The Rise of Cannabis Brands

We’ve entered a new phase of the cannabis industry where building brands will be what sets competitors apart in the future. As we move into 2022 in the coming weeks, the cannabis industry is moving closer to becoming a consumer packaged goods (CPG) industry every day. As a result, businesses have to focus on building brand awareness and shaping brand preferences more than ever.

Already, we’re seeing large multi-state operators (MSOs) lay the foundation for national brands. The recent acquisition of Wana Brands by Canopy Growth provides the perfect example. It’s only a matter of time before legal obstacles that have hindered multi-state operations crumble. 

Bottom-line, branding is a key investment that cannabis and cannabis-related companies must prioritize if they want to survive and win in the future. 

4 Critical Factors for Branding in the Emerging Cannabis Industry

As the cannabis industry emerges in new states and grows in established states, there are four critical factors that businesses should consider to build strong brands: local share of voice, focus, education, and federal legalization readiness. Let’s take a look at each in more detail.

1. Local Share of Voice

Research published by McKinsey identifies the first step of branding in emerging markets is to gain and leverage the power of word-of-mouth marketing on a local level. The reason is simple. In new markets, consumers weigh recommendations from friends and family far more heavily than anything else when adding brands to their purchase consideration lists and making final purchase decisions.

Consumers in new markets have a shorter history of experience with the industry and less familiarity with products and brands. Social validation is an important part of the education and buying process for novice consumers in the cannabis industry.

Leverage digital marketing, social media, and email marketing to drive positive word-of-mouth about your brand by communicating targeted messages tailored to local markets and specific consumer buyer preferences, problems, and concerns. At the same time, communicate how your brand, products, and services are different from competitors’ products and services.

2. Focus

My top marketing mantra is this – a focused brand is a strong brand. With that said, businesses should launch with a laser-focused strategy to capture market share in a highly-focused market.

Gaining share of voice through local word-of-mouth marketing is a great way to raise brand awareness in emerging cannabis markets. The research published by McKinsey echoes this point explaining, “Word-of-mouth’s relatively local nature means that companies in emerging markets are likely to reap higher returns if they pursue a strategy of geographic focus than if they spread marketing resources around thinly.”

This is so true in the cannabis industry because the state-by-state nuances of each marketplace (and even local nuances) play an important part in defining and executing a brand strategy. In other words, a focused and localized brand strategy is a natural fit for the structure of the industry.

Furthermore, the McKinsey research says, “By attaining substantial market share in a cluster of cities in close proximity, a company can unleash a cycle: once a brand reaches a tipping point – usually at least a 10% to 15% market share – word-of-mouth from additional users quickly boosts its reputation, helping it to win yet more market share, without requiring higher marketing expenditures.”

Bottom-line, the network effect of word-of-mouth is strong and provides a solid foundation when brands start with a focused strategy and extend strategically as they gain market traction.

Again, a focused brand with focused marketing and sales investments not only helps a brand successfully launch in a new market but also helps the brand gain market share in an organic and sustainable way.

3. Education

The cannabis industry is shifting to a consumer demand-driven market where consumers ask for brands by name rather than solely relying on dispensary budtenders (or sales representative for ancillary businesses) to make purchase decisions.

As in all industries, there will always be deals made to acquire more shelf space, but the brands that consumers ask for by name and demand that dispensaries (or ancillary businesses) offer will be the winners in the long-term.

In an emerging market, education is a critical component of motivating consumers to ask for brands by name and become loyal to specific brands. This includes education not just of end-user-customers but also of salespeople and everyone across the supply chain.

At the dispensary level, educating budtenders and sales representatives about your brand is crucial and should integrate directly with your consumer education and marketing investments. The goal is to establish a brand presence in the dispensary as well as broader consumer recognition and brand trust. When you achieve both micro (in store) and macro (broader consumer) brand advocacy, sales will go up naturally.

4. Federal Legalization Readiness

When will cannabis be legalized at the federal level? That’s the big question that still hangs over the industry, but the answer is getting clearer. With various bills in Congress and more states legalizing adult-use cannabis, there is hope that federal legalization will happen within the next several years. Businesses that will thrive in the new nationally legal marketplace are the ones with strong brands that have laid the foundation for interstate commerce. 

Large multi-state operators are already taking steps to expand their footprints in different areas of the country by winning more licenses and acquiring licenses and licensed companies in key markets. However, there will still be room for highly-differentiated brands – just as there is room in other industries for large and small brands. While it’s likely that the leading brands in different categories will be acquired by larger competitors, smaller brands with unique value propositions can carve out their own places, which will be hard for competitors to duplicate or match.

Currently, the cannabis industry operates in silos that exist solely because the plant is illegal at the federal level. When that changes, the industry will transition from its fragmented framework to a more efficient structure. As a result, there will be opportunities for many businesses and challenges for others. To ensure your business is one that sees federal legalization as an opportunity, make sure you’re building a strong brand now that can withstand the changes that are inevitably coming later.

Key Takeaways about the Rise of Cannabis Brands

Now is the time for brands to carve out their niches in the cannabis marketplace, establish leadership positions, and prepare for local or national recognition and dominance.

Interestingly, among the top five resolutions for cannabis businesses in 2021, branding ranked in the second spot. It’s nearly a year later, and the question businesses should be asking themselves is whether they actually took the right steps and made the best investments during the past 12 months to build their brands. If not, now is the time to define your brand, identify your target audience, implement your focused brand-building strategy, and prepare to grow your brand in the future.

Want to see how the Cannabiz Media License Database can help you connect with cannabis and hemp license holders to build your brand? Schedule a demo and see how it can help your brand and your business grow.‍

Originally published 1/21/21. Updated 12/3/21.

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