It may not be easy to picture John Wayne with a joint, but that’s actually a pretty apt representation of the U.S. marijuana industry as it stands in 2015. The American cannabis market has a Wild West feel to it with an expansive territory with plenty of space for brands and advertisers – as well as fortunes to be made – but, like the Duke’s Old West, it’s also relatively lawless territory populated with some outlaws and a few desperados.
But as more states legalize marijuana and the market grows, it’s clear this is not just a product with appeal to college kids and aging hippies. Marijuana is indeed a legit big business and this is a unique moment in time for both brands and advertisers, presenting opportunities and challenges to brands.
The Context of Legalization
As of July 1, Oregon residents can grow and possess limited amounts of marijuana for personal use.
Per the Oregon Liquor Control Commission, which has the authority to tax, license and regulate recreational marijuana – and will begin accepting applications to commercially grow, process, wholesale or operate retail marijuana outlets on January 4 – the ability to buy marijuana from retailers in Oregon is expected to begin circa Fall 2016.
This makes Oregon the fourth state to legalize marijuana after Colorado, Washington, and Alaska (as well as Washington, D.C.), per the National Organization for the Reform of Marijuana Laws.
Medical marijuana, however, is legal in about half of the country.
All of this adds up to a pretty big market. According to ArcView Group, an investor network focused on the cannabis industry, the market for recreational and medical marijuana nationwide will be $3.5 billion this year.
General consensus among business and marketing experts is that this is a market that will only grow as the product eventually becomes legal on a federal level. So just like the enterprising Americans who settled the frontier, we are collectively at a unique moment at which there is both huge opportunity, but also tons of roadblocks for this product that is simultaneously illicit and not.
Marijuana’s Big Branding Opportunities
For starters, there are almost countless branding opportunities within this burgeoning industry.
That includes growers, which can brand themselves as suppliers of products that possess certain qualities, notes Peter Levitan, CEO of strategic agency Peter Levitan & Co. and an investor in two medical marijuana dispensaries.
Then there’s the product itself, as well as accessories like rolling papers and vaporizers.
Also, there’s infused products like edibles, as well as extracts and oils.
For his part, Kris Krane, a managing partner at 4Front Advisors, a marijuana business consulting firm, sees big branding opportunities in extraction in particular as sales in recreational states shift from flowers to edibles. That’s in part because extraction can pull out specific chemical profiles.
“We’re not talking about a strain, but a chemical formulation that will be exactly the same every single time as opposed to a flower,” Krane said.
In other words, a grower can produce the Blue Dream strain, but if growing conditions are slightly different, this particular strain could have a different chemical makeup, whereas extractions ensure specific chemical profiles every time.
“That to me is a real branding opportunity,” Krane adds.
In fact, he points to one manufacturer that uses extraction to create nonsmokable products and names them after the effects they have, like Calm or Alert.
“That I think is an interesting technique,” Krane said. “You can talk to consumers at a level they understand.”
There are also the cannaceuticals, or products that utilize cannabis for medicinal purposes, not to mention the retail brands that sell all of these products to the general public.
The McDonald’s Of Marijuana?
As more states consider ballot initiatives and/or legalize marijuana and it becomes more mainstream, target audiences expand. Some of these consumers may feel more comfortable buying from a brand they know, meaning there is also opportunity in standardizing the pot-buying experience, much like McDonald’s did with hamburgers decades ago.
Krane points to California-based medical cannabis dispensary and wellness center Harborside Health Center, which has two locations and is looking to open additional sites in different parts of the country, as a good example. It’s a brand that provides a uniform experience no matter where the consumer shops.
Other early cannabis leaders include brands like Dixie Elixirs in the edibles market, notes Samantha Chin, director of marketing at PotGuide.com, a marijuana-focused travel guide.
However, as of this moment, Chris Walsh, managing editor of the Marijuana Business Daily, a business publication that covers the U.S. cannabis industry, said it is difficult to come up with the “Starbucks of cannabis” because of challenges tied to varying state regulations. But, he said, owners of larger operations in states like Colorado and Washington are competing for licenses in other states, which means that some brands might emerge as leaders and then consumers wanting a trusted name and experience will be able to turn to those brands. But, he notes, this could play out over quite a long time.
