Hemp-Derived THC: The Next Bubble?

“Just because you can doesn’t mean you should” Many People

Cannabis folks, this article is for you. It may save your company a lot of money and headaches.

Many firms have (and are contemplating) entering the fast-growing HD THC category. Though data is scarce, upwards of 100 brands, hundreds of stores and dozens of wholesalers are now active in the space. The numbers are growing weekly.

I get the appeal for weed executives:

> HD THC product is “flying off the shelves”

> Cannabis growth is slowing or stalled in key markets

> FOMO-driven operators are prone to jumping into new markets

This bubble is similar to others in consumer and tech products. New players of various merit pile into market ‘white space’. Oversupply and dashed consumer expectations leads to a swift collapse of most brands. Out of the carnage emerges a small group of compelling and thriving businesses who usher in category maturation.

Sound familiar? Similar bubbles are unfolding in mature cannabis markets like Colorado, Michigan, and Canada.

The evidence for a HD THC bubble is in plain sight:

1. There are too many undifferentiated brands of mixed quality and fragmented share.

Don’t compare HD THC to alcohol, where most shelf space is controlled by oligopolies or the retailer and where the majority of craft beer & wine brands struggle to make a profit if not survive.

2. Entry decisions come with dodgy rationales.

I’ve heard leaders say they need to entice investors and position themselves for acquisition by a bev alc firm.

3. Regulatory risk is downplayed.

This is not the CPG. Intoxicating hemp products are still in a policy limbo. It is too early to see how the next Farm Bill will play out, and when.

The inevitable retrenchment will come about for a variety of reasons:

- Consumers are demanding, fickle and battered by inflation.

- What's more, poor performance in the areas of brand positioning (leads to confusion), quality (consumer try once and go back to alternatives) and supply chain execution (SKUs can’t repeatedly make it to the shelf) will sink most products.

- Finally, the market has a finite size and won’t grow exponentially forever.

- Large beverage players see what’s going on. They won’t easily surrender their volume plus will look to shape the new Farm Bill to their benefit.

I am not a hemp hater or blind to opportunity. However, I am a balanced student of strategy.

In their HD THC thinking, companies must look beyond early sales levels and hype to what truly counts: real differentiation; consumer repurchase; distribution and the ability to generate sufficient margins.

It’s too early to call the winners or losers. Business history informs us that most brands won’t make it beyond the irrational exuberance phase.

You have been warned.

#strategy #hemp #hempbeverages #marketentry #D9