When will Big CPG, Alcohol & Tobacco move into recreational cannabis?

Not quite 'lock and loaded'

2022 could be the year this happens in a big way. Or maybe not.  The question is not if but when. While a few prominent names have taken the plunge, most companies remain on the sidelines. Watching and thinking. It’s a tough decision.

I have worked with some of these big players with their cannabis planning, and at them (P&G).  Here’s what I know:  The big firms will move into cannabis when most or all these conditions are met:  

1. Entry aligns with their corporate strategy and ethos.  Are they typically a first mover, fast follower or laggard? Its not only about market size; big firms think in terms of scale, integration and capabilities.  These priorities usually differ from counter-culture, entrepreneurial cannabis operators;
 
2. There is regulatory clarity on a federal basis so that they can minimize risk in their core business and ensure scalability.  Importantly, these companies don’t necessarily need full legalization, but just enough reform (e.g., rescinding 280E and barriers to interstate commerce, SAFE) to get the wheels rolling;

3. They have a reasonable chance to capture significant and profitable market share.  Large firms have strategic options.  They need to see multi-billion dollar, risk-adjusted returns in adjacent markets to justify the significant investment in capital and time, especially when compared to the available opportunities in their core businesses;
 
4. There is an opportunity to develop and expand brands.  Consumer-driven companies want standardized products, inputs and consumer experiences - or a clear path to delivering them. Until there are operational means to produce consistent products (quality, dosing, terps) with a differentiated value proposition and without running afoul of the FDA, they won’t move rashly.  

For some proactive firms, the more pressing question will be whether to build from the ground up or buy a MSO/ LP.  I will address this issue later.

#CPG #tobacco #alcohol #M&A #strategy #brands #legalization