By Scott Berman and Jordan Tritt
How do you advertise for the illicit market? Carefully. Speakeasies of the 1920s were so named because you had to whisper a password to get inside. Everyone knew what was going on, but you still had to be careful. Kind of like the early days of cannabis advertising.
Before the adult-use market opened in Colorado in 2014, the majority of cannabis marketing was done underground. The advertising market was small and lacked structure. This was the perfect environment for guerilla marketing.
There are two main reasons to use guerrilla marketing: 1. To surprise your audience with an unconventional message. 2. To sidestep print, radio, television, direct mail and digital ads.
Typically, the sidestep is required because people aren’t listening to the regular channels. However, in the case of cannabis–ambush, stealth and buzz communication were necessary because the common channels weren’t available– and in many cases still aren’t open for business.
So pre-2014, we saw local newspaper ads, niche magazine ads, and a marketing grapevine that wove through live events. You had “weed” parties with cannabis swag (Budtenders love swag), T-shirts, novelty products you could wear and use. Stickers and stencils tagged on walls.
Then you had fledgling tradeshows and events created by MJBiz, NCIA, CWCBE, High Times and others. The brands would market with pop-up displays and free samples. It was a grassroots approach, but it hit the right audience. For budtenders, guerilla advertising was like the gin-joint’s whispered password.
Keeping cannabis advertising close to the chest meant the audience stayed relatively small. Pre-2014, you were only able to reach “early adopters”. A mere fraction of who we knew might actually be interested once cannabis went mainstream.
The mainstream shift accelerated in 2014 when Colorado, Washington, Alaska, and Oregon all began moving toward opening up their recreational markets. It changed the way that many viewed the industry. Suddenly, cannabis became a business opportunity. Not just for the chosen few, but for the state’s whole population.
However, legalization made guerilla marketing for cannabis impractical. Brands needed to obtain a critical mass of customers quickly and cost effectively. The need for scale forced cannabis advertising to grow with the opportunity.
Yet, as brands began advertising to the mainstream population, there wasn’t an explosion like many expected. Consider that at the repeal of prohibition, the same thing happened. In 1933, a (very early) Ad Age article ran: “While the 14-year-old Prohibition dyke broke with a loud ‘pop,’ … national advertising placed by distillers, importers or national sales agencies was extremely scarce, most of the copy which appeared having been placed by local retailers and dealers.”
One of the reasons for a lack of national advertising post Prohibition was because states, and even cities, reacted differently to the lifting of federal alcohol restrictions. (Wisconsin lawmakers put off discussing the state’s response, while San Francisco threw a booze party.) So too, when Colorado legalized cannabis, it didn’t mean everyone jumped to open a cannabis business–or start advertising it either. The potential was there. But the advertising stayed local.
Evolution of Brands
Product mix and availability is another factor contributing to the evolution of cannabis advertising. Just like consumers didn’t care much about the alcohol they drank during prohibition, similarly, it didn’t much matter what cannabis you consumed prior to legalization. In the early days, there was little differentiation between flower strains, availability alone is what counted.
That’s changed significantly over the last several years as the market has matured. Starting in 2016, industry data sources like BDSA (formerly BDS Analytics) began providing data showing a trend of higher percentages of revenue from branded, packaged products and declining percentages of flower sales. Branded products, as well as alternative consumption methods, i.e. concentrates, edibles, oils and tinctures, continue to make up a larger and larger percentage of revenue, requiring increased advertising and marketing.
Cannabis Goes Digital
To meet the demand from brands, firms started offering services like digital advertising. However, digital advertising is severely impacted by behemoths like Facebook and Google who have imposed their own sort of prohibition by not allowing cannabis ads. In an effort to find an effective work around, several companies formed ad networks of cannabis friendly sites, and sold them to advertisers targeting cannabis consumers. This model is still relevant today, as it provides access to a large audience of broadly targeted cannabis consumers.
There is a steadily increasing number of websites accepting legally compliant cannabis advertising. This trend will increase exponentially as the political and social landscape continues to evolve.
Working with publishers to post cannabis ads poses its own set of challenges. The primary restrictions digital advertisers face involve creative and audience targeting. How you’re allowed to portray regulated commercial cannabis, and to whom, varies by state. You can’t visually depict or verbally suggest consumption. You can’t target minors. And sometimes, companies that are simply advertising non-THC hemp-derived CBD, are grouped under the same restrictions as plant-touching cannabis companies. (Educating the gate-keepers on new laws like the 2018 Farm Bill, which legalized hemp and its derivatives, can help.)
Macro View and Major Trends
Cannabis demand is on the upswing. 33 states have legalized medical cannabis, and 14 states have legalized adult use. While COVID-19 may slow legalization efforts in the short term, expect a sharp increase in these figures after the November 2020 election, adding millions of new cannabis patients and consumers. Notable anticipated new adult use markets include East coast states like New York, New Jersey and Pennsylvania. The perfect storm for cannabis advertising is federal legality, digital reach and abundant investment capital.
As the cannabis market has grown, much like consumer packaged goods, so too have the advertising budgets of brands. Today, brands hold much larger advertising budgets than anyone dreamed of pre-2014; up to millions of dollars annually. The cannabis industry has started to attract more experienced, sophisticated talent from mainstream media companies. Operators are under more pressure to build financially healthy businesses, requiring efficient growth, which can only be achieved with improved execution.
COVID-19 has drastically altered the cannabis landscape, namely, the rise of curbside pick-up and delivery with fewer patients and consumers shopping in store. This has accelerated several trends including digital advertising to fill the informational and sales role primarily performed pre-crisis by the budtender. Accordingly, brands have begun connecting with their customers directly and have adjusted their marketing budgets — spending more money online to offset the decrease in foot traffic to their brick and mortar dispensaries and consumer cannabis expos & events. We expect the increased digital advertising spend to continue post COVID-19 and be part of several long term industry changes.
Another major pending challenge for brands relying on digital marketing is new consumer laws, such as the CCPA (California Consumer Privacy Act). As other states may follow suit, companies need to make sure they have a plan to address privacy in their data collection and advertising.
Data and Attribution
Successful advertising requires an iterative process and timely data on results. One of the major challenges cannabis brands face is getting data in a timely manner to quantify advertising performance. Since the vast majority of cannabis sales are in person that creates a measurement problem. When consumer data does exist, it is often housed in disparate locations making it difficult to demonstrate return on advertising spend. As John Wanamaker famously said: “I know half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
Stay tuned for our next article where we will highlight digital advertising strategies and data solutions available to cannabis brands.
About the Author(s)
Jordan Tritt is the Principal of the Panther Opportunity Fund (“Panther”), a vintage 2017 cannabis focused venture capital fund with a complementary and diverse set of 14 portfolio companies. Prior to joining Panther, Jordan worked for more than 10 years in various financial leadership roles with early stage software, manufacturing and services businesses helping raise over $30 million for high growth private companies and venture funds. Jordan earned his Masters of Accounting and Bachelors of Business Administration degrees from the Stephen M. Ross School of Business at the University of Michigan.