How to Grow Your Cannabis Business Via Adjacencies
“Look before you leap for as you sow, ye are like to reap” Samuel Butler
Most cannabis companies put growth at or near the top of their agendas. Besides targeting newly legal markets, leaders will look to enter adjacent markets.
Adjacencies are categories or segments next to a firm’s core business. Think pre-rolls for a flower firm or the medical market for an adult use player.
Adjacencies require more thinking and effort, as opposed to core markets where you are launching new products into your existing categories.
Next door markets have lots of appeal for large LPs and MSOs. Legal markets mature quickly, sometimes as early as 18 months post legalization. Adjacency-based strategies can reignite a high-growth trajectory driving higher margins and share prices.
When properly executed, moving into adjoining markets can add an extra 4-5% of annual growth (above organic growth rates) over the long term.
Moreover, countless firms can’t afford to ignore adjacencies, given consumer trends, low brand differentiation, fickle licensing regimes and the pace of technological change in their legacy businesses.
Sensible businesses consider new markets when they have one or more of the following prerequisites. They-
1. Can sell new products to existing customers;
2. Could leverage their core capabilities and assets to build new products that serve new segments;
3. Have developed a ‘disruptive’ technology, business model or product that could reorder market dynamics. Disruptive Canadian products include infused pre-rolls (Decibel) and milled flower (Organigram).
Adjacency-based strategies require a:
> Deep understanding of your consumer, market, and capabilities
> Thorough financial assessment
> Focus on execution
> Recognition that adjacency growth takes patience and appropriate resourcing
Clearly, your odds of winning improve where you have a clear competitive advantage. Examples of this include translating consumer insights into strong brands and value propositions; being the lowest cost producer and; creating a repeatable innovation engine. If you don’t have a secret sauce, get it – and fast.
Adjacency-based growth is not without risks and challenges. In CPG over 80% of new products fail to hit their market & financial goals - and cannabis firms don't perform any better. Capital and time are in short supply and shouldn’t be wasted on ‘Hail Mary’ moves.
Failure can also be self-inflicted.
For example, companies regularly overstate the total addressable market; underestimate the true costs of growth (e.g., added complexity) and overestimate their operational competencies, particularly when competing in multiple jurisdictions with different regulations.
Adjacency strategies are game breakers, when you plan and execute them with excellence.
#growth #strategy #adjacencies #organigram #Decibel