Menu

CANNABIS ANALYSTS

The authority when it comes to analyzing the cannabis industry

Competitor Facing Strategies: Understanding Where You Stand

Cannabis Analysts Throwback – this was originally posted on May 5, 2014 

There are many attributes that go into planning a dispensary: ensuring product excellence, hiring the right people, increasing productivity, financial forecasts – but what about having the proper strategy to tackle your market? We don’t mean just any strategy, but a competitor-facing strategy to win market share. Your dispensary will be up against large, well-backed, deep-pocketed enterprises that are spending $2MM-$10MM to open retail and cultivation facilities. There will most likely be several of these multi-million dollar dispensaries near yours. Some of your competitors will even have strong medical and political connections.

Just like with a strong army, a strong company can use its power to stay on top, with more resources devoted to developing products and keeping prices down. Playing the defensive position would also be insufficient as you stand vulnerable to being inundated by a much larger force, even if they are in a neighboring county.

You are in a creative industry that caters to the minds of medical patients and (eventually) consumers. There is no creativity in outspending your opponents; you need intelligence, imagination and nerve. Managers and entrepreneurs cannot become shortsighted, absorbed by finances and daily sales, while the competition thinks long term and stays focused on products. Here are a few thoughts you should keep in mind when formulating your strategy:

1) Determine Your Starting Point: A good strategy starts with an evaluation of the nature of the challenge, simplifying the complexity of reality, and identifying the most critical aspects of the current situation. Survey your competitors, the closest 3-4 dispensaries around you. Visit their stores. How large is their retail space? How many strains do they offer? What types of patients visit (gender, class, etc)? How inviting is the facade? How many pounds do you think they move each month? Is there room for them to expand? Local market intelligence is key– stay on top of changes– the more dynamic the situation the poorer your foresight will be. Visit dispensaries in another state and talk to their managers, if possible; learn about their experience.

2) Share Your Insights In A Blog: the industry is still young and thought leaders are needed; many tech startup founders have blogs that both explain and advertise their ideas and creations to the world. Running a business can be difficult and managing different strains tedious, but customers are now plugged in as ever to the web. It’s a white space out there, dictate the terms of the conversation and help fill it. Those with the knowledge but not the power to clearly express themselves might as well have no ideas.

3) Apple Store Appeal: remember how enticing and welcoming an Apple store is? Invest in cleanliness, sharp and able employees, and clear product display cases. Also, it may be unprofessional to allow employees to use marijuana on the job: think how you’d feel if all the Apple store employees were constantly texting on their iPhones.

We’ll return to the broader concept of strategy and marketing later on. Avoid fluff, muddled or sloppy thinking. Define the challenge to be addressed and don’t declare objectives while disregarding the means for achieving them. Any broader plan is determined by where you start, and many are unaware of just how much is going on in their current situations.

MassRoots – A Social Platform for Cannabis, But Is It Another MySpace?

Boasting over 1 million users, MassRoots (or “MSRT”) is one of the hottest cannabis social networks out there, and functions as a platform with capabilities similar to those of Instagram and Yelp where users can post marijuana-related pictures & videos and local businesses can advertise their goods and services. The app and website have come a long way since MassRoots’ inception in 2014. Overcoming numerous obstacles (e.g. the difficulties of obtaining funding due industry’s nature, being banned from app stores, etc.), MSRT has made great strides since having only 100K users in early 2014, constantly and consistently improving, and has been on a fundraising tear having recently raised over $7 million of fresh capital since October last year (when cash in the bank dipped to a paltry $126k). Yet while we are excited about the industry’s overall prospects, we believe the marijuana industry is not yet ready for social sharing of cannabis consumption, due to the fact that people are not yet comfortable posing with a still federally illegal substance. As a result, the social network effects won’t take root with MassRoots.

