After six months of legal cannabis, what have we learned so far? Pt. 2

Oct. 17, 2018, the legalization of recreational cannabis arrived in Canada with huge expectations for consumers and cannabis marketers alike.

The roll-out across the country—specifically the retail systems put in place to sell the product—was uneven at best. And the marketing rules, everyone knew, were restrictive. But it was the historic dawn of a new age, the birth of what is certain to become a multi-billion dollar industry. It was a completely blank canvas with licensed producers (LPs) all eager to connect with consumers and establish brand loyalty.

So where are we six months later? That was the question The Message set out to answer, reaching out to cannabis brand builders, consultants and marketing experts to get their thoughts about the marketing and branding of legal recreational cannabis after half a year.

Overall, great expectations remain—but nobody says it will be easy, and it’s not hard to detect some frustration about the challenges of building a cannabis brand in this environment.

“I believe that it will be much more difficult than initial expectations,” said Baron Manet, who worked on four cannabis brand in the past year. “I think marketers are frustrated,” added Jennifer Lee, partner and cannabis business leader at Deloitte.

“It has definitely been challenging on an executional level,” said Liesbeth Teerink, vice-president, brand strategy and creative for Up. “But if you look at it from a strategic level, all the same principles apply as in any other category.

“We are living through the real-time creation of a new industry, and with that comes a tremendous amount of learning, both internally and from other organizations that operate in the category. We are all in this together to help break stigmas and normalize the use of cannabis.”

“I love how heavily regulated markets change the way we think,” said Jenn Larry, president of CBD Strategy Group in Montreal. “They push us to become better and, more importantly, they move us further away from the sizzle and closer to the truth of quality product.”

Last week, in part one of this two-part report, we talked about surprises and dealing with Health Canada. This week, we go deeper on best practices and questions about supply. But first, one important question that bears asking.

Most of the market has been buying cannabis for years without any branding. Why do they need branding now?

A week after legalization, the Financial Post released a report suggesting that less than 5% of cannabis consumers purchased a cannabis product based on brand name. But earlier this month, a BMO study suggested that number was now closer to 23%, said Amanda Wood, founding partner, creative of cannabis consultancy Sister Merci.

“It looks like Canadians are quickly starting to figure out which legal recreational brands they prefer,” said Wood. “The cannabis companies who invested in marketing and brand building pre- and post-legalization are winning, even though marketing in the Cannabis Act is extremely restrictive.”

Similarly, research by Deloitte last year found that just 15% of people already using cannabis said that brand would be a consideration in their purchase decision. Lee, however, thinks that number is low. “I think it is upwards of 50%.”

That said, the early numbers from Statistics Canada show the illegal cannabis market to be more than three times the size of the legal market. According to StatsCan, household spending on cannabis in the fourth quarter, expressed on an annual basis, was $5.9 billion, $4.2 billion of which was spent on illegal product.

But Deloitte predicted in a report late last year that it would take time for consumers to shift away from their pre-legalization suppliers. “Over time, as retailers develop a better understanding of their customers’ needs and behaviours, improve their customer experience and engagement programs, and fine-tune their products’ quality and integrity, we could expect to see an increasing share of cannabis sales transition to legal sources,” the report stated. “Retailers that are able to secure the supply chain, protect and analyze customer data, and promote public health and safety will be well positioned to achieve a competitive advantage.”

Cannabis shoppers in New Brunswick, Oct. 17, 2018.

Do we see any “best practices” yet?

“I would call them emerging,” said Manet. With rigid rules about what brands can say, to whom and where, the emphasis was always going to be on direct marketing.

“One-to-one is the key to brand building in the cannabis space,” he said. “Email, SMS marketing will grow in importance as it enables consent, age gating and personalization. Potential consumers are interested in education and why one brand or company is different. This will a long-game.”

“Most brands are working very hard to build their email database and patient list as a way of communicating and marketing,” said Shawn King, creative director and host of the Turning a New Leaf podcast.

