The myth of high US cannabis growth
Conventional wisdom says that the U.S. is a high growth cannabis market. In reality, it isn’t. Based on past 12M revenues, total market growth is coming from new states coming on stream, and even then in fits & starts.
Since regulatory reform have been postponed indefinitely, leaders need to adjust their go-to-market strategies and operating models to better address the growth profiles of each market. The title of Charles Dicken’s book, A Tale of Two Cities’ is a good analogy for what’s happening and what steps need to be taken.
City 1 describes new jurisdictions like Missouri and New Jersey that just came online or are expected to go legal soon. These rapidly growing markets captivate many operators, investors and pundits who see nothing but unicorns and rainbows. However, it will be difficult to build a sustainable market position unless your firm is an early mover at scale. There are months of good times - until there are not. On to City 2.
C2 markets like Colorado and Michigan are now mature. They feature low or flat growth rates, significant retail/wholesale price declines, and a high number of licensees. C2 markets propel industry results, making up over 80% of all US cannabis retail sales. Though C2 markets grow quickly out of the gate they can reach maturity in as little as 16 months post legalization. To win here, players need to think AND act like well-oiled CPG businesses.
There is a third City: Stumble States like California and New York. These problematic but high potential jurisdictions could make or break the sector and your business, but that’s for another post.
The industry is clearly a mixed bag of markets but not the Eldorado of revenue riches many contend. Mature markets could see renewed growth with shifts in consumer behavior and product innovation but that is not likely in 2023.
Unfortunately, most MSOs apply a broad and crude strategic brush to their planning. Shrewd leaders will tailor their go-to-market strategies, operating model, capital and resourcing by state.
For C1 markets, there is a familiar growth-oriented playbook (i.e. the land grab). C2 markets, on the other hand, are highly competitive if you are in the thick of things. If you are on the outside, M&A is your only entry ticket.
Mature market participants will need to-
> Recognize they are in a zero-sum market share game
> Deeply understand their consumer
> Deliver differentiated value against desirable target markets & consumer segments
> Fashion a margin-driven brand portfolio
> Keep SG&A costs in check
> Right-size their capacity against a realistic market share
Leader also need consider the organizational and management implications around competing in different markets at the same time.
#growth #strategy #MSO #CPG #maturemarkets