Curaleaf: CPG Ambitions
“We’re making the products much more mainstream for our customer base — we’ll be no different than Coca-Cola or Frito-Lay,” Boris Jordan, Chairman, Curaleaf
Curaleaf is one of the largest cannabis multi-state/store operators (MSOs) in the world, with a presence in 23 states across 101 dispensaries, 23 cultivation sites, and 30 processing sites. They are one of the largest cannabis operators in the world, recently announcing their intentions to go beyond the U.S. with the recent EMMAC acquisition news.
Curaleaf also desires to be a leading CPG brand in cannabis, along the lines of a Coca-Cola or Frito-Lay as outlined by Chairman Boris Jordan in a discussion with Forbes. To further pursue these ideas, they’ve brought on Joe Bayern as CEO, with experience at VOSS and Cadbury Schweppes (Dr. Pepper, Snapple).
CPG: Curaleaf Packaged Goods
The cannabis industry in the U.S. is highly fragmented, with each state operating independently within its own unique framework. For Curaleaf, an operator with a footprint in 23 states that means a patchwork of products across a patchwork of states.
This is illustrated clearly when looking at products like their NANO Edibles, which were recently introduced in Florida. At the same time, in their Arizona stores, you’re more likely to find Copperstate Farm’s brand Good Things Coming or Curaleaf’s Select brand Nano vs. Curaleaf branded Nano. In markets like Arizona, they have strong retail ambitions, in others, like New Jersey, they have large production and processing facilities to supply the retail network beyond Curaleaf stores. It is really a region by region strategy.
“In New Jersey, our goal is different,” Jordan continues. “We’re looking to be the wholesaler — that’s why we’re building the big grow, so we can supply the whole market with product.” via Forbes.
The Select Strategy
One Curaleaf brand in their CPG portfolio of products is Select. Currently in 17 markets, it is a great example of a brand starting early on the west coast (Oregon) expanding out to limited license markets after being acquired by Curaleaf for $365M.
Select in California
For a long time, Select was the largest Vapor Pen brand in the California market. Recently, the STIIIZY brand of vape products have taken top position, but Select still does brisk business and is easily within the top 10.
Some of the loss of market share comes from aggressive pricing strategies from competitors. This is reflected clearly when we look at STIIIZY vs. Select’s Equivalized (EQ) Price, or the average Price Per Gram. Notice how STIIIZY started above Select pricing, and has been gradually bringing down price while gaining significant market share.
When we look at wholesale cost for popular package sizes the difference in pricing strategy stands in stark contrast. For 0.5 gram cartridges, STIIIZY products wholesale for $10.91 vs. Select’s $14.31, a full 31% higher based on headset.io sales data last 365 days at time of publishing.
Leveraging the CPG Playbook
Select is making some interesting moves that may turn the tide, as illustrated with their latest product line introduction, Select Fresh.
With this new product, we see select leverage the Value Creation Model for CPG brands in a few interesting ways, particularly:
- Perfected mass-market brand building and product innovation.
- Built relationships with grocers and other mass retailers that provide advantaged access to consumers.
- Designed their operating models for consistent execution and cost reduction.
Mass Market Brand Building and Product Innovation
The Fresh line of Select has a focus on a few unique aspects that highlight product innovation: 1) a proprietary Select battery and cartridge format 2) a focus on 0.3 grams vs. 0.5 or 1 gram and 3) adding fruit flavors.
The proprietary cartridge will help with brand lock-in, as once invested in the battery consumers are more likely to continue purchasing the same proprietary cartridge format. It also has advantages of smaller cartridges meaning less waste for the conscious consumer, which will resonate with younger generations.
A focus on 0.3 grams vs. 0.5 grams helps Fresh stand out as a very small number of brands produce cartridges in this package size. It also has the advantage of coming in at a lower and more competitive price point, albeit you get less cannabis. As many younger consumers are wallet constrained, having the option to move upmarket from inexpensive single pack Pre-Rolls to to Vapor Pen cartridge formats will expand the category for Select.
Finally, adding in fruit flavors will bring in more consumers to the category, particularly Generation Z who reacted favorably to fruit flavored nicotine based products. There is risk here near-term, as flavored nicotine vapor has been banned by the FDA, and Select may be inviting added scrutiny into cannabis regulation given the flavor overlap with nicotine products.
Built relationships with grocers and other mass retailers that provide advantaged access to consumers.
Select Fresh has a number advantages here, given it is a private label brand for Curaleaf, it can take advantage of direct access to the consumer, understanding what is driving purchase behavior. This type of direct experience is limited for a traditional CPG brand that might not have advantaged access through its own retail channels.
The introduction of the product line at scale is also unprecedented. Most brands launch in one, or at most a handful of markets simultaneously. With Select Fresh it is being launched in 10 markets simultaneously, setting a new benchmark for cannabis product introductions. This scale is a testament to their production and processing facility footprint, and pushes access to more consumers than most other brands out there.
Designed their operating models for consistent execution and cost reduction
Consistent execution will come from Curaleaf’s direct processing facilities, vs the more traditional cannabis play of licensing out formulas to third-party production for scale. As Curaleaf controls the production, they can ensure consistent execution in the development of the product as well as its sale at Curaleaf’s own retail.
Cost reduction at retail is possible through smaller package sizes, giving consumers options at a lower price point than most products in the Vapor Pen Cartridge segment. With Curaleaf’s scale, they should ambition to bring down wholesale pricing for other retailers in their network to be competitive with brands like STIIIZY illustrated above.
The evolution of Curaleaf’s strategy
In Curaleaf’s ambition to a bit of everything from CPG company to retail chain to a European medical supplier they have placed a lot of chips on the table.
Vertical integration and future channel friction risk
An interesting aspect of vertical integration in cannabis is that often retail brands will distribute and sell private label products at other retail outlets. There aren’t many parallels to this in CPG. Even Starbucks, with its CPG line of coffee beans sold on grocery shelves leverages a Nestle relationship to handle the CPG component. You rarely see Kirkland or Trader Joe’s products sold outside of their own retail channel.
As Curaleaf’s retail ambitions scale, they will certainly start bumping into larger competitive retail outlets which may result in a pullback of product availability across the broadest spectrum of retailers, limiting broader CPG ambitions. A future essay will outline this in more detail, but if you are going to be Frito-Lay, then you have to sell your products everywhere to leverage the CPG model to its maximum. Having a competitive retail footprint may prove challenging to this strategy.
Chips on the table
Curaleaf’s strategy of many different bets based on different market dynamics makes sense given we don’t know what the cannabis industry will look like long-term yet. That book is still being written. As things solidify they can double down on certain bets, and pull-back on others. Given they continue to be well capitalized this strategy has less risk than it might for others, and positions them well for larger upside as the industry landscape gets more solidified in the years and decades ahead.
The takeaway
Curaleaf continues to be well positioned and has embarked on a different strategy than similar scaled MSOs like GTI (Green Thumb) or Trulieve. This is what makes the industry so compelling, as we will see which strategy will win in the end.
- Curaleaf is pursuing both retail and CPG strategies simultaneously
- Select’s position in the competitive California market shrinking
- Select Fresh is well positioned to capture the growing Gen Z demographic through a series of innovations that resonate with a younger audience
- Channel friction in the years ahead may limit broader CPG ambitions
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