Up in Smoke or In the Drink? Pot vs. Booze

There is a war emerging that neither side is fully ready to fight. Beverage-alcohol vs. recreational marijuana.

In Colorado, recreational marijuana generated $53 million in tax revenue in its first year as a legal product. While less than expected, it is significant and will continue to grow. As it grows, and as other states (and, some day, provinces) legalize pot and cash in on the tax revenue, the question is, what will be the impact on the sales and usage of booze?

The first year of the Colorado experience had too many moving variables to fairly gauge. There was a large influx of "THC Tourists", and by virtue of their demographic and psychographic, consumption of alcohol is a part of their repertoire. This may have offset the cannibalization impact of marijuana on alcohol.

So, let's put forth the hypothesis that, at steady state, recreational marijuana will source its volume from a combination of (a) illegal marijuana, (b) OTC drugs (for some mild medical use - more sustained medical use will go through prescription) and (c) beverage-alcohol. If I were running a recreational or medical marijuana or beverage-alcohol business, what would be my guiding strategies to maximize sales and defend vs. the other?

1. Marijuana Business

Industry-level Public Relations Pot still carries a historical stigma, going back to the "Reefer Madness" days of the 1930's. More and more information is coming out to indicate that marijuana has real medicinal and efficacious benefits for certain ailments, with none/few of the claimed side effects - that has to be shouted from media rooftops.

Move Away from Smoking The inhalation of any burned substance has carcinogenic consequences. The continued development and cost-effective production and sale of vaporizers, as well as oils and edibles will be key. Treat vaporizers like industry-level razor blade handles (read: sell at low/no margin) - once purchased, while they do not create brand loyalty, they do create a category loyalty. Then let the brand-battle begin...

Invest in Consumer/Brand/Shopper Marketing Consumers will make purchase and usage decisions in the same way they look at alcohol (less like tobacco, which has very low switching between brands). Having a deep understanding of the target consumer, well developed Shopper and Consumer Insights and a Brand Strategy and naming convention that is relevant, differentiated and sustainable, will be the legacy of the winners.

Start in Medical Marijuana In the US and Canada, Medical Marijuana continues to grow, in advance of the recreational side of the business. Most of the core elements of the business model are the same. All the back-shop operational elements (grow, harvest, dry, QA and NPD). All the Brand Strategy elements. What differs is the supply chain RTM and consumer connectivity process. One could suggest that the current Canadian registration model is an advantage, for those companies that understand CRM and how to collect, cut, code and communicate. Can you say margin-enhance through trade-up?

2. Beverage-Alcohol Business

Preempt the Pot PR Alcohol is the incumbent and needs to leverage that to its advantage. As an industry, across all states (and provinces), it should be continuing to play on the fears of parents and adults (and politicians) that pot is a drug that has harmful and dangerous side effects.

Play Up The Unique Positive Qualities of Alcohol Taste, refreshment, food pairings and sophistication are examples of territories that marijuana will have challenges in competing.

Powdered Alcohol The emerging approval of powdered alcohol opens up some interesting opportunities. It can provide portability benefits that the liquid variant does not have, and can be on a more level playing field with pot.

Become Better Marketers My experience in Spirits has shown me that, compared to Tier One CPG, there is still room to grow. For example, panel data, one of the most important and fundamental consumer research tools, is almost non-existent. The same goes for ethnographic research. Consumer Insights are many times simply observations. While there are some examples of great consumer messaging, there are just as many poorly conceived, global executions that completely miss the mark.

So, the bell has rung, but the combatants are still in-training. Whichever gets in shape first, will reap the spoils of victory.