Shaping the Future of Cannabis Beverage Branding: Will You Choose Iconic or Value?

Cannabis is a rapidly growing industry, and as such, in an industry bursting with innovation and competition, breaking through the noise is daunting for brands with limited capital and experience.

The market for cannabis-infused beverages, or cannabevs, is also expanding quickly. 30k CPG SKUs are launched annually in the US, the majority of which are by startup companies. Few make it, what seperates the survivors from the 70-90% that fail?

With more and more companies entering the space, it is becoming increasingly important for brands to differentiate themselves and stand out in a crowded market. In this newsletter, we will explore the future of cannabev branding and what companies can do to capture attention in this fast-growing industry.

Become a Value Brand or Become an Iconic Brand

A value brand competes on price and convenience, while an iconic brand is adored by customers who see it as an extension of their chosen identity. The question is, where does your strength lie? Are you more inclined toward optimizing supply chain and distribution relationships, or are you ready to tap into the depths of people's aspirations and desires?

Let's explore some examples of both:

• The market leader for cannabev in Massachusetts is LEVIA . First-mover advantage is a phrase often tossed around in the emerging market of cannabis beverages. Let's delve into what it truly means to be the pioneer and what awaits those who seize that opportunity. Our journey takes us to a fascinating case study in the state of Massachusetts. In 2018, the doors to the recreational adult-use cannabis market swung open in Massachusetts. A year later through my work at Vertosa, I turned my attention to the budding world of cannabis-infused beverages out east. Back then, only two notable groups were actively crafting plans within this category: Theory Wellness and the visionary team behind Levia. Launching a cannabis beverage at that time required more than just an idea; it necessitated building your own manufacturing facilities, setting up distribution networks, and supplying your own distillate. It was an extraordinary effort for an untested category. Yet, the payoff was swift market penetration. Without the weight of a legacy culture, as sometimes seen in states like California, new cannabis consumers flocked to the familiar allure of the beverage form factor. Levia and Hi-5 focused on operational control by building out the entire supply chain to get from flower to drink on a retail shelf. I was not involved in either company outside of introductory chats, but one of the CEOs told me his brand was for "everyone." A strategy that sounds like value brand to me. The strategy was successful as Levia was acquired by Ayr Wellness for $20 million a year later. To my knowledge, none of the early Massachusetts-born brands have expanded out of their home state, away from their supply chain advantages.

• 70-80% of the pistachios grown in America come from one farm. However, the price for these pistachios is dependent on the branding on the bag. In my corporate days, I used to stomp around California's Central Valley, working on what we referred to as 'workplace accounts' during my time at PepsiCo. These accounts were typically food service establishments in places where the general public didn't have frequent access, mostly serving employees. Think of places like colleges, hospitals, and prisons. However, it was the agricultural companies that really captured my earth-loving, blue-collar spirit and provided the most enjoyable experiences. Among my clients was Wonderful Pistachios , in Lost Hills, California. Picture this: endless stretches of pistachio trees as far as the eye could see, with a central processing facility where the nuts underwent roasting, seasoning, and packaging. They even had a farmers market-style vending setup once a week, offering an array of bagged goods for purchase before they hit the wholesale market. Imagine my surprise when I discovered that the largest pistachio grower in the country was also supplying their nuts to the Kirkland Signatures brand. Yes, you heard it right, the industry leader was selling their own nuts to a 'competing' brand in Costco, who I can assume is their largest retail outlet. However, we all recognize the presence of value-conscious consumers who prioritize cost-effectiveness over brand names. By supplying Kirkland with their nuts, the Wonderful Company cleverly manages to maintain brand loyalty with Wonderful while simultaneously competing for the attention of those value-driven consumers that buy on price. The Wonderful brand does not view Kirkland as a competitor, they appeal to different emotions and needs from different consumers.
• Jordan shoes without the Jumpman? In 2008, NBA all-star Stephon Marbury embarked on a new chapter in his career by moving to China. China, known for its sweatshops producing high-margin fashion items sold in the US, including Nike shoes, posed a unique opportunity. Marbury had a bold plan: to introduce a line of $14.99 shoes of the same quality as Jordan's , targeting price-conscious consumers. It appeared to be a promising concept. While Marbury might not have been in the same league as Jordan in terms of fame, his credibility as one of the world's top basketball players lent weight to his endeavor.

