Hemp THC folks: Time for a History Lesson
The future of the Hemp THC market can be encapsulated by an old Jewish joke. In the old days, people sent telegrams on important matters. A Jewish telegram would read “Start Worrying. Letter to Follow.”
Here’s my letter.
Hemp THC operators and their suppliers need to worry because their ‘grey’ category is in the midst of a hype-driven bubble.
🗯️ This bubble is a huge influx of firms, brands, and investment out of proportion with what the current market can reasonably accommodate or wants.
Bubbles are common in new markets. Think the Dot Com bust of the late 1990s, US housing in the 2000s, and the CBD craze & Canadian cannabis from 2018-2020.
The beverage sector has had their bubbles, too. Lots of fads like seltzers and craft beer haven’t realized their potential.
Bubbles collapse much faster than they inflate. The Hemp THC catalyst could be something predictable like what just happened in Texas or a sudden switch in consumer taste or investor sentiment.
⚠️ A burst bubble has stark implications: failed businesses, stiffed suppliers, wasted capital plus career setbacks and investor disillusionment.
Accurate numbers are difficult to come by. I estimate 150 brands and 600 SKUs are in market right now, with most of these showing up on shelves in the past 18 months. Viridian Capital puts the size of US Hemp THC market at $US19.6B.
None of this is to say that the Hemp THC market will fade away or stop growing. This category is here to stay in one guise or another.
But with what products, formats and brands, and at what market size?
No one knows.
The category is young, dynamic and uncertain. I have yet to see quality data on what really matters - consumer repurchase levels on a product and brand basis.
The future will depend on many category dynamics (e.g. pricing, appeal of substitutes), product factors (quality, product-market fit) as well as macro forces like disposable income and shifting regulations.
3 things drive bubbles: FOMO, greed, and self-deception:
Companies can address the latter by asking 3 fundamental questions:
1️⃣ Have we done a proper business case?
Was the analysis thorough?
How are we doing now versus plan?
2️⃣ Am I wearing rose-coloured glasses?
Do we really have what it takes (i.e. sustainable competitive advantage) to win when growth slows or the market evaporates?
3️⃣ Does the business have a winning formula?
Winning as in having a sustainably profitable business.
The formula is the necessary grit, capital, and capability plus actionable consumer insights, solid wholesaler partnerships and strong retail distribution.
With so many players, it won’t be possible for everyone to survive let alone flourish. Don’t count on M&A to save you given the myriad of players and regulatory uncertainty.
What is your plan?
Call me. I can help you drive profitable growth and avoid ruin.
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