Menu

CANNABIS ANALYSTS

The authority when it comes to analyzing the cannabis industry

Competitor Facing Strategies: Understanding Where You Stand

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 (MMM in Massachusetts or this one in CT).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 let employees 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.

Massachusetts Dispensary Analysis

On January 31st, Massachusetts released its list of approved medical marijuana dispensaries. The top 20 qualifying companies made it through generally by involving some teams of “heavy hitters” and ample capital. For example, former Congressman Barney Frank and Boston philanthropist Howard Kessler are involved with dispensary New England Treatment Access, or NETA, according to its application.

And NETA is throwing around big money, in its own words a “substantial investment:” $4 million to build cultivation and dispensary sites and another $5 million to fund operating losses until the business breaks even (including $130k for a parking lot!). Heck, they are even working with the electric utility to upgrade the local power substation in order to deliver more electricity to NETA’s cultivation facility. Massachusetts’ selection committee of experts give points based on each applicant’s business experience, public health, security operations, and a host of other variables. Even then, NETA was only ranked #2 among the approved applicants. Top honors goes to a group called Medical Marijuana of Massachusetts (or “MMM,” scored 160/163 of possible points) backed by a group of ophthalmologists and an experienced grower from Cali.

The industry isn’t for the faint of heart. MMM, which got approval for 2 dispensaries, also has big bucks and expects to spend about $1.4 million building each dispensary and another $1.1 million to cover the first year of losses. Each MMM dispensary is expected to reach ~1500 patients, or 1/3 of marijuana buyers in the area, and book $3.5 million in revenue for the first year (mostly sales in the 3.5g and 7g sizes).

NETA, on the other hand, believes its dispensary can reach 2000 patients, or 50% of local marijuana buyers, in the first year and book $11.9 million of revenue profitably by end of 2015 (representing 2400 lbs). They expect revenues will ramp to a healthy $23 million by 2016 (4800 lbs). Price is such that they are assuming they will make on average $4800 per lb, reaching a peak patient population of 4000 in 2016. Monthly consumption assumes 1.6 ounces per patient per month (based on CO experience). What NETA has to its advantage, and it comes down to knowing the right people, is that they are bringing Rocky Mountain Remedies co-founder Kevin Fisher, who runs a 20,000 sq ft site in CO, to run their growing operations along with his team.

Of course, the top notch quality and first class service are not cheap, and NETA won’t be ill-equipped given it deep pocketed backer and experience.

One interesting contrast between these two top potential dispensaries is that MMM projects 2.3 patient visits per year while NETA assumes 2.5 patient visits PER MONTH. There are limitations on purchase amounts, but the 2.3 per year MMM is using sounds low while the 2.5 per month by NETA may be normal to slightly high. In any case, time will tell who is more correct, but nevertheless these assumptions are crucial to both companies’ finances and abilities to scale upwards. If the “patients” don’t come, no marijuana will be bought.

In the next few posts, we look forward to bringing you a more detailed coverage regarding the strengths seen in Massachusetts’ top-ranked applications, as well as aspects to avoid from those who failed to make the cut.