How should cannabis firms grow?

Very deliberately

“The strongest principle of growth lies in the human choice. “ Mary Ann Evans, (aka George Eliot), Author

Growth is on the minds of every cannabis leader I speak with, and for good reason.  Higher share prices (or even survival) depend on generating profitable topline revenue.  One of the most important yet risky decisions cannabis firms can make is how to achieve this. 

Often, there are myriad of growth options with different financial payouts and risks.  These choices may span categories, markets and consumer segments, and carry diverse price tags and lead times.   

Making the right decision
At the outset, it’s important to recognize that strategy development is as much about deciding ‘what not to do’ as well as determining ‘what to do.’  Your decision-making process should be collaborative and include key functional areas and selected external stakeholders (e.g., key suppliers, channel partners).   Finally, effective decision-making rests on a comprehensive situational analysis that considers things like consumer & channel behavior, market sizing, and regulations as well as market pricing and cost structures.  

Simplifying matters, your growth path would revolve around an interplay of 4 factors:  ease of customer acquisition, capabilities fit, size of the financial prize and time to revenue.   My experience plus academic research suggests the following roadmap, from easiest to hardest-

Possible growth paths
1. Organic growth (often the default cannabis strategy) – Sell more of your current product portfolio to existing consumer segments in prevailing and new markets, as they emerge.  Organic growth is best from an execution and risk/reward basis where you have a deep understanding of consumers & channels, market differentiation and compete in a rapidly growing market. 

2. Product-based growth (increasing in popularity) - Sell new products to existing consumers and markets (e.g., flower company expanding into pre rolls).  This is a good strategy to increase your share of consumer spend when you compete in mature markets and can leverage a strong brand and channel access. Be careful, the same consumers may have different needs & habits across categories. 

3. Capabilities-driven growth (an emerging strategy) - Leverage your current capabilities by selling services like outsourced production or sales execution to other cannabis players.  This strategy makes sense when the other growth options hold little promise, you have excess operational capacity and there are no concerns with dealing with your competition.  

4. IP-activated growth (rare for now) - This strategy looks to monetize your best-in-class but unexploited assets by selling or leasing them to non-cannabis firms.  Asset examples include consumer data, custom IT builds, or channel access.  Firms will pursue this strategy when other growth avenues have stalled, they have winning IP, or capital is scarce.

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