The Budding Business of Cannabis

Cannabis/CBD marketing faces some current challenges, but also a huge future as the legal landscape clears

By David Ward

A marijuana leaf replaces the maple leaf in a design of the Canadian flag on a macchiato. The recreational use of marijuana became legal in Canada in late 2018, and the same is happening on a state-by-state basis in the U.S., creating a new market (and a haze of legal uncertainty) for advertisers. picture alliance/Getty Images

It's hard to predict the future, but there are few people who don't expect cannabis to emerge as a major consumer category in the next decade, with both start-ups and well-established CPG companies competing to provide health and wellness, as well as lifestyle products, once the legal landscape becomes clearer.

In the U.S., legal marijuana could reach $47 billion a decade from now, with some projections putting that number closer to $90 billion by 2028. In addition, there are estimates that more than $20 billion annually will be spent on hemp-derived health products, most notably CBD (Cannabidiol), by 2022.

The opportunities presented by legal cannabis have already triggered massive investments from the tobacco giant Altria, Anheuser-Busch InBev, Constellation Brands, and a host of others in cannabis-related companies.

"Today in the U.S, cannabis users tend to be men under 40 who use it for enjoyment," says David Dancer, CMO at MedMen, which is both building a national retail brand and developing its own line of private-label cannabis products. "But from a recent survey we did, the real key for us is that 30 percent of the U.S. population is interested in trying cannabis. And of that 30 percent, half are women."

Cannabis is also a potential boon for the advertising industry, which will be tasked not just with creating new brands, but with educating consumers regarding the uses and benefits of marijuana products.

"We're really excited about the category," says Harris Damashek, CMO at Acreage Holdings, a New York-based company with a diverse portfolio of cannabis cultivation, processing, and dispensing operations in the U.S.

Asked if the marketing and advertising surrounding cannabis could eventually reach $1 billion annually, Damashek says, "Given how widespread this will be across so many product categories, that number will be even bigger and it likely won't take 10 years."

Efforts to reposition marijuana for the mass market have already begun, says Taylor West, senior communications director at Cohnnabis, the cannabis division of Denver-based advertising firm Cohn Marketing.

West stresses that cannabis messaging is shifting away from counterculture-themed ads aimed at the "stoner" audience. "Companies now have the goal of targeting more affluent consumers, including more women and older users, and they want brands that look and feel premium," she says.


National Brand Building Through Community Outreach

For all the excitement surrounding the cannabis category, the current reality is that advertising anything marijuana-related remains an immense challenge.

"Marketing in this category is like marketing with one hand tied behind your back," says Damashek, from Acreage Holdings, which operates The Botanist retail brand, is licensed to own or operate 79 dispensaries in 19 states, and benefits from having former U.S. House Speaker John Boehner on its board. "On one hand, it's really frustrating, but from another it's a really interesting problem-solving opportunity."

The reason is simple: No one knows what types of messaging are allowed or what is illegal given the current regulatory patchwork among federal, state, and local laws.

"Federal law prohibits the advertisement of cannabis, making it a felony to publish 'any written advertisement knowing that it has the purpose of seeking or offering illegally to receive, buy, or distribute' any Schedule I controlled substance, including marijuana," says Neil Austin, co-chair and partner in the Advertising and Marketing practice at law firm Foley Hoag LLP, quoting from the U.S. code in the Controlled Substances Act. "By contrast, the law in states that allow recreational sales generally allows retailers and others in the cannabis supply chain to engage in advertising, although with some important limitations."

This confusion is triggering caution among ad platforms large and small. But Damashek says publishers, especially on the digital side, are starting to come around.

"We typically have to get approval individually by websites, so programmatic networks tend not to be an option — although there are some cannabis-specific ad networks," Damashek says. "It's more work than we'd like, but it's a fact of where we are right now. And the tide has turned in so many ways that the last remaining dominos will fall sooner rather than later."


Local-First Ad Strategy

For now, Acreage Holdings focuses on hyperlocal marketing in cities where the company is rolling out its Botanist medical dispensaries, including Baltimore, Buffalo, N.Y., Canton, Ohio, and Worcester, Mass.

