The value of good branding
A good brand consists of many variables: some large, some small; some visible, some invisible; and some we are consciously aware of as well as unconsciously aware of. To stand the test of time, all good brands implore a mixture of these variables and do so intently.
When we started as a manufacturer in the legacy cannabis market, our first concern was making sure we got our treats from our kitchen and into mouths – not just on shelves. The lists of products that go from conception to creation are endless. But going from a product to a sale requires more than just a great tasting treat. For example, I am sure that like most of you reading this, there isn’t a better meal than a home-cooked one. However, those exceptional home-cooked meals will likely never outsell a red seal chef’s concoction – or better yet, a McDonald’s happy meal.
All that is to say: the best packaged product isn’t necessarily the best product – but it is the one that’s likely going to sell. When we first put our treats on shelves in 2014, we kept this in mind. That’s why we partnered with Weeds Glass & Gifts for our first offering and applied their branding on our treats. Their name had value in the market. We sold a lot of treats.
The best example of successful branding, in my opinion, is the Apple iPhone. Any technologically inclined individual will tell you (with evidence) that at any given moment in its cycle of iterations, the best iPhone available could not hold a candle to the specs and/or features in a flagship-tier Android device.
But, as of this writing, the iPhone controls over 50% of the US market, 78% of the $1000+ market globally, and cost more than superior technology that is being offered by the dozens of Android manufactures.
Why? Branding.
A good brand is more than just a product – it’s about how it makes you feel. Apple gets it.
Why brands matter in the cannabis market
When Canadian legalization of cannabis was right around the corner in 2018, everyone with even the slightest interest in cannabis was rushing to the stock market to buy stocks in the licensed producer (LP) that could claim the highest potential output of cannabis. By 2019, the next flash-in-the-pan market indicator was who had the largest footprint of stores.
It’s almost 2023 and needless to say, both of those business models have crashed and burned as the ideal segment of the cannabis market to be invested in. Any gander at the indexes can demonstrate the lofty highs that are now like distant relatives to the current lows of any stock in those sectors.
LPs have been and are allowed to have negative balance sheets quarter after quarter – year after year. Cannabis stores are allowed to pop up like weeds (no pun intended) – with no logical method of keeping the lights on or acknowledgement of saturation of competition. The Canadian cannabis industry is ugly, and has been for awhile. Take a walk down Queen St West (or any major street in Toronto for that matter) and you would be forgiven if you thought weed was the only thing humans consumed.
The laundry list of LPs and stores on the (primarily Canadian) indexes that can’t turn a profit if their lives depended on it are stuck in a limbo, – between apathy and a lack of accountability.
But that accountability is on its way (more on that later).
The financial focus in the market must and will shift to brands over licensed production operators and storefronts as time goes on. It must. The balance sheets of LPs and stores will only improve when there is less waste in their production and inventory, and better margin creators in both areas.
American (Federal) legalization and the consequences
All signs point to an impending American legalization of cannabis at the federal level. As it stands, 39 states and the District of Columbia currently have laws on the books that create access to medical and/or recreational cannabis. Through these state operations, various licensed producers have gotten large footholds in each market (and in some cases they have become multi state operational).
Although operations are not legal at the federal level, as they are in Canada, the progress and maturation of the markets in each state have far exceeded that of the Canadian market as a whole. Once the proverbial “switch” has been turned on by federal law makers, an American cannabis market will virtual go live overnight. Unlike its Canadian counterpart, it will hit the ground running – already in 5th gear – on day 1. This will be disastrous for the industry north of the border.
Don’t even get me started on the overdue review of the Canadian Cannabis Act regarding THC limits per package and transaction, and the ridiculously limiting rules around package design.
Disasters and Consolidations
The longer the Canadian cannabis market sleepwalks it self towards the edge of a self-destruction, the closer it gets to being kicked over the edge by the Americans sooner than expected.
The more money from other industries (tobacco, alcohol, convenience stores) is allowed to dictate the future of licensed production north of the border, the longer it will take for the appropriate stewards (*cough* legacy brands *cough*) to drive it (back) in the right directions – towards profits. If there was one thing the legacy market was – and still is – good at, it’s making profits.
On the storefronts side of things, a major shift needs to happen as well. Although many of the issues are self-inflicted (poor location scouting and market research), the provincial bodies in most provinces (here’s looking at you Ontario) that are in charge of the distribution of cannabis set the stores up for almost certain failure. The Ontario Cannabis Store’s gang-styled approach to setting the market and being its only pusher is straight up gangster – and not in a cool way.
For these reasons, many large-scale LP’s will outright fail in the coming months and years and the same can be said for poorly thought-out storefronts. Although, sadly, this failure and consolidation is required to trim the fat in our industry.
Thoughts and Conclusions
The Canadian cannabis market needs to get it’s act together and soon. Or it runs the risk of being completely swallowed by the impending federal legalization of an American cannabis market. Without anything to show for it.
The last advantage left to the Canadian cannabis market is being first to the legal table, but that advantage has for the most part been squandered. Investment strategies and business models need to come to terms with this, and adapt quickly to the reality that the greatest (positive) margins are being seen by the brands in the industry and not the licensed producers and storefronts.
The good brands in our marketplace need to be identified and amplified. LPs and stores are secondary to the product and need to be treated as such. If we lead with good products, the rest will fall in place and the marketplace will be set up for success versus glut. The Americans are coming and the Canadian cannabis industry needs to get ready for them. It needs to look sexy. And now.
Yannick Craigwell
Founder and Chief Executive Officer
TREATSANDTREATS INC.
