Sales Growth: Preparation

Minnesota and Texas are the forefront of the hottest market to hit aluminum packaging since foil. Low-dose, hemp-derived, 2018 Farm Bill Compliant THC beverages are emerging from an underserved market and hitting shelves with more success than other states and countries including Canada, and Europe.

The canna-curious, the experienced, the novice, and adventurous consumer are flocking to the sector and getting the products outside the traditional dispensary model. From projected numbers emerging in the state their monthly unit sell-through are hitting upwards of 160K units and likely topping $1.3 million in gross sales.

This rush is fueled by widespread retail access, the diligence of brands and retailers leaning into Texas Department of State Health Services DSHS regulation (at least in the state of Texas), and the interconnected highways between the Dallas-Fort Worth, Austin-San Antonio, and Houston Metroplexes.

The markets in New Mexico, Colorado, and Oklahoma (license holders) are hours away from an underserved Texas market and more and more Texans are seeing the stigmas associated with cannabis dissipate and more and more companies are springing up to fill the market void.

Regulators and lawmakers in the state have the choice to pave the path where hemp-derived THC could be sold throughout the southwest market and retain revenues and sales tax dollars internally or lose them to other states. Liquor stores, retail chains, restaurants, grocery chains, and club markets are seeing the revenue and marketing opportunities as well.

The non-traditional model is emerging for market expansion. Texas requires a retail license and consumable hemp license (manufacturing) and these barriers to entry are overcome to kick the door open and bring widespread availability of micro-dose, low-dose, and dosed products to the market, and these THC offerings are cracking open (pun intended) new customer demographics (think non smokers, baby boomers, and those who are alcohol free GEN Z BOOM BABY), new business to business relationships (craft breweries moving their assets and marketing efforts into "green oceans"- think 可口可乐公司 1920's in Latin America).

Expansion Strategy: When, Where, and How Much?

Some say location, location, location, while other say TIMING MATTERS.

Expansion is the all about timing. Too little over too long of a period you miss the market. Too much too soon you get ahead of the market and deplete your cash flows.

Phase One - Preparation is critical

Market expansion preparation begins with a solid business plan. There are many components that constitute a solid plan, but none matter unless the result generates the distributor partner’s buy-in. If the distributor isn’t fully committed to the brewery’s vision, mission, strategy and culture, the brewer needs to either go back and reassess the partner decision or start from scratch.

Once fully committed, both the brewer and distributor must agree on several key factors, including:

• Retail standards/expectations who is giving you pre authorizations and who is willing to take the opportunity to the next level.
• Brand release calendar and critical event planning
• Pricing and Cost of Goods and landed pricing withing your production radius
• Market spend - Cap or slush fund*
• Incentives - First movers advantage and how are you going to work with your 3rd party movers?
• Media plan - Who what when and why are they being tapped on and what is the scoop?

There must also be agreement upon data sharing and the metrics used to gauge success. The importance of defining clear SWAT outcomes, attainable and measurable volume and distribution targets for distributors and account representatives cannot be overstated. Distributor and co-packing partners also need to define a schedule of periodic communication meetings to review agreed-upon targets.

Phase Two - Rollout (My Business)

"The better I'm feeling, the more that I'm chilling

Winning, drilling and killing the feeling ." -Ludacris

Rollout is expansion. Expansion takes strategy and key considerations. First, the initial SKU offering should be limited to core brands and core branding that is in the flavor offerings. This is opposed to rolling out the entire portfolio. This maintains focus and creates an easily communicable story for the distributor’s sales team. Keeps the focus of the distributor and the sales team and thus the consumer demographic or Ideal Customer Profile . Second, the number of package configurations for the core brands should be carefully selected. In the hemp derived market it looks like a battle between 4 packs and 6 packs and cases of 24 without standardization that will come with flavor, type of product and dosage and market constraint. Consumers will likely gravitate towards a lower-priced item when trying a new product.

Remember a rollout strategy must be a story first then sales a close second first. (DUH). A new market or underserved market needs a pitch and target. Selling has to be compelling, memorable, and fun. Come from a competitive area and move to data success stories from previous campaigns and offerings. (use velocity, pull-through, profitability, margin enhancement, etc etc etc.)

Strategy 1: Thin it out and widen it out

Craft cannabis beverage companies and distributors alike employ this strategy to capture more of a widely distributed volume by canvassing either a larger physical space for production, expanding a sales territory, and amassing a larger beverage portfolio (Sometimes you can do all three depending on capital and traction). This will result in a smaller percentage % of the market captured on a per-capita basis, but a hard to measure exposure outcome that gives you a larger impression footprint in the market.

Success Rides on:

• Cost of production: Cans, volume, emulsion, ingredients, and marketing. Those production costs must be lower to travel and expand your market thin and wide all while maintaining a similar margin.
• Sales support: Sales reps are critical in this strategy. Markets that are far away need plants to churn and create a brand following. Outside sales infrastructure must be created and framed to deploy properly.

Strategy 2: Focused and Narrowed

The inverse of strategy 1 is focusing instead of total volume and exposure, craft cannabis beverage companies and distributors focus on narrowing their local home market. This aim focuses on total domination by narrowing the radius and increasing the per-capita percentage % of your localized market. You must know what your maximum saturation point is prior to expanding your radius.

Success Rides on:

• Placement: Merchandising in existing accounts and earning more placements throughout relationships established.
• Portfolio: Expansion, saturation, marketing trends to offer more products with limitations to distribution.

Why are you even wanting to expand?

1. Sales growth right? Sure. You must identify if their is an demand and supply gap and understand if you can fill it. Are there signals that you’re not meeting existing demand with your main location, sales territory, and product mix? Are you maxed out on at your retail or taproom capacity? Do people drive to get your beverages, do they prefer delivery, can you create a curbside pick up or direct to model? Are you continuously shorting the distributor pickups of your brand?
2. Opportunity is always knocking you just have to answer the right door. Are you underserving a market or are your competitors leaving a door open in accounts? Can you open another location to serve your beverages? Is there a new distribution team that can help do the final mile work?

Filling in demand is a lower-risk proposition. The more demand signals you’re getting, the quicker you can move. Also, take into consideration that sales and product expansion represent a lower bar to action than physical expansion and also represent viable opportunities for growth.

Opportunity requires more thoughtful deliberation. Examine your existing stability and profitability. Run the numbers. Identify the risks. Then, if the analysis runs in your favor, consider action. But be slower to move.

A Paradigm Shift in the Long Game

Craft alcohol sales have overtaken craft beer sales and seltzers have been the rage in a post covid (mostly during covid PC). Legalizing CBD and hemp derived THC has created a contrarian move in the regulated recreational marijuana program. Other adult use states are operating at a deficit are trapped without vertical or forced vertical integration, and have implemented bans on hemp derived cannabinoids to bolster their position which in my opinion traps them to a monopoly that prevents other market makers to grow.

Timing Matters

If you told me in 2018 that cannabis craft beverages are the next big move in the industry I would laugh at you. Then plant a bunch of hemp in 2020 to be laughed at when I went to market with a bunch of CBG flower called "The White". Then I started planting the seeds in 2021 to start getting the ships built to move towards the declining craft beer industry and fill the market gap in hemp derived beverages. 2024 is a green ocean and ships are being built. Who has the cannons? (White Stripes Reference).

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