However, Marbury underestimated a crucial factor—the power of an iconic logo like Jordan's. That logo and name made all the difference when it came to earning respect from your peers on the court or expressing your chosen style through your clothing. People weren't shelling out nearly $200 for Jordan shoes solely for the quality of materials; they wanted to own a piece of the icon. He was selling value to a consumer that cared about image. Sadly, the Starbury line was discontinued just a year after its launch.

What are the Benefits of Each Strategy?

A value brand offers predictability. By shedding the costs associated with branding and marketing, where measuring ROI can be challenging, you can eliminate the uncertainties of navigating "culture's" unquantifiable aspects. Instead, you can observe what works from the early entrants and efficiently capitalize where you can do it better to secure victory.

In essence, success in the value brand business often hinges on excelling where it matters most: price. A value brand is typically started by a large vertical company that can control as much of the operations as possible.

Conversely, the iconic brand is a profit cow. With fiercely loyal customers who won't settle for substitutes, your focus shifts towards expanding your reach, with less emphasis on operational efficiency and product innovation—factors that often lie beyond your control.

Once you attain a certain level of market adoption, you can scale back your marketing expenses because your dedicated fans will become advocates, effectively selling your brand for you. Building and motivating a workforce is also smoother within the realm of an ultra-recognizable brand. An iconic brand is more acquirable by a bigger company who can improve the economies of scale.

Where Each Will Struggle

A value brand finds itself in a perpetual race to the bottom, vulnerable to larger competitors that can achieve economies of scale. In this unforgiving arena, loyalty can be non-existent, and your business can swiftly falter if a competitor undercuts your prices. Moreover, staying at the forefront of innovation, while not as critical as price, is essential; a rival can emerge offering superior products at the same cost, spelling doom for your brand.

This challenge in cannabev is compounded when considering innovations like novel cannabinoids, which often start small on the supply side and come with a hefty price tag, eroding your competitive edge on pricing. Success in this realm hinges on your team's ability to cultivate robust supply chain relationships with promising suppliers.

On the other hand, an iconic brand's innovation is primarily concentrated on the marketing front. Keeping pace with ever-evolving social media platforms, understanding customer desires, and mastering the art of reaching and connecting with your audience is a perpetual and formidable task, given their shrinking attention spans. Your company's culture becomes pivotal in ensuring employee satisfaction and sustaining a people-centric approach to go above and beyond to delight everyone your brand touches.

Maintaining and expanding an iconic brand is notably more straightforward during the initial stages. However, as you begin to scale, the original mission can take a back seat to the unforgiving world of numbers—a stark departure from your initial goal of simply fostering a deep love for your brand.

How Do You Pick Your Lane?

Questions to ask:

What does your founding team look like?

This is the most important question, as you will have to outsource/hire the rest. What is their background? With a marketing background you go iconic, with a supply chain background, you skew value. Does your team like counting beans or making art? Sales talent is a must in both scenarios to make it, but far more important for an iconic brand. The value brand sells on numbers, not emotions.

You need to build out your own manufacturing facility. Do you still want to do it?

If the answer is no, you need to build something iconic. Copacking is fragmented and not many are built to scale yet, you might just need to take matters into your own hands. Your challenge here will be driving trial, so pick a small region to launch in and dominate.

Do you mind if your product is evaluated on features?

Someday, a shopping aggregator will allow users to input criteria like price, potency, sugar content, and more, and this aggregator will then recommend a brand. Is that where you want to position yourself? If so, you're competing in the value segment.

Do you see your brand getting tattooed on someone voluntarily?

If no, you might be value.

Do haters bother you?

If yes, you need to build a value brand. An iconic brand is always polarizing. As many people that will love you, others will hate you for existing.

What does the future of cannabev branding look like?

As the category and laws continue to grow and evolve, every beverage and many cannabis manufacturers will make their version of cannabevs. Brands that can cut through the noise and win either consumer hearts or wallets will be the only ones left standing 10 years from now.

You probably can't do both, who do you want to be?