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The Unique Cannabis Industry

Hey folks, it’s another week of uncertainty and not great news. If ever we needed a holiday like April 20th, it would be this year. It's cannabis day. And even for those of us who don't partake, it may be a good day to just raise a glass or do whatever you do to relax just for a little while. The cannabis industry is truly unique is history, how it is regulated, the stigmas and perceptions. There's just nothing like it.

Johnathan McFarlane has been a pioneer navigating these unexplored waters. He shares a lot about this booming multi-billion dollar industry that's just getting started. You're going to get a lot out of this episode.

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Learn about Marketing in the Cannabis Industry

Right now, let's hear about the cannabis industry from Johnathan McFarland.

Rudy: Welcome to Marketing Upheaval. My guest is Johnathan McFarlane, Director of Strategy at Hybrid Marketing, a Colorado based marketing agency that specializes in the cannabis industry. Johnathan has a digital marketing background and also worked client-side as a CMO for a cannabis related manufacturer in Canada. We're going to talk about the cannabis industry. And I'm stoked. So thanks for joining me, Johnathan.

Johnathan: Thanks for having me, Rudy. This is awesome. Excited to be here.

Rudy: It's such a new industry. And it's defined largely by what you can't do in terms of marketing and sales, because I know it's regulated a lot more than most industries.

Johnathan: Yeah, that's for sure.

Marketing Restrictions

Rudy: I mean, I looked at some of the restrictions and I found saying standard stuff like no false health claims, no images of someone using the product. No one underage targeted. That kind of stuff, which is the same for alcohol. But what are some other restrictions that cannabis has that let's say alcohol doesn't?

Johnathan: Well, it does differ a lot from market to market. So the restrictions that we have in Colorado here, where I'm based, are different compared to the restrictions in Pennsylvania. There's the obvious stuff. So there's no TV advertising at all. Generally, you're not allowed to sponsor events, which is, of course, a really big one for alcohol. Sponsoring events, sponsoring sporting teams, those kind of things.

Social media and cannabis marketing

In most places, you can't do outdoor billboards, although there's some exceptions. And then you have the platform specific kind of restrictions. So social media advertising is completely off the table. In a lot of ways, Facebook advertising or even Google ads, that those are typical digital marketing tactics and channels. That's like kind of your bread and butter for a lot of companies. And that is, that's just not going to happen.

And actually, even just having social media profiles, we always recommend people have them. But you got to be ready for them to be shut down because it can and will happen. Wana, for example, they are really large manufacturer. They mostly focus on edibles, they've been shut down eight times. So programatic advertising can be done. But even the folks that hold the keys to those inventory are really strict on on what you can show. So there's a lot of restrictions, it's different from one place to another. You just have to be aware and try and stay on top of it. Because if you make a wrong move, the consequences can be really severe for your client.

Optimizing creative marketing tactics

Rudy: Yeah, I bet. So how do you work around that? Obviously, it affects your your job. How do you then do your job when most of the tools have been taken out of your toolbox?

Johnathan: Well, you definitely need to think outside the box. That means find creative solutions to some of this stuff. And and a lot of the times, that means really optimizing and dialing in the tactics that are available to you. So, you know Rudy, you're a content guy. And that's a big deal in the cannabis industry. Like for, for a dispensary or cultivation clients, creating really valuable educational content is a big one.

A good example: we created a complete women's introductory guide to cannabis for one of our clients. It's over 30 pages long, it's got loads of photos, it's got video clips. It is really beautifully designed. And that lives as a pillar page on their site for the SEO juice. But then also as a downloadable, shareable PDF version if somebody wants to provide their email.

Rudy: So are you allowed to be on YouTube?

Johnathan: Sort of. So you can be on YouTube but what you're actually allowed to say and do can get you shut down. So you just be careful. But there's a lot of instances where things work on YouTube. And there's a lot of influencers out there on YouTube and other social media platforms as well. So influencer marketing is a big one. But it's kind of funny though, because actually some of the influencers themselves get their accounts shut down on a pretty routine basis. On YouTube and Instagram, especially,

Federal legality

Rudy: I'm sure our listeners know this, but cannabis, while it may be legal in one state or another, it is federally illegal.

Johnathan: Yeah, that's right. So I believe at the moment some states and territories that have recreationally legalized cannabis. But there’s another 20 something more that have a medical system in place, but federally, it's remained illegal.

Rudy: Well, I know this is sort of putting you in a weird spot, because there's no way to have a crystal ball but what's gonna give? Because obviously this is an in between stage that is just ridiculous. It's either legal or it's not legal. Just in your opinion. What do you see happening and how fast will it happen?

Johnathan: Yeah, well, the dominoes do continue to fall state by state. Illinois just got their recreation system up and going. Michigan's kind of up and going now. So, you know, it really does kind of move across the country. The West Coast is more prevalent with almost the entire West Coast being recreation legal now.

You're seeing the emergence of these big “multi state operators” they call them. These are companies that operate cultivation and are dispensaries or manufacturing in several states. They're growing to be large corporations, and ultimately, large corporations can afford to lobby. They can make political contributions. I mean, money talks. It's an unstoppable thing right now. It’s not going to go backwards. I think like you said, the big question is how long until it's federally legal? Oh, man, if I was gonna kind of guess at it, I'd say three to five years.

Rudy: Okay, well, I'm gonna hold you to that.

Johnathan: Why don't you give me a call in a few years?

Operational challenges

Rudy: Because you know, obviously I think we talked about this in another conversation. If you have a surplus in Oregon, you cannot send it to Pennsylvania because you can't ship it across state lines. If you make money on this, you cannot put it in a federally insured bank. Am I right about that?

