Alcohol vs. Cannabis Marketing

Seth Godin on the Differences Between the Two

I have followed Seth Godin for many years and have found him to be among the most insightful marketers I know. Here’s a bit about him — he’s an author (18 bestselling books), an entrepreneur (founded two companies, one of which was sold to Yahoo), a speaker/teacher, and a member of both the Direct Marketing Hall of Fame and the Marketing Hall of Fame (probably the only person to be in both). Above all, his views and ideas on effective marketing have inspired, motivated, and changed people and ways of looking at things.

One of his blog posts last week dealt with the differences between marijuana and alcohol marketing. Considering the close scrutiny of the pot business by the booze industry, I asked and received his permission to share most of his blog post with you.

Let’s look at Seth’s views followed by my comments.

(By the way, as I write this, it was just announced that Constellation Brands has increased its investment in a Canadian cannabis company by $4 billion.) 

US prohibition ended in 1933. After that, there was a gold rush that led to the creation of dozens of billion dollar brands.

80 years later, the prohibition against pot is ending in various places throughout North America and then, probably, worldwide.

The question some professional marketers are asking is: Will there be worldwide profitable brands for pot that are similar to Bacardi, Johnnie Walker and Smirnoff for alcohol?

Both industries are regulated. Both have products that are sold in specialty stores. Both use non-proprietary manufacturing techniques.

Here’s the big difference:

When alcohol marketing became legal, it coincided with the glory days of magazines, radio and then TV. The mass marketing phenomenon happened at exactly the same time as these brands were being rolled out—and along with cigarettes, alcohol brands were major advertisers, particularly in magazines (liquor) and TV (beer). The ads supported the media in a fundamental way (and vice versa–Rick’s Cafe anyone?).

But when cannabis marketing arrives, it’s the internet that’s dominant. And the internet isn’t a mass medium.

It seems like one. It’s used by billions of people.

But it’s a micro medium. A direct marketing medium. There are 3 billion people online, but they’re busy looking at 3,000,000 web pages (that’s only a thousand a page).

The other difference is that there’s a thousand-year tradition of the pub and the bar. And those facilities offer status games, word of mouth and significant margins that created another marketing engine for alcohol that won’t exist for cannabis.

Sure, it’s possible that the huge demand and profit margins will fund a winner-take-all advertising movement for pot. But it’s more likely to be more like local espresso or high-end chocolate or whiskey (word of mouth) and less like vodka.

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My Comments and Observations

  1. Seth is obviously on target; the overall world of marketing has steadily been moving from macro to micro — away from mass media toward direct to consumer media. To a large extent this is happening in the booze business today. Brand building and communication has left mass approaches (print as well as broadcast) in favor of word-of-mouth, bartender influence, publicity and event marketing.
  2. Let’s not forget that currently, the cannabis industry is totally on a state by state basis. There are no national brands and there will not be until such time as the federal government approves its sale. Marketing, therefore, is regional, at best.
  3. The notion that the absence of bars and restaurants for cannabis will inhibit marketing is true now but will it be in the future? In many of the legal recreation use states, weed cafes are springing up and it’s a topic that will grow in the future. Think Bulldog Café in Amsterdam.
  4. As to branding, that too is emerging. Consider this:
  • For many cannabis consumers, the content and type are surrogates for brands. They talk about Indica vs. Sativa. For others, it’s the amount of CBD vs THC that becomes the brand.
  • For those introduced to weed medicinally, they think of the brand the same way as branding in prescription drugs — by function.
  • In this regard, recreational users have the function/purpose of the cannabis as an identifier, such as “sleep,” “arouse,” “harmony,” “awake,” etc. These are clearly labeled and provide a kind of branding function.
  • There are brands like Dompen, LuxLyte and others. But the function/purpose is the main factor.
  1. At this stage, it’s the retailer that becomes the brand. Check out the list of retailers in Colorado. A company I wrote about recently, MedMen, has stores all over the country, both dispensing medicinal cannabis as well as recreational. The dispensary is the source of quality and other reassurances.
  2. Interestingly, the beer folks are getting into alcohol infused cannabis, partly leveraging their own brand’s influence. There’s even a brand of wine made with THC.

