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In the dynamic world of cannabis, building a brand that will stand the test of time is a challenge for many reasons, including regulatory compliance.
Both Canadian and U.S. companies are still at the mercy of regulators regarding marketing and advertising. We are starting to see a few brands differentiate themselves in the California market, one of the most mature, but there is still a ways to go. At such an early stage in the industry, the brands that distinguish themselves from the competition and clarify why their product is better will win out in the long run.
To analyze the state of branding in the industry, we’ve come up with a five-stage model of brand evolution that can be applied to any cannabis market in the world. With it, we can see where the cannabis industry is now and predict where we think it’s going.
Stage One: The empty slate
The first stage involves unbranded goods, with little to no differentiation with the naked eye. Before legal retail cannabis existed, this is what most cannabis consumers were familiar with: getting your cannabis delivered in a tiny plastic bag. If you were lucky, you could find out what strain the product fell under, but beyond that, there was no way to differentiate one product apart from another.
An example of this stage is in Canada. Due to federal regulations that hamper marketing efforts, Canadian companies can display only particular parts of packaging, which is limiting.
More prominent brands in Canada like CGC or Aurora, that continue to conduct large-scale M&A, are losing market share to smaller producers like Auxly, Avant, or Noya.
At least for the time being, branding efforts in Canada are relatively futile against consistent quality products.
The nascent market in the Eastern U.S. is also in this first stage but slightly ahead of Canada. Due to erratic marketing and packaging regulations, many operators are “the only show in town” and either do not have the means to or feel a pressing need to invest in branding since they will make sales and margins on what they’re already selling.
These companies should be wary though, as legalization and interstate commerce become more of a possibility, well-established West Coast brands, which have heavily invested in brand building, will have a strategic advantage that could encroach on an East Coast operator’s market share.
Stage Two: Brand as reference
The second stage is where most of the cannabis industry finds itself now. This stage marks the emergence of mass production, giving customers more choice. Differentiation is the driving force, primarily based on packaging. A few brands have begun to differentiate themselves with their packaging, including Cookies, Kiva Confectionaries, Sonder, WYLD, and Wana.
Other brands are differentiating themselves by becoming hyper-focused on addressing specific problems that are relevant to their audiences. Brands like Dreamt and Pilgrim Soul built their whole brand around helping consumers sleep better or be more creative. These products will stand out in a dispensary, as new customers who may be unfamiliar with the actual properties of the plant can shop for desired mood states or distinct wellness applications. Brands can also use anecdotal stories that show how their hyper-focused products directly help customers.
Stage Three: Brand as personality
The third stage is where rational or functional differentiation is now table stakes. In this stage, differentiation is based upon personifying brands by evoking an emotional response. Brands like Disney and Tesla have mastered this. Their goods have become more than just products – they represent a lifestyle and have raving fans that evangelize the company to their friends and family.
Currently, few cannabis brands have reached this stage. We found there is a bit of a chasm between Stage 1 and Stage 2 where many brands get stuck. Hyper-focused brands are on the right track, but it can be difficult for cannabis brands to market themselves with a use case like pain relief, given the lack of scientific evidence.
Cann is a hot California brand that is leaning into the “LA sober” lifestyle. Finding lifestyle fits that work within regulations is a good niche for brands like Cann. Cookies has become one of the most recognizable brands in the industry, and they’re building the personality of their brand by creating strains with fun names like Honey Bun, Cereal Milk, and Snow Man. They also are partnering with celebrities like Snoop Dog and selling branded clothing and merch in addition to cannabis products.
Stage Four: Brand as icon
The fourth stage is where brands become deeply rooted in consumer minds, connecting mind share to market share. Brands that reach this stage can command a premium due to reputation alone. At this point, companies like Apple and Louis Vuitton can put their logo on a product and know their loyal customers will pay any price to be a part of the club.
At this stage, quality, although still essential and expected, begins to matter less than image. Consumers want to be seen using these products and be associated with them because they’re fashionable. Again, no cannabis brands have debatably reached this icon status yet, but brands like Cookies are on the right track.
Stage Five: Brand as policy
The final stage is where consumers become proactively involved in the brand-creation process. Consumers represent more than just the brand by associating with it. They represent a greater idea that the brand stands for. For example, wearing Nike apparel makes you feel like an athlete. Wearing Patagonia makes you feel outdoorsy and shows others you care about the environment.
Ten years from now, we may see a cannabis brand reach this level of influence. But until regulations are lifted on cannabis marketing and advertising, companies will be limited in their reach.
Will there be Nikes and Apples of weed?
A critical catalyst for unlocking the final stages of branding in the cannabis industry will be U.S. federal legalization. In November of this year, Republican Representative, Nancy Mace, introduced a bill, although unlikely to pass, that would allow for interstate commerce.
This milestone could bring the industry further into the mainstream and attract institutional capital. It would also allow already popular California brands to ship and sell across the United States, potentially bringing a few brands to stage three or four. Most importantly, legalization would push other countries, like Canada, to follow suit and ease regulations. As we cross these milestones, new brands may even emerge in newer countries that stand to compete with brands that are popular right now.