Marijuana Brands- Born in America, Made in Canada

By Patrick O’Malley | November 3, 2017

Canadian Licensed Producers (LPs) are moving fast and pioneering the first legal international marijuana market. LPs service markets as disparate as Germany and Jamaica, and the list continues to grow.

Canadian LPs are first to expand abroad because they’re the only firms with the operational sophistication, federally legal status, and the ability to raise inexpensive capital from public stock markets.  Although LPs are uniquely suited to supply marijuana products, operational expertise, and financing to the rest of the globe, there is one important area, branding, where their strengths become a weakness.  

The Canadian regulatory system and the resulting marketplace dynamics mean it is a sub-optimal ecosystem to create branded marijuana consumer packaged goods. This is true of the current Canadian medical marijuana market, and it appears that the same will be true after recreational legalization. A very simple example of this dynamic at play; edibles won’t be permitted in Canada until mid-2019. For now, it’s impossible to begin building a domestic edibles brand.

But, the primary reason Canadian firms haven’t developed strong consumer brands is that the marketplace hasn’t forced the issue. The current medical system has web-based ordering and mail delivery of product, no physical dispensaries allowed.  No physical retail presence means there is far less incentive to create meaningful brand identities. Even when physical retail dispensaries do come on-line in a year or more, they will often be owned and operated by provincial governments, which are never associated with innovations in either retailing or branding.

Instead of building brands around distinct consumer cohorts, the LPs have thus-far focused on building their brand as the seller, rather than the brand of the actual product the consumer identifies with. Consider groceries. It is hard to imagine that any consumer has ever bought the grocery store’s in-house brand because of a strong affinity for that in-house brand.  Consumers buy store brands because they are cheap. Selling on the basis of cheap is a bad way to build a valuable brand.

Contrast Canada’s brand desert to what we see in Colorado, Washington, and very soon California. These states have regulatory systems which foster brand creation for two reasons.  First, the low barriers of entry mean many market participants.  Whereas only a few dozen Canadian LP’s can create a brand, Colorado has over 3000 licensees who can create a brand.  With greater diversity comes greater creativity. Second, the state regulatory systems create a dispersed and non-centralized retail environment that absolutely necessitates brands to fill a gap in the marketplace. A customer walking into an unfamiliar dispensary knows to look for their favorite brands on the shelf.

The cross-border license deals have already begun. JuJu Royal and Maricann were among the first. Deals are being negotiated right now in Denver and Toronto, so expect to see the pace intensify in the coming months. As this article goes to press, the just-announced Constellation Brands deal with Canopy Growth shows just how quickly the pace is intensifying. Constellation Brands lives and breathes branding, albeit in the alcohol sector. This bold, forward-looking move by Constellation’s management and board was endorsed by the equity markets, which boosted its market cap by a healthy premium above the purchase price.

Regardless of how long it takes for U.S. legalization to arrive, expect that the brands currently being forged in the competitive trenches of U.S. retail dispensaries will step-up their licensing efforts. They will bring to the table their valuable branding and intellectual property. Their Canadian partners will bring inexpensive capital, large-scale manufacturing, and worldwide distribution networks. Together, the cross-border partners will create the global marijuana brands of the post-prohibition era.

NEWS SOURCES:

https://news.vice.com/story/heres-what-the-provinces-and-territories-have-done-so-far-on-legal-weed

https://globalnews.ca/news/3836502/ontario-marijuana-legislation/

https://www.newcannabisventures.com/canopy-growth-adds-to-strategic-content-branding-prowess-by-adding-ted-chung-dave-bigioni-to-key-roles/

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Patrick O’Malley owns MJ LaunchPad, a venture capital fund that creates cannabis brands in its licensed marijuana processing facility in Denver.

www.MJLaunchPad.com | www.Good-Life-Colorado.com