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As of June, of this year, 30 states have legalized medical marijuana and 9 have approved recreational use. New Jersey and New York are expected to legalize recreational use soon. So, clearly, legalization of cannabis is here to stay and will grow in acceptance.

The key marketing issue will be, as Seth points out, the difficulty in mimicking branding (and reach) of the alcohol world. Perhaps that means that no one brand will predominate; perhaps the function/purpose will be the brand; or the retailer. But, it’s still earlier days for the fledgling legal business.

He’s also correct that the marketing of cannabis, despite other similarities with booze, will have its own model and pattern.

Like the man says, more like whisk(e)y and less like vodka.

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Marijuana: A Store Visit

A Trip to a Retail Store in the LA Area

At the end of January, I visited some folks in LA and, since the sale of recreational marijuana is legal in that state, I thought I would visit one of the stores and check it out.

A friend who lives there and had purchased medical marijuana in the past, agreed to go with me and serve as a guide—a ganja guide.

Before I get into the fascinating and (dare I say) fun shopping spree, let’s take a look at the current marijuana situation in the US.

MedMen Venice store. Courtesy of MedMen

Some Facts and Figures

As of 2018 there will be eight states that have legalized marijuana for recreational use. Over twenty other states allow marijuana for medical use. And, both lists keep growing.

It shouldn’t come as a surprise considering the following polling results on the subject from the Gallup people:

  • 64% of Americans support legalization and this represents the highest number recorded since Gallup started asking the question in 1969. (Jan 4, 2018)
  • 45% report having tried marijuana, also the highest since 1969, and 12% claim to currently use it. (July 19, 2017)

In a study on its use by DIG Insights (a global research firm) few people are concerned about harmful effects (16%) and a majority believe consumption can be beneficial (51%). (April 14, 2017)

What About the Effect on Alcohol Sales?

Well, here the data is currently less clear, but signs point to more impact on beer than wine and spirits.

But it seems to me that just as there is “share of stomach” that beer, wine and spirits compete for, the advent of widespread availability of marijuana has to create a fight for “share of buzz.”

A Cowen Insight report (via Mark Brown’s Industry News Update on Jan 15, 2018) indicated that a study using scanner data showed, “that counties located in states that legalized medical marijuana saw a reduction in alcohol sales of 13%.” Further, the Cannabiz Consumer Group (C2G) predicted in March, 2017: “Legal marijuana will take away 7.1% of revenues from the existing retail beer industry.

With this information in mind, I set out with my friend to visit a store, see what the shopping experience was like, get an understanding of who the customers are, and learn first-hand about this product and its future.

MedMen Enterprises

The store we went to is owned by MedMen Enterprises, who currently own 18 facilities in 3 states and has over 700 employees. Unlike other retailers/dispensaries, MedMen is vertically integrated and has licenses to own cultivation facilities, retail stores, and distribution. (In the cannabis industry, distribution involves a “watch dog” and oversight function whereby quality, record keeping, compliance, and related matters are scrutinized.)

The company both owns and manages various aspects of the marijuana trade. It will be listed on the Canadian Securities Exchange in the second quarter of this year. (By the way, here is the list of marijuana companies on the CSE—around 60. You might also find this of interest.)

This is how MedMen describes themselves:

MedMen is writing the book on the modern cannabis industry, from how facilities are designed and constructed to setting the bar on quality and excellence. We are also helping shape the laws that make this industry viable.

These are true professionals with a serious set of business criteria and mission:

MedMen operates scalable, highly-efficient growing facilities using the latest in agronomic technology and sustainable techniques, and our manufacturing facilities use standards comparable to those in the biotech and pharmaceutical industries.

They are not the first company to enter this emerging business, but from what I witnessed by talking to their management and visiting a store, I think they’re top of the game and will grow.