"We use outdoor advertising if it's allowed by state and local regulations — in some states it's allowed, but in others it's not," Damashek says. "But what's really effective is community marketing, including getting involved in the local chamber of commerce and working to be a positive contributor."

MedMen's Dancer also advocates a local-first strategy, adding that creativity in marketing is paramount given the current restrictions. MedMen's programs include taxi wraps in markets such as Las Vegas, advertisements on terrestrial and satellite radio, among other methods, and producing its own quarterly glossy print magazine, Ember. TV is not used since stations adhere to Federal Communications Commission (FCC) regulations and cannabis is banned at the federal level.

"Our top channels are out-of-home and we also do print, including local weeklies and local travel magazines," Dancer says. "We've also secured national placement in Condé Nast publications this past year. With Condé Nast we started with a regional insertion and then we were able to get a national insertion."

Dancer says the keys to breaking into more media outlets is relationship building and educating media buyers about cannabis, the credibility and appropriateness of the creative, and the fact that MedMen has the financial resources to be a significant advertiser as the market grows.

He also notes that legal restrictions mean the messaging has to be fairly limited and straightforward. "We were one of the first cannabis retailers on Sirius XM and our message is really clear," Dancer says. "One, that cannabis is legal, two, that MedMen is a retailer with safe, accessible locations, and three, with an offer that drives customers into stores so we can track results."

Richard Degnan, CMO at 4Front Holdings, which operates The Mission branded medical-only dispensaries in Pennsylvania, Maryland, Illinois, and Massachusetts, stresses that local focus also has to include a heavy emphasis on consumer education.

"Our efforts are very specific to each state and includes third-party email, billboards, and banner ads," he says. "We also have national Facebook and Instagram pages, but since these are medical marijuana markets and we're reaching out to a very small percentage of the market, we focus messages on what our program is, how it works, and what differentiates us from other dispensaries."

Degnan says these efforts are backed up with community-based outreach that includes targeting adult living communities and veterans' organizations. "There's a lot that can be done on a grassroots level, very person-to-person, which makes it challenging, but also very exciting," he adds.


'CBD' versus Traditional Cannabis Marketing

Adding to the confusion mainstream consumers have about the market are the differences between traditional cannabis and products such as CBD.

For the uninitiated, CBD is a compound found in hemp, which advocates say has significant medical benefits but without the "high" normally associated with ingesting marijuana.

The 2018 Farm Bill passed by Congress paved the way for industrial hemp production. Simultaneously the U.S. Drug Enforcement Agency removed CBD from the Schedule I drug classification, enabling distribution in all 50 states. That's one reason why some local coffee shops now offer a shot of CBD with a latte and consumers are sometimes able to find CBD oil at their local convenience stores. (Though that has come in to question recently, with local officials in NYC, for example, taking action against products that contain CBD.)

But Austin, from Foley Hoag, says that while the new Farm Bill cleared up some of the legal confusion, the one thing it doesn't do is approve the widespread advertising of CBD products.

"Given the fairly narrow definition of CBD legalized under the Farm Bill, the advertising landscape for CBD is not much different from that for marijuana," he says. "There seems to be a public perception that CBD advertising is less risky — and that may well be true from an enforcement perspective — but the legal restrictions have not changed much."

West, from Cohnnabis, agrees, saying that's one reason why major brands are not rushing to include and market CBD as a key ingredient in their latest soft drinks or snack foods. "The window is not quite open yet," she adds.

Even when CBD starts getting touted for its health benefits, which include aiding everything from anxiety and sleeplessness to pain management and inflammation, Austin cautions those claims will have to be backed by scientific research.

"Thus far, no regulator has really stepped up and begun challenging these health claims, but they almost certainly will," Austin says. "If advertisers do not have solid research backing up these claims — and customer testimonials are not sufficient — then they are at risk of a future investigation and, potentially, an enforcement action."