First, the positives. The legal cannabis market is expected to grow to ~$24 billion by 2025 according to New Frontier Data, a projection that assumes no new states will pass legalization legislations. And there are numerous exciting ongoing developments for cannabis social networks. MassRoots was recently approved for listing on Google Play, opening up the android market again after a compliance review, and is set to imminently launch a revamped website and app. MassRoots also plans to provide a business portal that will consolidate many online marketing functions for cannabis-related businesses in one central platform. When medical cannabis becomes legal in a state, MassRoots expands into it, gaining new social and business users.

Yet, cannabis social networks are stuck in low gear (and at an early stage), and won’t change unless there is more comfort surrounding marijuana usage. The main reservation we have about MSRT is that with the federal illegality of cannabis still being the strong status quo, users do not yet feel comfortable fully portraying themselves and their colleagues in the cannabis related content they publish. Simply open the app and you will see the lack of diversity in posted content where pictures are often close up shots of different strains of marijuana or smoking materials, all of which can get boring quickly. Mediums like Instagram has a wider and richer diversity of pictures. Some of the pictures on MassRoots are not necessarily visually appealing either, like a quick snapshot of an edible item or a pipe, and can be of low quality. Social networks rely on having a critical mass: because MassRoots cannot be downloaded in states without legal medicinal (or recreational) marijuana, there are challenges to it achieving viral customer growth. 

For a variety of additional reasons, we think Massroots will have limited traction:

  • Dispensary visits by customers are often done discretely: as a result, the creative potential of MassRoots’s user base is limited and you won’t find too many pictures of people out on cannabis adventures and activities. This is a fundamental characteristic of a social network that is lacking in MassRoots (or very weak). 
  • Illegal use mode as network for banned activity (such as finding black-market dealers through use of app): the only legal venues for marijuana purchase are licensed dispensaries or caregivers in accordance with state regulations. Simply look through the comment sections of a few pictures and you might come across the contact information of black-market cannabis dealers trying to get referrals. While the company has made initiatives to combat this, it is difficult to moderate this kind of behavior, and it can continue to drive MassRoots into legal gray issues. NASDAQ cited this as one of the main reasons denying MassRoots a listing on the exchange.
  • Sharp slowdown in user growth: it took MassRoots 8.5 months to get their last 100k users (bringing them to over 1 million total users as of March 20, 2017). It took them a little less than 4 months to go from 800k to 900k users and 2 months to go from 600k to 700k, so the trend is one of decelerating growth. We find this a bit surprising given the backdrop of the large amount of publicity surrounding the very successful marijuana referendums in November; that publicity has not translated to faster user growth. Might this be because most people are already familiar with the products in available markets and excitement for the app is waning? Why doesn’t Massroots share more relevant figures measuring the amount of its users’ engagement, such as the number of active users who have logged on over the past month, a metric frequently used to measure internet traffic?

 

Non-social platforms like Leafly are substantially more popular, with more than 8.4k ratings in Apple’s App Store (11.4k for Weedmaps) compared to 1.5k ratings for MassRoots. While the App Store does not release number of downloads, sites such as SensorTower have estimated that Leafly and Weedmaps have received 5-10x more downloads and do not restrict user access based on location (both Leafly and Weedmaps allow downloads in any state but MassRoots only allows downloads if the user’s state has legalized marijuana).

MassRoots had to reduce headcount by ~30% and cut salaries in Q3 2016 because of lack of profitability, noting in their filings that their accounting firm “has expressed doubt about our ability to continue as a going concern” (read: the business needs to raise money or will go out of business; fortunately it was able to raise money). If implementing marijuana rules gets delayed in the handful of states that legalized it in November, advertising revenue and user growth may slow further for MassRoots. And while we are confident there will be space for successful cannabis social media networks, we aren’t yet MSRT believers or sure MSRT will be the winner. Clearly the first mover advantage MassRoots has in social media is very valuable, and we would like to say that no matter what, they will continue to grow along with the industry but…remember MySpace? MySpace investors could have reaped a massive payday, being invested in one of the first and, at one point, largest social networks by user count. Yet it wasn’t until Facebook came along and played its cards right (both in designing the proper social network and then later transitioning to mobile) that the true market bore fruit. Is MassRoots just another MySpace?

