Lessons from California - Brands in Cannabis, Part II
The Bengal Bite
It’s been a few months since we last checked in with our brand new “Antarctic IPA” consumer, so we thought we’d check in with them, or at least see if we could find some data that supported our thesis that when consumers first discovered a new product category in cannabis they “want to try some different types and experiment before settling in on a definitive brand of choice.” In this environment, what then gives a company’s valuation and revenue potential protection is not just a punchy brand, but a consistent underlying infrastructure -- the ability to get on dispensary shelves and stay on the shelves thanks to sales execution and consistent distribution.
Building brand affinity among consumers who are new to a product is extraordinarily difficult when they have nothing in their internal database to compare it to. Oftentimes, even if the interaction with the product was delightful, it emboldens the customer to try other types in order to experience more of that category. Eventually, they may come back around to the first brand that they enjoyed but it's often a long and circuitous path.
We see this trend when looking at flower sales. The top-selling cannabis brands in California in 2019 were Flow Kana and Candescent, two brands that pride themselves on consumer education and also increasing transparency and accessibility in the cannabis space. Both of these values are incredibly important, but it looks like after consumers were introduced to legal cannabis by these brands they quickly started experimenting, oftentimes landing on bulk brands such as Pacific Stone or with higher-end, premium brands such as Cannabiotix - which went from last in our cohort in 2020 to be on a run rate to being the #1 selling flower brand in California. (Disclaimer: granular retail sales data is not always accurate, but can generally show trends well)
This trend is also seen in California vape brands. The industry leader in 2019 was Select, which was one of the first companies to create a multi-state, recognizable brand and was ultimately acquired by Curaleaf. However, Select did not keep its place for long, succumbing to Refined Live Resin pioneer, Raw Garden. Raw Garden’s vertically integrated model of owning their biological supply through expert genetics and farming allowed it to withstand some of the turbulence of late 2019 and 2020’s vape crisis.
However, as consumers returned to vapes across the board, Raw Garden began losing the top-selling vape spot to Stiiizy. Stiiizy has been able to build out robust infrastructure by owning most of their own supply chain AND supplemented that with their own fleet of beautifully branded storefronts to support and promote their brand. As you can see - the trend thus far has been MORE verticalization, and MORE infrastructure has led to better results for the industry-leading brands in the Vape space.
Verticalization is an interesting trend because many industry watchers initially predicted that many brands would live above growing and processing, and would just use commodity inputs to create their products. For now, the opposite seems to be true - operations ability is still a material advantage in cannabis.
Regardless of where consumers move next, the winners are consumers because the pace of innovation certainly doesn’t seem to be slowing down.
CPG Before CPG
from the bengal bite
Consumer packaged goods (CPG) are fast-moving products that consumers use frequently. Packaged foods, toothbrushes, and even alcohol all fall into this category. It’s also a term you hear thrown around a lot in cannabis, usually as a kind of shorthand for how the industry works and what’s important to look at when analyzing it.