Building Brand Loyalty In The Marijuana Industry
There is also a lot of noise when it comes to the strains themselves, presenting an opportunity to the branded product that can figure out how to cut through it.
In fact, Levitan likens the marijuana industry to the wine business in that consumers in both marijuana dispensaries and wine shops are faced with a slew of not only varieties, but also brands. Because there’s potential to overwhelm consumers with choice, Levitan said smart players in marijuana are licensing names from recognizable figures like Bob Marley, Willie Nelson and Tommy Chong from Cheech and Chong.
“The greatest living voice for smoking marijuana at this point – Miley Cyrus,” Levitan said. “If I was a big league marketer, I would try to figure out how to get on her side. I would personally like to smoke a Cyrus joint more than an old white guy’s.”
Saying that Marley and Nelson are “probably the top two names [associated with cannabis], along with Snoop Dogg,” Krane calls working with celebrities a “pretty safe bet,” but notes these names can only take the products so far and it will ultimately come down to the quality of the product itself, which could also still fail if consumers only buy these brands once for the novelty factor.
“Just as we’ve seen in other industries, consumers will soon be willing to pay more for their favorite branded strain, similarly to how they go to their favorite pizza shop across town or shop for shoes at their favorite store in town,” Chin said via email. “Cannabis can often be very confusing to understand, so as more and more people get familiarized with legalized marijuana, I could definitely see many consumers sticking to what they know and even becoming great brand loyalists.”
Marijuana Marketing Challenges For Brands
But that’s not to say creating a branded strain is an easy task.
Perhaps the most obvious challenge is that this is still an illegal substance.
Despite clear opportunities on the product side, because the industry is so small – and illegal – there hasn’t been a ton of money put into brand development, Krane said. But, as noted, there’s huge growth opportunity, which means there’s a real prospect for brand consultants to work with emerging cannabis businesses to develop smart branding and marketing for competitive advantage.
At the same time, geography is another huge hurdle.
“In the development of every industry, for every type of product, there are a handful of really strong, recognizable brands,” Krane said. “Because cannabis is so new as a legal industry and restricted to geographic areas, that hasn’t really happened yet. It’s still in the brand development phase.”
Calling national brands “the next evolution of the industry,” Walsh agrees the market has not yet seen big brands emerge because “the industry has been very highly regionalized.”
While some brands are beginning to surface as known entities, they won’t be known nationally like alcohol brands because cannabis is still a state-by-state industry. For example, Krane notes that if Colorado-based Dixie Elixirs wants to sell products in another state, it has to build an entirely new factory and cater to an entirely different set of regulations, making it much more of a challenge than any other industry “because of this patchwork of geography.”
“In a lot of cases, there are laws and restrictions about only operating within a specific state or city, so branching out and selling your products in multiple states and markets has been difficult if not impossible for companies that actually handle marijuana,” Walsh said.
He notes companies that instead provide products and services for the industry – like tracking software, inventory technology or extraction equipment – are in better positions for the time being to develop industry-leading products on a national scale.
However, Walsh notes, companies in the marijuana industry are starting to figure out ways to expand into new states and skirt the inability to transport products across state lines by setting up licensing deals in other states with local companies, which then process the brands/formulas under their names.
This includes companies like Dixie Elixirs, as well as GFarmaLabs, which is also in the marijuana-infused products business, he said.
Another brand challenge – and sign that marijuana’s so-called Green Rush was aptly named with its Wild West Gold Rush parallels – is that lack of federal regulations to date means brands can more or less get away with making bold claims they may not be able to otherwise.
Like the wine industry example, Krane notes there are so many different types, but it is hard to know if a given strain really is what it says it is. Like, for example, a dispensary could carry Super Silver Haze, but it might actually be another kind of Haze that looks similar and yet the dispensary calls it Super Silver Haze because consumers are more likely to buy that name, Krane said.
However, there have been some steps to tackle this problem in Colorado’s more mature market, where every plant is RFID tagged and brands must print genetic information on labels, which “makes it harder for businesses to play those kind of shenanigans,” Krane said.
Where do you see the biggest potential, and biggest challenges, as marijuana legalization grows?