Colorado and Washington voters yesterday passed referenda to legalize marijuana and essentially treat it the same as alcohol (controlled, taxed, etc.). While these states still need to work some things out – including how to reconcile this with Federal law – the profusion of medical marijuana dispensaries and a generational shift towards more permissive attitudes means a strong likelihood that there will soon be a much larger legal marijuana industry in America.
What makes this an interesting business issue is that there are very few recent examples of consumer industries shifting from illegal to legal. The more widespread legalization of gambling is one relevant case, but it has been more of an extension (from the longtime bases in Nevada and Atlantic City) into new geographies and has largely been overseen by experienced operators and limited to fixed facilities that can be easily regulated.
So what we may have with marijuana is the near unprecedented situation of a nascent industry with mega-billion dollar potential coming from the darkness into the light – yet still facing a heavy societal stigma in certain circles.
The key questions – fascinating to consider – include:
1. How would the market form?
Looking at the somewhat similar alcohol and tobacco markets, we see dominant, vertically integrated major players who have built a full production capability and supply chain. Given the public’s polarized point of view on this issue, but also the demand opportunity and need for scale, who would we expect to jump in?
Would the concern about brand dilution and loss of goodwill deter big companies from seizing this new market opportunity? Would smaller and less sophisticated suppliers be able to master the supply chain as well as demonstrate enough quality control to please regulators and consumers?
Beer, wine and spirits are complicated categories comprised of large market players and geographically focused craft or micro-brewers. Would we eventually see this in marijuana, with mass, value and premium tiers?
2. What would be the prevailing brand image approach?
Marijuana has been treated in popular culture almost whimsically in recent years, with an emphasis on the attitudes of the user. How would marijuana brands – with a wide open playing field – choose to create their personalities, looks/feels, etc.? How would they segment and target high potential consumer groups?
If you look again at the "adjacent" alcohol and tobacco industries, you see very clear and differentiated brand images – even with the regulations affecting tobacco companies. Marlboro stands for American independence. Newport evokes urban cool. More accepted and heavily advertised are beer brands also having clear images among major and boutique players. So how would brand builders approach marijuana?
3. Beyond image, how are product lines and sub-brands built and differentiated?
Consumer categories invest billions of dollars in nurturing brand and product differences based on innumerable factors – just looking at major beer brands, we see full flavor and "light" options, different colors, flavors/rituals such as lime and many other modes of product differentiation.
What would be the major points of differentiation in marijuana? One could easily envision potency, place of origin, flavor, light/full and many other dimensional attributes as enabling brand developers to make unique product statements.
Whatever one’s opinion, helping this category (and its users) take flight would be fascinating for business and brand builders – an undisturbed but massive landscape filled with opportunity and risk. There are very few such categories in American business – so we’ll be watching.