Cannabis is slated to grow but are 2024 consumers on board?
Conventional wisdom says that the cannabis market will inexorably grow behind new legalizations, the shift away from the illicit market, falling prices and improving product choice & quality. Indeed, these are clear trends, all of which are built into many operating and capital market assumptions.
Optimists, however, should be mindful that consumer sentiment can go the other way, too.
What are weed consumers thinking going into an uncertain 2024?
Fact is, quality cannabis consumer research is scarce. However, we can glean some insights from consumer sentiments and habits in the broader economy.
New research from McKinsey, a global consulting firm, outlines consumer unease heading into 2024. McKinsey surveyed over 4000 global consumers in November 2023 and found that:
> Consumers expect to spend more on essentials (e.g., food, gas) in 2024 at the expense of semi-discretionary (e.g., vitamins and make-up) and luxury items. This shift traces to ongoing inflation fears and pessimism about the economy.
> Almost 80% of consumers expect to trade down. These behaviours include in order of action: 1) buying lower quality or smaller pack sizes 2) changing retailers for lower prices 3) delaying purchases and 4) switching brands.
> Gen Z consumers expressed the highest intent to splurge. Their top 3 splurge areas were 1) beauty & personal care 2) apparel and 3) bars & dining out
If you accept the premise (I do) that many cannabis consumers are also the people surveyed above, the implications for cannabis firms are evident:
1. That category growth you banked on may not come to pass.
Roughly 80% of buyers represent just 20% of revenues. Weed marketers look to these buyers to drive new growth especially in the pricier edibles, concentrates and derivatives categories. However, these Millennial and Gen X consumers likely sees cannabis as discretionary and will adjust their spend accordingly.
2. Its about profitable revenue, st*pid
Even if unit volume and tonnage is increasing, falling prices means that some markets may not be growing that much if at all. The value brands and smaller sizes will fare much better here than premium or large format brands.
3. Forget Covid
The pandemic rise in sales should be seen as a one-off and not evidence that people buy more cannabis in uncertain times. Operators need to maintain vigilance in monitoring & aligning production and inventory to demand.
These findings reinforce the need to create meaningful brand differentiation, asap, because it won't get any easier. Despite the above risks, many companies and brands will continue entering the space. Any consumer pullback will see new low volume, me-too brands and companies struggling to survive.
#marketing #consumers #brands #growth