When a business succeeds it is easy to point out the factors:
- Product solves a real problem
- Marketing campaign is exciting, fresh, and free
- Product-market fit works beautifully
- Audience/users/customers love the damn thing
Money rolls in, accolades emerge, we all go to brunch at Per Se: happiness abounds.
Failure? Harder to talk about. But there is a reason we site the cliché that you learn more from your failures than your successes: because it’s true. Painful, but True.
So here are my Product Observations specifically for the New York Cannabis Edibles Market. Perhaps some lessons learned can help others as they try to navigate a difficult space:
No One Cares
Your artisanal vegan gummy made with fruit purées imported from France and using water from Elves happy tears: doesn’t matter. These things could be made using leftover baby food and mixed in your bathtub: no one cares. Here’s what customers care about: will it get me High? Will it get me Really High? In the grey market, as long as it tastes okay, the only concern is to make sure the high is a real big high. Where does your distillate come from? Are there impurities? Is it live rosin or resin? (99% of people don’t know the difference): matters none. Even in the legal market, the monied discerning consumer still just wants to know specifically how high it will get them because they don’t want to get too high. That’s the only real difference.
Grey: I wanna get Super High.
Legal: I don’t wanna get Too High.
Forget the rest. Which brings us to point two…
No One Knows
In the grey market, you can’t believe or trust any of the numbers or claims on the packaging. 500 milligrams of THC, 1000mg, or 10,000mg – it’s all made up for marketing. Grey market sellers will make the edibles 300mg but on the package say they are 1000mg. That’s what you are dealing with in the grey market. Likewise, the ingredients (if they’re even listed) probably aren’t true either. All packaging in the grey world is hyper cartoony to serve one purpose: grab attention and sell that product. Especially to the younger generation. Because it’s nearly impossible to overdose or die from cannabis edibles, they get away with it. But still, if you don’t know what you’re putting into your body, problems can always arise.
On the legal side there is more knowing. All products must be tested to ensure correct numbers and quality. But are they? Different labs often give you different results. How is that possible, you ask? It’s Science! Ah, but even science isn’t above greasing some palms to get the numbers where they need to be. So even these legal THC numbers could be off. That said, we’re talking a little bit high or a little bit low (usually the latter, let’s be honest, for financial reasons).
No Idea
The Public has no clue. THC, CBD, Delta 9, Delta 8, Cannabinoids, Terpenes, Live Rosin/Resin, you get the picture. Most people just want a reliable high. They might know that THC gets you high and CBD does not, but that’s about it. How we got here doesn’t matter much in the mind of the consumer. But what does matter…
Numbers
Price, price, price. Right now, the grey market is a race to the bottom with everyone undercutting each other to sell the biggest THC number at the lowest price.
Contrary, on the legal side, you have the problem of numbers. Taxes, no tax relief (from the state or federal level), testing fees, cannabis attorney fees, cannabis accountant fees, distribution fees, delivery fees, and on and on. And once the word “Cannabis” is attached to it, the price will go up. Ask your landlord, they’ll add another zero. It is hard for one market that has to pay all of these line items to compete with the other that doesn’t. It’s as simple as that. Add to the equation the fact that New York has allowed all of the grey market stores to pop up like weeds (pun intended) because the laws and regulations are weak and allow easy workarounds…
No Shutdowns
Anyone who has lived within the five boroughs the last three years knows the massive proliferation of grey market stores that have opened up everywhere. We can argue forever about the lack of response from the State and City and how if folks started opening up illegal bars all over town they would be closed immediately. The important point is this: Customers Think They’re Legal.
No Way to Win
Once the genie is out of the bottle it’s very hard to put him back inside. As all of these illegal stores propagated, the Public thought (and still thinks): They’re Legal Now! Good luck changing that mindset. Couple this with the fact, as stated earlier, that no one cares, and you’ll have a Customer Base that is happy to roll into that new balloon-lettered “Grand Opening” storefront in their neighborhood and buy a pre-roll and some gummies. Done. Case closed.
