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In this episode  of the Strategy Lounge, we will be talking about the cannabis sector and the realities facing this new, yet increasingly competitive industry

In a newly regulated industry whose players are still nascent – with little revenue and unproven operations – companies need a strong business strategy to survive long after the initial enthusiasm peters out.

On October 17th, 2018, Canada legalized recreational cannabis use, bringing a black market worth an estimated $5.71 billion into the regulated confines of a tax-generating industry.

This sector is undergoing what all fledgling enterprises experience in the first 12-36 months of existence: an intensely competitive phase that will culminate with a clear distinction between winners and losers.

Industry players are seeking ways to stay on the winning side of this equation by:

  • Building a brand within the restrictions of this tightly regulated market.
  • Developing a strong customer experience.
  • Overcoming the stigma associated with cannabis use.

 

A shift is upon us

Established majors, such as Constellation Brands, Molson Coors and Altria, have already moved into the market, raising the bar for the whole industry.

It’s a sign of a shifting landscape towards a more mature stage – the capacity of Canada’s top 10 licensed producers alone is projected to double the country’s demand by 2020.

Without partnerships to protect supply and demand, companies won’t be able to lure investors and please the market.

 

Lack of export opportunities

In the U.S., cannabis is still illegal while other global markets are already establishing domestic production to meet local demand.

This is placing greater emphasis on revenue growth, supply agreements, partnerships and IP ownership with consolidation for strategic purposes as a likely end game.

 

We’ve seen this before

A financially speculative business climate and turbulence were rampant during the dot-com bubble. Roughly 50% of dot-com firms survived those early days, often because companies ran out of cash.

More relevantly, we’re witnessing a similar scenario play out in those U.S. states where adult-use cannabis has been legalized.

 

So, what’s next?

Plotting a successful course of action in a vertically segregated retail environment will demand several key measures, including:

  • Building a purposeful differentiation from the pack with a deep understanding of and focus on the customer.
  • Establishing and communicating your value proposition.
  • Strategically managing your value chain.
  • Fostering partnerships and supply agreements.
  • Avoiding commoditization by establishing the IP, competencies and core processes.
  • Keeping an eye on global markets for opportunities to establish first-mover advantage.

 

To read the perspective paper in full and find out how LEVEL5 can help during this transient time, click here.

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