Why Direct To Consumer Is The Future For Cannabis Brands

More & more cannabis companies are moving towards direct relationships with consumers in California.

Welcome to Four PM — a daily newsletter that provides cannabis industry news & insights from cannabis industry leaders.

Happy Wednesday. Did you know that in 2737 B.C the Chinese emperor Shen Nung discovered the medical benefits of cannabis? Well, 4758 years later and the U.S government still won’t recognize the medical benefits of cannabis.

In Today’s Issue 💬

→  Cannabis Companies in Cali Go Direct

→  The Irish Cannabis Activists Big Win

→  The $1.42 Billion Investments in Europe

Cali Cannabis Companies Go Direct

An ever-increasing number of cannabis companies in California are seeking to go direct to consumer.

In the era of “big data” every company is now seeking to secure direct relationships with their customers to better understand their needs.

Cannabis companies are no exception to this.

Unfortunately, not every cannabis company is able to have direct relationships with their customers due to the regulations they have to operate within, however, in the regions where this model is permissible — more and more cannabis companies are choosing this option.

What’s the alternative?

To understand why cannabis companies are choosing to go direct to consumer, we first of all need to examine the alternative.

In Canada, there is no alternative as producers have to rely on the provincial governments who are responsible for the procurement and distribution of cannabis (the exception being Saskatchewan).

In California — brands do have a choice.

Industry Insight…

As per Taylor Jones, Co-founder of Pistil Data, Cannabis brands in California currently have several options to sell their products:

  • Option 1 →  Invest in your team long-term and own the doors you sell to by keeping sales in-house and hiring a logistics company to move your products.

  • Option 2 →  Partner with a distribution company. They own the doors your products are sold in but can accelerate your growth with their existing network and handle all of the logistics.

  • Option 3 →  Partner with a sales/marketing firm. You’ll likely pay a retainer fee but the good ones can manage your relationships with buyers and logistic partners.

  • Option 4 → A combination of options 1, 2, and 3. This is common, but I am seeing more brands wanting to bring their sales in-house to control their own destiny. 

  • Option 5 → Go direct to the consumer, and remove your reliance on cannabis retailers to sell the cannabis products you produce.

The Rise of D2C Cannabis

There are many reasons why cannabis companies are now favoring direct to consumer models, as opposed to relying on cannabis retailers:

Increased Margins: Brands are able to sell their products at lower prices and still generate increased profits, as cannabis retailers commonly double the prices of products so they too can generate profits.

Direct Feedback: An essential ingredient of any successful brand is understanding what your target customer wants, and building direct relationships with consumers allows cannabis brands to obtain direct feedback from their customers.

Increased Control: Having your products carried by retailers doesn't guarantee that the budtenders working in these stores will say good things about your products. Going D2C allows brands to take back this control to ensure any & all communications is exactly how they want it to be.

Ad Campaigns: Every marketer wants to understand how their ads are performing. Having your products carried by a 3rd party makes it many multiples more difficult to track these all-important metrics, whereas DTC brands are much better positioned to understand what’s actually working.

Who’s Winning?

One brand we are watching very closely here at Four PM, is Caliva.

Caliva was founded in 2015, and is likely the best example of what cannabis brands can accomplish when they choose to go direct to consumer.

In 2020 Caliva reported having direct relationships with some 50% of cannabis consumers in California.

Last week Caliva launched their new mobile app as they look to increase their dominance in California, and with hundreds of millions of dollars now available in light of going public — keep a close eye on Caliva.

Our Take

The ability to go direct to consumer in cannabis is a HUGE competitive advantage for any cannabis brand for all of the above reasons, and more.

Given how early we are in cannabis from a product development standpoint, I expect to see many of the most successful D2C cannabis brands leading the charge on product innovation in the years to come based on their unique access to consumer insights.

Another Win For Vera

Irish medical cannabis activist Vera Twomey continues to ensure patients are able to access the cannabis they need.

Despite Canada having so much cannabis that producers are destroying 500,000 KG of cannabis, many medical cannabis patients in Europe are still unable to access the medical cannabis they need.

In Ireland, medical cannabis activists have continually raised this issue.

Despite having fought tooth & nail for years to obtain access to medical cannabis, the harsh reality is that the prices of medical cannabis remain so high that even though many now have legal access to these products — the financial barriers have made it such that very little has actually changed.

Change Is Coming…

Thankfully, this is about to change and Ireland owes a very large debt to one individual in particular who has continued to fight this battle on behalf of medical cannabis patients on the Emerald Isle.

Vera Twomey is the mother of Ava Barry (7 years old) who suffers from Dravet's syndrome — a rare form of epilepsy that results in her having multiple severe seizures every day.

Having explored every other option available, Vera took it upon herself to explore the merits of medical cannabis to help alleviate her daughter's suffering.

As many other individuals have reported in the past, Vera identifies that cannabis was a very effective solution to reduce both the frequency and severity of the seizures her daughter was having, and in the time since she has single-handedly forced Ireland to reform its policy when it comes to cannabis.

Another Win

Once again, Vera has won another major battle on behalf of Irish patients and for the first time, the 60% of medical cannabis patients in Ireland who purchase cannabis from the Dutch cannabis producer Bedrocan will have the cost of their medication covered upfront by the Irish government.

Up until this point, patients were forced to spend thousands of dollars to obtain their medication due to the Irish government's unwillingness to cover the cost of their medication upfront.

Worse yet, until last year patients were forced to travel all the way to the Netherlands to obtain their medical cannabis.

Our Take

It’s very easy to get excited about all the progress being made in North America with Canada, Mexico & some 18 States having legalized cannabis.

That said, sometimes it takes cases such as this to remind us all of the years of activism that precedes the luxury we all now have of being able to say that we work in a legal cannabis industry.

Cannabis Investments in Europe Reach $1.42 Billion

First Wednesdays have created the first of its kind report on the emerging cannabis industry in Europe.

Europe is home to some 746.4 million people.

With this, an increasing number of investors are now seeking to back the companies leading the charge on cannabis in this emerging market.

Since 2014, venture capitalists have invested over $5 billion in known investments into cannabis-related companies globally, and although North America is currently leading the global cannabis industry — an estimated 28% of this capital has been invested in European cannabis companies.

Adult-use vs Medical

In North America, much of this funding is going towards cannabis companies that are focused on the adult-use cannabis market, however, in Europe, the opposite seems to be playing out.

As is highlighted by Jazz Pharmaceuticals €6.1 billion acquisition of GW Pharmaceuticals in May of 2021 (the largest acquisition in the history of cannabis) — there is a very strong appetite for medical cannabis in Europe.

As per First Wednesday's findings, “medical and pharmaceutical sectors represent over 50% of European cannabis deals activity, while wellness deals make up almost 40% of activity.”

Who’s Providing the Cash?

The report paints a very clear picture that there is a very strong demand for investing in cannabis companies from both VC’s & angel investors who accounted for some 55.7% of this $1.42 billion USD which has been invested.

Additionally, we are seeing an increased appetite for early-stage cannabis companies in Europe with business accelerators and business incubators accounting for 11.2% of the total investment European cannabis has received.

Our Take

Many Canadian cannabis companies have missed out on the opportunity to develop valuable intellectual property in medical cannabis given how focused they have been on the adult-use market.

With European cannabis companies having no choice but to focus on the medical market — I expect to see many of these companies leading the way when it comes to developing valuable I.P.

If Jazz Pharmaceuticals €6.1 billion acquisition of GW Pharmaceuticals suggests anything, it’s that the right execution of this strategy can produce extremely valuable outcomes.

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