Thank You For Your Support: 2016

The team here at Cannabis Analysts would like to thank you for all your support this year and wish you a Merry Christmas! We will continue to strive to provide you with the most timely and actionable information on the cannabis industry, and be the authority when it comes to analyzing the cannabis industry.

2016 has been a hectic year, and the industry is on an irreversible path. California, Nevada, Maine, and Massachusetts legalized recreational marijuana and we believe that no matter what Washington does (or who is President), these decisions cannot be reversed. Progress may be slow, but progress will occur. Here’s to a great 2017 and have a Happy New Year’s!

– Cannabis Analysts

Denver Dispensary Visits – UPDATED

Cannabis Analysts recently visited a dozen Denver dispensaries to better understand the shifting competitive dynamics. We witnessed several dynamics at work: wait times, branding, service, discounts and quality. Many facilities offered roughly 10-15 strains on the recreational side and far more on the medical side. The most impressive facilities offered both.

It was highly surprising to us that closer partnerships between doctors and dispensaries did not exist. We believe the industry needs to invite doctors to legitimate “lunch-and-learn” sessions to help improve awareness and perhaps offer some incentives for sending patients along. The big dispensaries may have contacts with doctors but a more structured and targeted approach is needed. The business aspect of the industry is for the most part healthy.

Pricing is fairly consistent, about $40-$50 per eighth for the flower. On the recreational side, a dispensary can see several hundred people per day who buy anywhere from a joint to an ounce, repeat visits also widely range from once a week to once in several weeks. Some of the dispensaries said about 150-200 people visit on the recreational side per day. Most places offer the same recreational strains. On the medical side, a dispensary with 35-50 patients equates to doing well. These patients buy more and on a more consistent basis, and it’s no surprise the selection is better (sometimes 2-3x more strains to choose from compared to rec).

There remains a general secrecy among some marijuana users. One dispensary employee noted that most of her customers didn’t want it to be known that they visit dispensaries. As a result they don’t mention other stores they may have visited.

Cannabis Analysts was impressed by a number of very clean, well lit stores with young, hip and clear spoken employees. Coupons in papers can drive visits, but they might be used to drive traffic (for cheap varieties). There may be a stronger movement towards closer partnerships with doctors – several of the medical-only dispensaries lacked a clear marketing target towards prescribing physicians or had informal at best relationships with less than a handful. We see this as a major hurdle in states trying to implement medical dispensaries. Doctors are largely ignorant to the benefits of marijuana (and some may be vehemently opposed) and which strains are best prescribed for what ailments. There is a clear need to get the word out.

Several Denver dispensaries really wowed us with their quality and inviting atmosphere, that puts the visitor at ease immediately upon entering. These stores are not targeted towards generating the highest volumes but ensuring quality NEVER drops. Quality is first and foremost. Most people know which dispensaries these are.

Most of the competitive dynamics center around cannabis quality, service, location, discounts and to some extent branding. Most are thinly staffed with total of 1-2 employees including a receptionist. Opening times also vary, while closing time (7 PM mandated) is largely consistent. Some stores open at 8 AM and others are 10 AM.

Overall it is a simple business with a complex backdrop of legal and regulatory work, preparation, service understanding, and inventory management.

About Us

We aim to be the leading industry source of business analysis and research. We not only report on important and granular industry trends and the business of growing and selling—we’ll tell you what it means too.

The Cannabis Analyst has worked in private equity, investment banking,  engineering, and management consulting. We have a profound appreciation for business-building and possess in-depth industry acumen. We’ll help our readers become the pioneers of this exciting, emerging industry in a responsible, legal, and, importantly, profitable manner. We want to expose to you the critical components of the business and help you capitalizable on fast shifting industry opportunities. There are no secrets.

We look forward to sharing our insight with you.

-Cannabis Analysts