Sun Valley cultivation workers
Courtesy of MedMen
Plants
Courtesy of MedMen

 

The Shopping Spree

We went to their Venice store on Lincoln Blvd. It was at 1:00 on a weekday and the place was mobbed. I was told that it’s always busy and fairly common to see people waiting to come in. The Venice store is small (perhaps 700 square feet of selling space) with shelves of products and showcases on the floor.

To enter, you must stop at a registration area and show proof of age (driver’s license or passport) and register, which allows you to buy. They sell cannabis in different formats including—cannabis buds, of course (various strains and potencies), edibles such as gummies and other sweets (chocolate, cookies, etc.). There is even medicated cannabis rubs (salves) meant to help with aching joints, uh, body joints.

There is a limit to the amount of product you can buy on any one visit.

What really struck me was the caliber and knowledgeability of the sales people. My friend described them as akin to the sales people at the Apple store and Daniel Yi, the Medmen spokesperson, told me that many customers come to the same analogy. These folks were friendly, happy to answer questions and serve as a cannabis escort—what you might be interested in, how much to use, etc.

I learned, for example, the difference between THC and CBD and their role in health matters as well as in “mood change.” Also, the difference between Sativa, Indica and Hybrid strains. I was kind of envious of their retail skills and how the booze business might benefit from similar selling approaches—low key on sales persuasion and primarily focused on educating and guiding the customer.

What about the customers? Good question. It was everyone—young and old; men and women; from all walks of life; all socioeconomic levels. I couldn’t help but ask some of the shoppers about the comparison between alcohol and marijuana. One person said they were just looking for something different from alcohol. Another told me that sometimes they like a drink and sometimes a joint. Still another told me that they preferred cannabis because alcohol was chemical and marijuana was botanical. Ouch.

Here’s the interesting kicker that can serve as a predictor of marijuana legalization and potential growth—taxes.

The Tax Situation

My friend spent $517 that day. Of that amount, $411 was for various products and $62 was for state excise tax (15%) and $45 was for local sales tax (11%). That’s over 25% in taxes. The tax revenue from marijuana sales are attractive to State governments and taxpayers as well, for that matter.

Here’s an interesting article on the California tax situation. It points out that the sales tax on alcohol and marijuana are fairly similar (7.5 to 9.5 percent) but the state excise tax for cannabis is 15%, while wine is 0.25% on average and beer is 1.5%.

But it’s not totally a rosy picture. From my understanding, people in California are skeptical as to how these taxes will be used and whether they will go to where it was intended. A few states can’t seem to figure out how to proceed despite the vote for legalization. And, of course, the federal government repealed an Obama-era policy of leaving law-abiding marijuana businesses alone in those states that have legalized it.

Those of us in the booze business know firsthand that prohibition doesn’t work and that the single most important reason for the end of the “noble experiment” was the absence of taxes from booze.

Further Thoughts and the Future

As to what the alcohol industry should be doing, I found it very interesting that Constellation Brands made a play in the marijuana business last year, investing $191 million in a Canadian company. At the recent Wine and Spirits Daily Annual Summit at which COO Bill Newlands spoke, he said they believe marijuana is an emerging trend that they need to tap into because it’s going to be a big business.

A recent article from Rolling Stone had some interesting predictions for 2018 and what to expect from the marijuana situation in the US.

Let’s start with this quote: “State-legal pot markets seem poised to match or exceed the value of black market pot by 2020.” The friendly, neighborhood dealer could soon be looking for work.

They also predict that there will be legal marijuana lounges in some places, probably Las Vegas for starters and Canada will continue to benefit financially and otherwise from their role in the business.

But the most interesting of all is that the possibility of legalization of recreational marijuana in New Jersey will mean increased pressure on New York—where medical marijuana is legal—to do the same. You can get to Jersey City from Manhattan in 15 minutes or less. Also, let’s not forget that much of New England has approved medical and/or recreational sales already.

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My takeaway is that the marijuana industry will have growing pains but, in the long run, it is here to stay and will flourish. The question for us, dear readers, is how the alcohol industry can or will adapt.

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