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Even the Best Laid Plans.....

Can Microbusiness Thrive in the Shadow of Large Corporations

As the marijuana industry continues to grow and the plant gains more acceptance, more of the larger established companies are looking to cash in on the crop.  Where does this leave the small businesses that the industry grew up on?

Not only are companies such as Constellation Brands and Altira looking at disrupting the market place, but we are also already witnessing in Michigan the larger already established marijuana companies looking at the state as the next place to put down roots.  Neither type of business is necessarily better than the other, they are just different and offer different experiences.

Is there room in the marketplace for both the companies that are looking to become the next Wal Mart of Weed and the mom-n-pop shops and micro-producers?

I think so, and I think the smaller niche cannabis companies will thrive as long as they are able to market themselves properly.  To understand why I think they can be successful we can look to the craft beer and the wine industry to draw upon some comparisons between these industries and the industry giants.

Last year Canada became one of the largest nations to legalize recreational marijuana for adults.  It did not take long for large companies to want to get in on a piece of the action. Constellation Brands, maker of Corona and Modelo for many years has been in the shadows of the larger beer companies such as Miller and Anheuser Busch.  Last year, however, the company made headlines when it became a large investor in Canopy Growth. Canopy Growth now has access to a valuable source of business advice and support from a larger company that has had to work within the framework of laws and regulations.  The additional funding will help Canopy grow and meet the needs of the newly legalized Canadian market. Additionally, with the passage of the Farm Bill, Canopy Growth is now looking at the U.S. for expanding their reach in the CBD market. A connection with a company that already produces and distributes in the U.S. will be a big benefit.

Altria, the maker of Marlboro cigarettes, has seen the smoking industry steadily decline as a result of their users quitting and switching to e-cigarettes.  To help transform their business, late last year Altria acquired 35%of Juul and then a short time later announced a deal that would give them 45% of Cronos.  When looking to expand their holdings, Altria only focused on companies which were operating legally under federal rules which is why they looked to Canada and Cronos instead of looking to partner with businesses operating in the States.  The investment in Cronos will help Cronos expand infrastructure and distribution more quickly and allow for increase R & D.

How does the marijuana industry relate to the craft beer and wine industries, and why should the growing marijuana industry look at these other industries?  

For many years the beer industry was dominated by two companies - Anheuser Busch and MillerCoors.  When companies have such a large market share the consumer often loses out on innovative and exciting new products, leaving the consumer wanting something different.

Laws and regulations regarding home brewing began to change as the consumers' preferences began to change.  The new consumers began to want a different flavor profile - more fuller flavors - and a greater variety than what the big companies offer.  An interest in supporting local businesses began to emerge at this time as well. Craft breweries took advantage of this changing consumer climate, and between 2008 and 2016 the number of both breweries and their employees began to increase dramatically even as overall beer consumption declined.  

Today’s consumer is now willing to pay a premium price for a superior product, whether that product is beer, coffee, technology or marijuana.  The marijuana industry should understand there is a market for a craft product, and the consumer is willing to pay a premium price for a premium product and experience.  Understand that there is also a market for the Wal Mart’s of weed, but the cannabis company needs to decide who their customer is going to be and market themselves that way.

Another exciting area that is going to set apart the mass produced marijuana from the upscale niche cannabis is the region in which it is grown.  This is something we have seen for many generations in the wine industry, even if you were unaware of it. For example, there is a distinct difference between Champagne, which must be produced from grapes in the Champagne region of France and produced under the rules of the appellation, and sparkling wine.  A wine appellation is a legally defined and protected geographical indication used to identify where the grapes for a wine were grown.

California growers have been asking for similar regulations, and now regulators have until 2021 to establish a process by which licensed cultivators may establish appellations of standards, practices, and varietals.  Washington growers are looking for the same type of standards for their crops.

There is one region in California in particular, the Emerald Triangle in northern California which is made up of Humboldt, Mendocino and Trinity Counties that has wanted to be able to designate that cannabis grown in that region is different from other areas.  The growers have been cultivating cannabis here since the 1960s and the area is now the largest cannabis producing region in the U. S. The excellent growing conditions are the result of a nutrient-packed soil, a perfect micro-climate, and clean water.

A recent Forbes article mentions Jerry Munn and his strain of cannabis, Lime Volt, which has been compared to smoking a margarita.  That description sounds like a product that a maturing cannabis market with an interest in something new and exciting might be willing to pay a  premium price for.

It looks like the cannabis industry is going to be around for some time, and is going to be a lucrative industry.  The big businesses are increasingly going to want a share of the market and will take it by being able to produce and purchase at lower costs and by buying out some companies to be able to increase market share.  But., there is a market that will pay higher costs for something that is special or that can offer an experience that the large companies cannot. These companies will thrive in the shadows of mediocre marijuana companies.  How will you position yourself in this industry?

Rose Jacobsen