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The De-Commoditization of Cannabis

Everywhere you look, there is evidence that the cannabis industry, like so many others, is rapidly turning into a commodity-driven sector. News that Washington State growers are lowering prices “in a race to the bottom” helps fuel that notion. Dispensary owners are reporting that their lowest priced merchandise is often what sells best.

However, I believe that upon closer inspection, this “commoditization” is more perceived than actual. Let’s look at other industries for examples.

In the beginning years of the Internet, developers could charge hundreds of thousands of dollars to develop a website. In the years since, the price has come down dramatically, and enterprising individuals can now simply create their own site for free.

Likewise, as technology has improved and graphics software has become more user-friendly, it is now possible for average people to design their own brochures, or even become a photographer – using advanced cameras that were once only within the professional’s domain.

I would submit, however, that owning a nice camera does not make someone a photographer. Nor does having a graphics program on your computer make you a graphic designer. Likewise, while you may be technically able to design a website on a free program, there are hundreds of intricacies that only are only known by someone skilled in this field who could make the difference between your site ranking high on the search engines, or being invisible to organic searchers – lost in the sea of millions of websites.

In other words, there is still a need for talent behind the development. And talent can never become a commodity.

What does this have to do with cannabis?

Everything.

Consider the grower that has become a master at his craft. He knows the plant inside and out, and has perfected growing techniques that produce the most incredible strains and perfect flowers. Do you think that grower can command a higher price than the grower of average weed? Moreover, even if the grower of the premier flower chooses to sell at a competitive rate to the average bud, which do you think the consumer would choose if they are priced the same?

The grower of the premium product would be well-advised to create a strong brand, which is the opposite of being a commodity.

The difference between a commodity and a brand

A commodity, according to Investopedia.com, can be defined as follows: “A barrel of oil is basically the same product, regardless of the producer.” For commodity buyers, the most compelling consideration – and sometimes the only consideration – is price.

When a business or its products or services are perceived merely as commodities, and interchangeable with those of competitors, it usually finds itself competing on price, which often becomes a race to the bottom. And competing on price is a race that few organizations can win, especially over time.

In stark contrast we see the characteristics of a strong brand, as noted by Forbes, include:

  1. Audience knowledge – The best brands understand their customers wants and needs.
  2. Uniqueness – It’s what makes your product distinctive.
  3. Passion – Think Steve Jobs. Passion is felt both inside a company, and by its customers.
  4. Consistency – Consumers expect to receive the same level of quality with each purchase.
  5. Competitiveness – The best brands don’t just sit back, they constantly improve.
  6. Exposure – Reaching customers, both old and new, and creating connections is vital.
  7. Leadership – Leaders of great brands tend to be excellent motivators and know how to maximize the strengths of team members.

The cell fight

For a more insightful look at the struggle between brands and commodities, take a look at the battle between iPhones and Androids. In her book, “Branding For Dummies,” author Barbara Findlay Schenck defines brands as “promises that consumers can believe in” and brand loyalty as a philosophical attachment to an ideal.

For Android users, she says, “affordability is the biggest reason” it is so popular. “It also has a really great operating system.”

Apple’s appeal is somewhat more abstract. “What does Apple stand for? Apple stands for smart, fun, sleek. It makes people feel good about who they are and who they want to be,” Schenck said.

In other words: “Android is a commodity platform, Apple is a brand,” she said.

The numbers are in

According to research complied by B2C, 59 percent of shoppers prefer to buy a new product from a familiar brand. Furthermore, Valient Market Research reports, “a brand’s personality… plays an important role in the consumer purchasing decision,” and that “strong bonds can develop between a brand and a consumer.”

It’s not a race to the bottom – it’s a race to the top

In the cannabis industry, we are seeing a de-commoditization as brands are emerging with distinctive promises of quality, performance, and consistency. The products range from edibles, to vape pens, to flower product, and everything in-between. And while it remains to be seen which brands will resonate with customers and rise to the top of the sales winner’s circle, I am encouraged by the number of companies that are willing to invest the time, effort, and energy to develop a brand, and not let their product become just another non-descript me-too.

In short, brands, as reported by the Economist, are “the most valuable assets many companies possess.” Great brands inspire “loyalty beyond reason,” says Saatchi & Saatchi, the international advertising agency. Great brands have legions of fans, can command a price premium and, most important perhaps, are forgiven when they fall short.

The original job of brands was to assure consumers about the quality of a product or service. Some, such as Sony, still seek to do this. But now customers can review products on websites, talk to each other through social media, and consult online reviews. Thus, some say, brands today have “a reduced role as a quality signal.”

However, consumers have come to expect decent products at fair prices… and brands guide them through this process. In a new industry like cannabis, building trust through brand recognition is a key to long term success.

Nicholas Kovacevich

Nicholas Kovacevich

Nicholas Kovacevich is the Co-Founder and CEO of Kush Bottles, Inc., which has become one of the best-known packaging and accessory companies in the cannabis industry. Under Kovacevich’s leadership, Kush Bottles has grown to become a premier supplier, with offices in several states, proprietary product lines, and a fully staffed compliance department.

Kovacevich graduated Summa Cum Laude in from Southwest Baptist University, and started and ran several successful companies prior to founding Kush Bottles. Widely interviewed in major media, Kovacevich has emerged as an expert in matters pertaining to cannabis compliance, industry trends, marijuana packaging, and canna-business financing options. He can be contacted at [email protected]

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