreet. Dosist pens, for example, are vaporizers so sleek that they disappear in the palm of your hand.
3. Make Me Healthy, Not High
Then, of course, there are many instances where doctors and wellness clinicians want to prescribe the health benefits without the high. This is the reason that cannabis will be a blockbuster opportunity. It could simultaneously compete with alcoholic beverages, pharmaceuticals, over-the-counter drugs, functional foods, and supplements.
These heath benefits are enabled by marijuana's powerful microbiology. Cannabinoids are dozens of chemical compounds that, when they interact with our Endocannabinoid System (ECS), impact us in various ways. But only a small subset of them -- like Tetrahydrocannabinol, or THC -- delivers the psychoactive "high" that Cheech & Chong made famous.
The remaining active chemical compounds are believed to deliver a wide range of health benefits, including anti-inflammation, pain management, insomnia relief, and anxiety reduction. As regulation continues to unwind, researchers will be able to fully explore and prove the psychological and pharmacological benefits. GW Pharmaceuticals has already filed for FDA approval of the first pharmaceutical based on cannabis. Meanwhile, these non-psychoactive ingredients are already widely available in 28 states and D.C., especially the actives CBD (Cannabidiol) and CBN (Cannabinol). In the coming years, they will become household names.
What Comes Next
With the stage set, the coming years should see four radical shifts that will reshape the industry into a classic Consumer Packaged Goods marketplace. We will more fully explore these shifts in the next article:
- Consumer Insights: Deeper analytics and psychographic exploration.
- Branding: Increased sophistication of brand messaging and development.
- Retail: Transition away from clinical, heavily-policed storefronts.
- Consolidation: PE investment and acquisitions by strategic CPG companies.
To get notified about the next article, follow us on Twitter @smoketownstrat or LinkedIn for an announcement.