Packaging
Cannabis gummies in a mylar bag are the Bud Light bottle of the weed world. Cheap and easy. But that Bud Light bottle is glass: it gets recycled. Not so for the mylar bag. It sits in a landfill for a thousand years longing for the exciting days it travelled around town on a Saturday night in the pocket of a millennial on the prowl. Packaging is a big problem in all consumer goods and cannabis is no different. As we’ve seen, in the grey market there are no rules, the same goes for packaging.
On the legal side there is the added wrinkle of every package must be child-resistant which really only accomplishes making it near impossible for Baby Boomers to open up their flower and gummies. The cannabis world is full of environmentally caring people (it’s a plant cultivated by farmers after all) but wanting to do the right thing for the planet and being able to are two very different things. The main issue is not the business owner or the consumer – it’s money. When margins are so thin to begin with and you’re trying to squeeze every dollar out to compete with a market that doesn’t care at all about reusable or recyclable packaging, it’s tough to hold that line.
Grey vs Legal
So without shutting down thousands of grey market stores across New York State, how does the legal market compete?
Unfortunately, they can’t.
I wish my prognosis was different but it’s hard to argue with the facts. And I hope I’m wrong. Too many people have invested too much personal capital, time, and effort for it all to go up in smoke. As of this writing, there are only 25 legal dispensaries open in New York for Farmers to sell the enormous sums of dead weight they hold in storage. Their only recourse: turn it into distillate or smoke it themselves. Could New York subsidize these cannabis farmers by purchasing their excess stock at a wholesale price to stave off their financial ruin? Such immediate measures and help is necessary to save these farms.
But the weed tea leaves speak for themselves. In the short term, sure, some of the new legal dispensaries will do big numbers because they’re novel and consumers love the new. But in the long run, how do you compete with stores that pay none of the massive taxes and fees you must endure, and even if they get shutdown, can just close that LLC, start another LLC, and keep on rockin’ in the free world in a new location around the block? Oh, and don’t forget there are thousands of empty storefronts that never came back post-pandemic and also have been killed off by e-commerce DTC deliveries which landlords are happy to rent out for Cash in hand…A perfect storm.
And here’s another added wrinkle to the equation which consumers do not realize: all of the product for Legal dispensaries must come from New York State. That means it has to be grown here, processed here, tested here, packaged here, and sold here. Yeah, the grey market doesn’t have to worry about any of that. You can buy cheap flower from Oklahoma (by the way, now the largest grower of cannabis in the nation, bet you didn’t know that) or go get some cheap distillate from Oregon (#4), and be off and running.
No Accountability
It’s the Wild Wild West married to a Green Gold Rush. The problem is there’s only so much green to go around (cash, not weed, there’s too much of that nationally just look at the price of an ounce).
It’s all one big market but with two very different business models. Legacy operators should have been given legal licenses first and gotten this new world order rolling right away. But why would a legacy operator go through all of this trouble when they can make more money staying grey? Where they don’t have to deal with any of the headaches and costs associated with going legal, and even if they get caught/closed, it’s a minor slap on the wrist, the cost of doing business, and they can be back open for business within a week. You shut down a storefront? No problem, the landlord across the street loves cash too. Instagram blocked your page? Just fire up a new account and keep on groovin’.
The State silos don’t work for anybody. But until there is Federal Legalization (and the accompanying tax relief) the legal market will continue to fight an uphill battle. Cannabis is medicine but offered none of the tax breaks the giant pharmaceutical companies get. But let’s stay on course and not get into the Sacklers and the longstanding tragedy known as the “War on Drugs.”
Going Back to Cali
New York should heed the warning signs from California: when a cannabis brand with Jerry Garcia name recognition (Garcia Hand Picked) decides that continuing in the Legal California Market no longer makes sense, it’s time to take stock and learn from this development. Fast forward five years and New York State could find itself in the same situation: Mom & Pop legal growers, shops, and manufacturers being forced out of business (and gobbled up by huge multistate conglomerates) because they can’t compete with the other side.
Again, I hope I’m wrong. Nothing would please me more than to see the Legal New York Market flourish with profits and good vibes freely flowing for all. But if you take a long hard look at both sides (and both sides of the country), it’s difficult not to arrive at the conclusion we’re in for a lot of pain in one market and a lot of profit (untaxed) in the other.
Psilocybin anyone?
Menoons 