The public facing—ie. viewable to everyone—advertising we have seen so far has been geared toward this. It is creative messaging not intended to sell cannabis per se, but pull consumers to the site. It’s a delicate balance of being subtle but not deceptive; nuanced communications that ‘nudge nudge, wink wink’ just enough for consumers to understand that the message is probably about cannabis, although they won’t know for sure until they actually visit the URL and pass through the age gate.

“Marketing efforts around database acquisition and retention clearly have proven beneficial, and allow LPs to educate and talk to consumers in a compliant way,” said Teerink. “In addition, PR has proven to be of great value for us, allowing us to introduce our company and brand story to consumers via earned media.”

Good cause marketing

“Corporate social responsibility programs are also an area where brands can make an impact,” said Rachel Colic, president and chief strategist of the strategic marketing firm YCreative Group. Working to assist those with criminal records for activities that are now permitted by law is a natural fit.

“Aurora, for example, has partnered with Cannabis Amnesty and CFAMM [Canadians for Fair Access to Medical Marijuana] to help right the wrongs of prohibition. Similarly Doja is running its “Pardon” campaign. These campaigns demonstrate to consumers that the brand cares about the communities that they operate within and the customers they are serving,” she said. “I believe that demonstrating to Canadians that you are about more than the products you create will be a central pillar to success for many years to come in this industry.”

Data deficiencies

One of the challenges for cannabis brands is a lack of consumer data, said Deloitte’s Lee.

Producers that already have a significant presence in medical cannabis will have a large data advantage in marketing to an already established consumer base. “Some of them do a great job of understanding the consumer’s path to purchase and buying behaviour, and they service them very well.

“The ones that are strong [in medical] will most likely be strong in rec.”

Similarly those businesses that have established joint ventures with big brands—such as ABInbev and Tilray, or Constellation and Canopy—will be able to generate some brand awareness thanks to the reach of the larger brands, said Lee.

Higher education

Beyond that, the opportunity lies in education—becoming a trusted source able to help both new users and those who’ve been buying from the black market for years really understand this space,

“The most effective thing to do is to use facts about products—without suggesting what the product is—to communicate,” said King. “Fact-based information is allowed and some have used this tactic in social very effectively, stating info in simple, visually impactful ways to highlight their info.”

“Cannabis doesn’t need marketing, it needs education,” said Larry. “Marketers are struggling because of what we’re allowed to say, how we’re allowed to say it [and] where we’re allowed to say it. It is creating a lot of challenges, which is understandable. But I think the real struggle is we need consumers to be educated and engaged so they can understand how to navigate this category as it unfolds.”

Supply shortages still a problem

Preliminary consumer feedback seems to indicate that the legal product is considered “sub-par,” said Larry. “The quality isn’t where we wanted to be in relation to the black market, but it’s definitely going to get better. The consumer needs to be patient.”

“Competition is high with the supply shortage and consumers are already openly expressing their disappointment with their cannabis purchases online, resulting in some heavy hits to many brands,” said Colic.

“It has been mixed,” said Lee of the early consumer response to quality. “I think there is an expectation that people can get the same quality and same assortment as on the black market. The problem is there is not enough product in the market, that is why you are seeing stores close a few days a week.”

“The industry is still in its infancy,” adds Lee, echoing a recurring theme among experts who spoke with The Message.

“It is an extraordinary time,” said Larry. “We are in a category that is unlike anything we have ever experienced before, and because of that the opportunities are endless. To stay overly focused on the things we cannot do in marketing I think dismisses the whole bucket of stuff that we can do.

“You need to accept that the rules are different, and playing within them doesn’t make you a sell-out. It makes you capable of thriving within the box.

“That to me is how you stabilize your company, and guarantee to your shareholders that you will rise and keep being profitable. And most importantly, that you have a way of working that your consumer can says ‘That’s why I love that brand: the way they do business, the way they are invested, the way they think.’ That to me is the brand of the future, and that is where I hope cannabis is going to go in Canada.”

—With Files From Chris Powell

David Brown