How Does Big CPG Look at Cannabis?
A few weeks ago, I assessed how Big Tobacco will step further into the cannabis space. This time, we'll consider consumer packaged goods companies.
In our industry, few topics generate as much heat - and as little light. To best answer the question, it helps to be employed at a CPG firm or work closely with them. I’m fortunate to have done both (at P&G, Maple Leaf Foods and SC Johnson).
CPG is a loose collection of national and global companies that sell everyday products like food, alcohol and household products to consumers. CPG firms focus on uncovering consumer insights, creating IP and building differentiated brands. The large players typically compete in mature markets and leverage sophisticated practices and consumer data to develop multi-year strategic plans.
Why should cannabis firms care about CPG?
> LPs & MSOs will need to play defence when more CPG firms enter the sector;
> CPG firms can provide an M&A exit, world class capabilities and capital to a worthy weed company;
> Despite differences, cannabis businesses can learn a lot from their CPG peers.
I have consulted to some CPG firms who were thinking about entering the cannabis and CBD markets.
The scopes of work can give you a sense of what CPG really care about and how they might enter the cannabis space. In each case, my strategy and analytical work focused on 3 areas:
1. Defining the real market
CPG cares a lot about choosing profitable markets and segments to compete in. Big CPG needs to capture significant shares of large markets to justify the capital and organizational investment.
These generation 2.0 CPG players are also not naïve or overly exuberant. They won’t fall for TAM fantasies or be seduced by the performance of legacy MSOs and LPs.
2. Identifying material risks
These are risk-aware companies. A ‘test & learn’ approach will be the entry path of some firms. They understand that you make money by not squandering it and by ensuring your limited capital is deployed in the best 'risk vs reward' situation.
Furthermore, CPG take things like product safety, regulatory compliance and ESG very seriously.
3. Understanding the regulations: today and tomorrow
As expected, CPG want to know what’s allowed and not allowed by market. Furthermore, they want to understand what the path to legalization or relevant reform is.
Two other strategic questions inevitably entered the strategy deliberations:
- Can you differentiate and win at the consumer & trade level?
- What is the fit with their existing capabilities and assets?
Some LPs have danced with CPG partners and investors, with less than ideal results. These are more teething pains and less an indictment of the CPG-cannabis fit. Our sector has barely felt the impact of the big CPG players. That moment will soon come.
#CPG #MSOS #FMCG #LPS #strategy