The Digital Dilemma of Cannabis

Paid content on platforms like Facebook, Instagram, and Google Ads are the backbone of many digital programs, of course. But for cannabis marketers, these digital ad giants are off limits, at least for now.

There's no clear legal reason why. Austin suggests digital properties may simply not be willing to take the advertising risk until cannabis is no longer listed alongside heroin, LSD, and ecstasy, among others, as Schedule I drugs.

That sentiment is echoed by other ad-industry executives, some of whom suggest that even if cannabis gets moved off the Schedule I list, Google and Facebook may remain reluctant to accept cannabis and/or CBD advertising.

"Paid posts on Google and Facebook won't be happening in the near term," says Jared Mirsky, founder and CEO of Seattle-based cannabis-focused marketing agency Wick & Mortar.

But those restrictions don't prevent cannabis brands from conducting optimization programs on Google and other search sites, nor from having pages and providing organic cannabis-themed content on Facebook and Instagram, Mirsky says.

It's still a judgment call, as organic social media posts will be quickly blocked if they include specific promotions. "The minute we use content to drive traffic to retail — 'here's an offer, visit our store' — we get flagged," Dancer says. "We have to keep the messaging fairly generic."

The hit-or-miss nature of which digital platforms allow cannabis and CBD ads makes it a challenge to achieve mass market reach online, but there are now several cannabis-centric digital ad networks, including Mantis and Traffic Roots, which provide something resembling national scale.

Christian Valdez, CEO of San Diego–based Traffic Roots, says he works with 3,500 general and 500 cannabis-specific lifestyle sites for display advertising.

"We have a self-serve platform that allows brands to upload their messages, select their targeting, and then press run," Valdez says. He adds that the lifestyle sites are aimed at both men and women and include sports and music. "We can also provide managed services for brands looking for more guidance."

Considering the growth of products and cannabis accessories, consumers can quickly get confused and intimidated by how little they know. Against that backdrop, Valdez stresses simplified messaging is essential for cannabis brand display ads.

Valdez adds the curiosity and thirst for knowledge among potential consumers about all things cannabis is palpable, pointing out that click-through rates for cannabis video ads can reach 2.4 percent, and click-through rates for cannabis display ads are around 0.5 to 0.9 percent — far higher than the metrics for most display programs.

"We're finding video works really well in this space," Valdez says. "We recently had a 15-second video that had a viewer completion rate of 7.8 percent. In fact, one of the only mistakes we see from clients is that they only want to focus on cannabis-themed sites, which means they're underestimating how mainstream the cannabis consumer has become."


Wellness and Lifestyle

Dancer says that for the short- and medium-term, "what's rising to the top is this use of cannabis for wellness. When we look at our product line and our brand positioning, that's our main focus when we create advertising and messaging."

Eventually, cannabis will take its place alongside the alcoholic beverage industry as a leisure/lifestyle option, especially as more states, including New York, legalize the recreational use of marijuana.

Cannabis marketing is also likely to increasingly focus on the in-store experience, with store design and signage aimed at reassuring new customers that, yes, this is a legal and safe product.

"We know people might feel a little nervous the first time they enter a dispensary," Degnan, from 4Front, says. "The graphics that we use and the way we talk about our products is all aimed at getting that patient to feel more comfortable."

He says those efforts also include relying on their dispensary employees to explain, in lay terms, the different products, how they can be used, and their benefits.

A person-to-person approach should help with retailer branding. However, Mirsky, from Wick & Mortar, predicts that marketing for specific new products will increasingly rely on packaging to ensure consumer education, including explaining how one cannabis strain can increase focus while another helps the user relax.

"We're in the process of developing packaging that has an augmented reality (AR) component that will combine education and experience, while also being something the consumer may want to share," he says. "It's really hard to say what the future of cannabis retailing will look like but I think companies are going to look at doing everything they can to take their brand even further."

West is quick to point out that while cannabis is potentially a major new consumer category, most of the traditional best practices of marketing will continue to play a significant role. "Companies will still need to have a solid brand foundation and consistency in the story they tell consumers at every touchpoint."



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