Direct-to-Consumer Cannabis: The Future is Omnichannel
“You know cannabis has arrived when marijuana bills pass through Denver City Council with literally no comment. That never would have happened in the old days,” says Truman Bradley
It’s been 7 short (or long?) years since Denver, Colorado first opened their doors to anyone 21 and over to purchase cannabis legally without a medical recommendation. In that span of time we’ve seen numerous states and even a country legalize adult-use cannabis, with a model built on single channel, in-store brick-and-mortar sales. Now, with Denver soon allowing delivery, drive-through locations and even on-premises consumption we could see the city once again setting the tone for the future of what a legal cannabis market could look like, one that will further mirror opportunities available to traditional consumer packaged goods organizations.
The Colorado Market
Expanding access within Colorado will certainly accelerate growth, but it is not a market that is currently constrained as year-over-year it continues to deliver sales records. Looking at full year sales 2019 vs. 2020 we see an increase of over 20%, and this is in the midst of a pandemic. The growth hasn’t slowed either, comparing Q1 2021 to Q1 2020 sales increased over 25%. More consumers coming to the category, more normalization of cannabis and now more opportunities for consumers to purchase in different ways will continue to drive this number up in one of the original legal markets.
On-Premise and Delivery in Cannabis
Denver, Colorado isn’t the first to allow on-premise and delivery. A number of other markets, from Alaska to California to Massachusetts have spearheaded efforts around these provisions ahead of Denver. In these other regions, on-premise consumption has been especially challenging with significant red tape and overhead limiting its overall adoption with a few minor exceptions here and there. Given Denver’s long history and general acceptance of the legal cannabis industry I’m optimistic that it influence a new model, one that may be a blueprint for other legal cannabis regions in the future.
The Evolution of Direct-to-Consumer (DTC)
In traditional CPG, the direct-to-consumer (DTC) model experienced strong growth years ago driven by an influx of venture capital, the leverage of existing supply chains and new, untapped marketing channels developed on rapidly growing social networks like Instagram. Brands like Casper mattresses, Warby Parker glasses and Allbirds shoes made a huge splash in the market, selling over the internet to consumers everywhere.
Channel Saturation
Over time cheap digital marketing through channels like Facebook ads turned costly as more companies flooded the channel, meaning it cost more to attract new customers squeezing margins to a breaking point. As more competitors entered, existing supply chain arbitrage also dried up making it harder for organizations to cheaply differentiate amongst the crowd.
Going Omnichannel
Direct-to-consumer is a powerful channel, and provides CPG companies with many of the advantages that traditional retail gets, notably a direct relationship with the customer. The new trend for DTC brands has been to go omnichannel, highlighted by organizations like Warby Parker opening their own brick-and-mortar locations, or Casper mattresses now available at Costco.
Cannabis and Omnichannel
Perhaps surprisingly, lessons learned from selling mattresses can have an impact on how cannabis brands are built. In most legal adult-use cannabis regions, the model has been brick-and-mortar retail with limited marketing channels available. With legislative changes like Denver is making, it begins to open up a lot more optionality for cannabis organizations to mirror some of the recent trends on developing successful brands.
The New Way to Build
Product development starts with identifying the right trends to capture. After looking at market trend data through services like Headset, on-premise consumption offers all-new opportunities to engage directly with communities to learn more about why cannabis connoisseurs are driven to certain genetics, or what is driving a casual consumer to certain fast-onset microdosed edible products. After product development, leveraging a DTC model through delivery can give your organization a relationship with the customer providing critical feedback on your product, positioning, pricing and branding enabling you to iterate quickly. From there, you are able to broaden distribution with the long established and ever expanding brick-and-mortar retail footprint within the market. In markets like Denver, this process will be possible, and begin to make cannabis company strategy look more and more like traditional CPG.
The Houseplant Case Study
Beyond the celebrity status, the Houseplant model is channeling a lot of what the future of DTC brands in traditional CPG are pursuing, starting with direct-to-consumer and moving into an omnichannel approach focused on building a loyal community and growing into broad retail distribution longer term.
While Houseplant can’t use traditional DTC marketing channels like Facebook ads, they are leveraging celebrity/influencer accounts within the platform to build awareness. They are also tapping into existing communities, with their recently launched Houseplant Presents series, combining artists with their housewares goods.
Perhaps in the future, Houseplant can utilize on-premise consumption locations with artists and housewares further growing their community and customer base as the opportunity scales. Lowell Farms did something early on with their cannabis cafe before divesting from the endeavor, and associating with on-premise consumption helped the Lowell brand make a mark in the early days of California cannabis.
What’s Next
Similar to its loosening of restrictions around psilocybin, Denver paved the way for other states like Oregon and California to develop their own programs. With Denver pushing forward for more delivery, drive-throughs, on-premise and hospitality I’m optimistic about the future of how cannabis is sold and how long standing brands will be developed.
Things to watch for
- California is close, with legal delivery and on-premise consumption in select locations, but it has a lot of limitations and red-tape. Will we see loosening of access from Denver adopted more significantly going forward?
- Many operators are vertically integrated, with retail selling their own private label products as well as competitive products, not uncommon in traditional verticals. One practice that occurs in cannabis that is uncommon is selling private label products at competitive retail (ie. Costco’s Kirkland brand at Walmart). Will we see more vertically integrated cannabis companies look a bit more like Casper, with stores acting as sales and showrooms with products available everywhere?
Thanks for reading! To get access to similar data, please visit Headset. You can also follow me on Twitter.
Learn more about Cannabis Packaged Goods.
