All indications are that the Canadian federal government’s approach to the cannabis business won’t offer nearly the cannabis branding opportunities many hope for. No doubt a blow to the big Licensed Producers (LP’s), this is even more vexing to the budding (pun totally intended!) but less well-funded entrepreneur in this space. The best funded LP’s now and in the future will have the resources to build relationships with the distribution channel, and take advantage of in-store advertising, which may be the only opportunity for cannabis branding outside of a company’s website. Smaller players won’t have the ability to deploy massive sales forces to create demand advocates at the retail level, nor may they be able to afford in-store promotional opportunities given the size of the competition they’ll likely be up against.
A brand is the sum total of the customer’s feelings and beliefs about a product or company. It’s the cornerstone for building a relationship with customers and any marketer worth their salt is going to protect it like an only child. Taking away this tool is like asking an accountant to do their job without a computer or a calculator, or asking the dentist to give up freezing and x-rays!
A summary of Anne McLellan’s recent meeting, and Bill Blair’s recent statement,“I believe there will be very significant restrictions on advertising, branding, packaging, warnings on labels not unlike what we currently do with tobacco and perhaps even more restrictive.” (Bill Blair)
They make it pretty clear that the opening position at least will be somewhat plain packaging, a ban on advertising outside the point of purchase, and most likely some restrictions on what can be claimed on company websites.
This is a shame for both the cannabis consumer and the industry.
Why Cannabis Branding Should Matter to the Government
The Task Force’s primary objectives were to:
- Protect young Canadians by keeping marijuana out of the hands of children and youth.
- Keep profits out of the hands of criminals, particularly organized crime.
Striving to achieve the first objective is at least a laudable prime directive, and the best way to achieve it is to eliminate the illicit market. Conveniently that’s what the second objective boils down to, so if #2 is achieved that will go a long way to achieving #1. The focus should be heavily on diversion. What the task force doesn’t understand is that strong brands and an acknowledgement that customers want to establish a relationship with their favourite brands help achieve this. Diverting demand from the illicit market takes education about the benefits of a particular product, and if brands can’t talk about who they are, how do they do that?
Brands Communicate Differentiation
Consumers need cannabis branding more than for alcohol and tobacco. The opportunity for differentiation in cannabis is orders of magnitude greater than in the other two categories. Imagine the wine industry being forced to stick their product in a plain package, and taking away any ability to promote their product to or communicate with consumers prior to their entering the store! Even more so than wine, cannabis has thousands of combinations when one takes into account the many differentiation points. A partial list:
- intended use / outcome (pain relief, relief from epilepsy/headaches/tremors, etc.)
- relative and absolute levels of both psychoactive and non-psychoactive components including THC/CBD and the many terpenes
- growing conditions and methods
- growing location
- intangibles such as celebrity endorsements/naming
- corporate social responsibility activity
All of these contribute to the customer experience, both for medicinal and for recreational adult-use of cannabis. If the restrictions being contemplated become reality, it makes it very difficult for a company to establish who they are with their target market, and thus pull them from the illicit to the regulated adult-use market. Further, it commoditizes a highly differentiated product, which is highly illogical when viewed through the business strategy lens.
The US is home to many large and small brands (Kiva, Simetra, Terra), and the market reaction is positive. At the same time they’re achieving the very aims the Canadian government seeks (minimization of harm and diversion from the grey/black market). The unregulated illicit market isn’t subject to any rules, and will have a price advantage equal to any taxation + costs of compliance. Human nature says they will fill any void that is created due to restrictions on the responsible, legally-operating businesses.
Canada Can Be a Leader in Cannabis Branding
Why not turn this question on its ear?! How about embracing the notion of strong Canadian cannabis brands? Consider the Beamsville Bench to rival Humboldt’s Finest in Northern California’s cannabis country? Colorado (with only 15% of the population of Canada) has almost 1,500 licensed cultivation facilities, who access the market through 1,000 licensed retail facilities. Many are small and yet still manage to comply with significant and ever-changing regulation.
Big Doesn’t Mean Safe
Larger LP’s in Canada have had their share of issues with respect to compliance and there’s no evidence that larger firms are any better at compliance. In fact the agency problem would suggest that smaller, entrepreneur-owned and operated businesses are more likely to remain compliant with government regulations, given the great personal cost of significant breaches to the operator.
Imagine if the shackles were removed as they (somewhat) are in the wine and craft beer market in Ontario. Combining the early start Canada has compared to most other developed countries with a business-friendly (including small business) climate, the natural outcome will be the creation of Canadian brands, knowhow and technology which could be exported, further increasing the benefits to Canadians from this legislation.
Alas, it is unlikely that the government will change it’s stance in the short term and given the tone of Blair’s comments, the vision of a Colorado or California-style industry appear to be a pipe dream. The government should be treating cannabis as akin to alcohol (for adult-use) and over-the-counter medicines (for medical cannabis). The fact that they’re defaulting to a more tobacco-like model indicates that the needs of consumers and producers of cannabis are an afterthought for the Canadian government.