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By Dave McManus
With the drive to federalization starting to accelerate, momentum is building around rescheduling cannabis. This would bring a host of changes that are frequently discussed, such as easier access to capital, banking, and the removal of 280E. A crucial big picture issue that is less front and center, however, is the type of competition that shifting legal boundaries will welcome into the sector.
Specifically, the likely entry of two formidable forces—Big Pharma and Big Tobacco—could reshape cultivation and distribution. It could spell a dramatic shift for an industry that was built on small- to midsized companies growing their market share state by state.
There is a parallel to be found in the rise of microbreweries, which gained incredible traction when mainstay national and global brands began watering down options for consumers. The evolution of Sam Adams from local brew to global distributor and the purchase of Anheuser Busch by In-Bev stunned beer enthusiasts and created an opportunity that burgeoning microbrewers did not miss.
The ascent of microbreweries not only revitalized the beer industry, but it also underscored the importance of fostering intimate customer connections, building exclusive brands, developing strong financial budgets and projections, and adapting to new challenges. These lessons can serve as a compass for cannabis entrepreneurs navigating an industry that may see the entry of synthetics and mass distribution.
Know Your Customer
Microbreweries flourished by understanding their customer base intimately, an approach that becomes critical when supersized players entered the space. With federal legalization potentially creating a seismic shift in the landscape, cannabis businesses must prioritize identifying customer preferences and navigating the diverse expectations and values of an evolving and widening consumer base.
Data is the key to knowing the customer. Having the right analytics enables cultivators to track buying trends, geographic hot spots, and other factors that inform decisions in real time. Knowing who the ideal customer is and what they expect gives companies an edge in catering to the niche that most connects with their brand and product.
Build an Exclusive Brand
With data in hand, operators can better preserve the cultural nuances that define their buying community in the face of potential corporate homogenization.
Brand building is an art and science that can separate a company from any competitor, regardless of the size. The success of microbreweries was in large part founded on a combination of crafting quality brews and creating unique and exclusive brands. Limited batches and intentionally tight distribution of highly rated product catapulted some microbreweries to cult status, including regional brands such as The Alchemist, Treehouse, and Founders.
Against the backdrop of federal legalization, cannabis entrepreneurs must likewise focus on building brands that resonate on a deeper level. Maintaining authenticity and customer relationships becomes a strategic imperative. Crafting a brand narrative that aligns with the ethos of the cannabis community will be essential in differentiating businesses in a landscape increasingly populated by corporate entities.
Budget and Financial Projections
Competing with corporate giants does not change everything, but it does demand a strategic approach to budgeting and cash flow projections that goes beyond traditional financial preparedness. Cannabis operators must allocate resources for innovation, research, adaptability, and protection of logos and brand materials so they can more capably contend with behemoths that have unparalleled financial power and global reach.
Given the troves of data available, budgeting and projections should be an ongoing exercise rather than an annual one. Financial teams must communicate with their advisors about the priorities, goals, and customer base; this will allow them to understand how the financials align with the company’s vision. Using the available data in a meaningful way is a useful tool to ensure this alignment.
Planning for a New Kind of Competition
As the U.S. considers a paradigm shift with federal legalization, owners and operators should be preparing for a variety of changes to the marketplace. Navigating this new frontier will require a keen understanding of how to preserve the essence of cannabis culture amidst corporate influence. Insights distilled from the craft beer movement can help forge a path that honors the industry’s roots while capitalizing on opportunities presented by its dynamic and evolving future.
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