High Time for Retail’s Pot Paradigm to Go Up in Smoke

Ray Hartjen
Ray Hartjen
Director, Marketing

No longer for the ‘dazed and confused,’ legalized marijuana is big business, and as social acceptance and laws change, it presents a once in a generation retail opportunity for those willing to shake off the stigma.

November’s U.S. presidential election has the retail industry anxiously awaiting results – Clinton or Trump? – and the retail-related impact of potential future legislation on trade, labor and even tax reform. But, the presidency isn’t the only part of the ballot retail visionaries are keeping an eye on, and no, it’s not senatorial or congressional races either.

It’s weed.Cannabis leaves

Polls indicate California, Massachusetts, Maine, Nevada and Arizona are likely to approve ballot referendums expanding legal cannabis use, and that’s a big deal, for the state of California alone, home to one of every eight Americans, would triple the country’s $6 billion legal marijuana industry (recreational marijuana is already legal in Alaska, Colorado, Oregon, Washington and the District of Columbia). A September report from Cowen & Co. projects the legal cannabis industry in the U.S. will grow to $50 billion by 2026.

By comparison, the U.S. wine industry saw sales totaling $38 billion in 2015.

Is retail ready?

Until very, very recently, the retail marijuana shopping experience has been, well, different than the rather typical and more mundane retail shopping experiences for other consumer goods.

“Different” is putting a positive spin on the matter. The absolute worst spin might be the description Olivia Mannix, a co-founder of Cannabrand, an ad agency focused exclusively on marijuana, infamously and controversially gave the New York Times two years ago, likening cannabis dispensaries to “underground abortion clinics.”

Those old stereotypes are eroding rapidly.

Head shop clichés are giving way to a new norm as the industry caters to a bigger, more broad, more mainstream clientele encompassing consumers of all demographic segments. Established architectural and design firms are positioning themselves to enter the fray, joining cannabis-specialty designers like The High Road Design Studio, to create spa-like lounges and specialty boutiques. As Scott Thorn, president and COO of Clinic, a marijuana retailer operating stores in three states, told The Cannabist when describing Clinic’s new flagship store in Denver, “Let’s be industry-agnostic here. We wanted to create a retail experience that measured up to stores in any industry.”

A big part of the pot shop makeover lies with attracting a broad and diverse market, particularly women. As most every retailer marketer knows, women shoppers drive 70-80 percent of all consumer purchasing through both their own buying power and their influence, and EY, a global professional services firm, forecasts the global income of women will reach $18 trillion by 2018.

The cost of customer acquisition will never be lower than when a market first takes off – ask any first mover, and the cost of acquiring another retailer’s customers grows exponentially as a market matures. There’s only one opportunity to make a first impression, and the impression for the cannabis industry has more than a few obstacles to overcome. The beginning of that transformation has already begun in and around the store.

Sales associates as a differentiator

A legal, recreational marijuana market is ripe for the kind of customer-centric shopping experiences only brick-and-mortar stores can consistently provide, with product awareness and education immediately at the forefront.

Retail stores have budtenders – yes, they’re a “thing” – and their biggest responsibilities lie in their ability to consultatively assist shoppers as they navigate through the myriad of cannabis-based products. At the core, cannabis shops offer various flowers (for smoking), edibles (that come with dosing instructions), concentrates like oils and topical lotions and patches, not to mention accessory products like pipes and vaporizers. It can be overwhelming for shoppers, particularly new shoppers like tourists.

Shopping bag, shopper and associate

The one-to-one nature of the cannabis shopping journey, particularly the initial shopping journeys of new customers, plays into all the strengths of a well-staffed physical retail store. Just as the store front is a differentiator, the associate-led shopping experience is a differentiator in its own right.

The retail opportunity

Like it or not, society’s stance on cannabis and its use is changing, and there’s no going back – we tried that with Prohibition almost 100 years ago, and we all know where that got us.

There are a lot of legal and regulatory issues to overcome, but there is no shortage of players looking to become the Howard Schultz and Starbucks of this budding industry (pun only partially intended). Investors are flocking to the space, led by Privateer Holdings, relatively fresh of a $75 million round of Series B funding, much from Peter Thiel’s Founders Fund, and all of it invested in cannabis, making it the biggest and best funded equity firm making investments in the cannabis industry.

More mainstream companies like Scotts Miracle-Gro Co. (NYSE:  SMG) are anteing into the game as well. Scotts has seen its market capitalization soar 30 percent this year after an 18-month buying frenzy of companies providing specialty fertilizers, lighting and supplies for hydroponics, the preferred indoor-growing method favored by marijuana growers. Scott’s hydroponics business already generates $250 million annually in revenue, and its Black Magic brand is now sold in 165 Home Depot locations.

Legalized marijuana is already big business, and as legalization continues to gradually expand across the country, the market – and the opportunities associated with it – will skyrocket. Societal acceptance is changing, voters are changing, and laws are changing, all presenting a once in a generation retail opportunity for those willing to shake off the residual stigma of the dazed and confused.

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