Johnathan: Yeah, yeah. And that that does create a lot of problems. You're constantly worried about the amount of cash on-hand especially in a dispensary. Because people are paying, not exclusively, but for the most part, they paying in cash. That creates a really dangerous environment for those employees that work there too, because a criminal knows that there's a lot of money there. So it makes them great target for robbery. And we do see that happening quite a bit.

Rudy: That's terrible. Why do people pay cash? Is it because has some of the stigma to it?

Johnathan: Well, no, actually most dispensaries will only accept cash. So it's because the the credit card providers won't let them use credit cards. A lot of them will have ATMs right in the lobby. So you can withdraw money right there in the lobby. Recently, I did see a workaround. And maybe this is more prevalent in other states, but there was this weird little thing where you could actually, almost in the same transaction, buy a cryptocurrency and then immediately they would spin around and convert the cryptocurrency into a credit card payment. While you weren't directly using your credit card to purchase the cannabis, you're purchasing a cryptocurrency and then immediately selling it. It's confusing and the last time I saw that working was a little while ago.

Cannabis industry growth

Rudy: You can't stop certain things that have momentum. Where's the cannabis industry in terms of growth right now?

Johnathan: It's growing fast. Colorado is the oldest legalized cannabis market in the US by a little bit. And if you just look at growth in 2019, folks bought $1.7 billion worth of cannabis just in Colorado alone. So, that's a lot. And if you compare that to just a few years before that: 2018 was $1.5 billion. So an extra 200 million or so in the one year. But it's growing quickly. That's just in Colorado.

I think you see some of that growth coming from people turning away from the black market. They are joining the legalized market as it becomes more stable and the prices drop to match the black market, or at least get close to it. And then some of it is from new people that have never really used cannabis before. And they're interested in checking it out and exploring this new world, seeing what it's all about.

Rudy: I think I read that by 2023 they're saying cannabis sales will be $30 billion.

Johnathan: Yeah, I don't doubt it. The more legalized markets there are, the more of those numbers go up.

Cannabis Target Audiences

Rudy: So you have your people who were regular users before cannabis became legal and your new users. How would you describe your target audiences?

Johnathan: It depends on the brand because you know each brand or each dispensary, for example, and the way they set themselves up. They’ve got targeted, different personas. I know what you're probably thinking: that most are targeting the 21 to 30 set. That's not really true because if you're targeting a group that is motivated a lot by price and then you get into this game where you're just kind of in a race to the bottom Who can cut costs, who can bring the prices down the lowest? And that's it. That's a tough place to be, especially when competition heats up.

Target Audience: Senior Citizens

We look to bring in demographics that are a little more interested in experience, possibly have more expendable money, and are definitely proven to be more loyal. So there's one you may not expect: senior citizens. They are really fast growing cannabis segment.

Rudy: Why not, man? Why not?

Johnathan: Right? If you're hanging out with your buddies at the nursing home and you've got time on your hands, why not? Or maybe you're using prescription medications for pain or something like that and you're looking for something else?

Rudy: Yeah. My mother is a senior citizen and she does not use cannabis. She lives in Florida. So that's non cannabis friendly state. But she is always complaining about the opioids that they prescribed her and she won't take them.

Cannabis vs. opioid use

Johnathan: I get that. And there are actually a lot of folks who are using cannabis to either get themselves off opioids or to keep from taking them at all. Science is still catching up in terms of proving if this is really a reliable trade off. But if people want to do that for themselves, if somebody says, “I don't want to use opioids, I'd rather use cannabis.” I cannot think of any reason why you wouldn't let them do that, if that’s what keeps them off the opioids.

Rudy: I mean, straying from marketing for a moment: I find that ironic that a lot of people are using cannabis to get off opioids. And the big rag on cannabis has always been it's a gateway drug. Well, no, it's It's actually being used to the opposite reason. So what percentage do you think of cannabis customers use it for pain or some other medicinal purposes, as opposed to recreation?

Medicinal use vs. recreation

Johnathan: So that's a tricky question because you have the people that have medical cards. But then you also have a lot of people that are using it for medical reasons, but just going to the recreational dispensary on their own. They haven't necessarily seen a doctor but they're using it for whatever it might be. So it's tough to say exactly, but if you look at Colorado in 2019, I can point to some of those same numbers. In medical dispensaries in Colorado there was about $340 million in sales, while recreational dispensary is brought in about $1.4 billion. So the rec number is a lot higher. And that goes for not just Colorado but any market that has both systems, Rec and medical. The rec number very, very quickly outpaces the medical number.

Rudy: In both cases, and this is my assumption, please tell me if I'm wrong – Recreational and medicinal, it seems to be replacing something else. Would you agree with that?

Cannabis vs. Alcohol use

Johnathan: You know, not always. I mean, I think in a lot of cases it is. So like, in the case of my mom, she's using it instead of her sleep meds or for a lot of folks will be using it instead of alcohol. Now, if people really don't like the way the alcohol is that making them feel or they've been using it because they're drinking too much or whatever. That's something that we see a lot actually.

I'll tell you about an interesting challenge. One of our clients set out a 30 day challenge, really geared towards women, slightly older demographic than you would imagine. So like 35 to 50, something like that. And it was a 30 day challenge to have them try to switch out some of those evening glasses of wine with cannabis. So it was obviously geared towards women that enjoyed a glass of wine or two or three at the end of the day.

The first week was just switching one day where you would drink wine normally for cannabis use. The second week, you switched a second day, and the third week, a third day and you continue that momentum to the fourth week. And the idea is to sort of show folks that alcohol isn't your only option. If you want to relax at the end of the day with something, cannabis is another option in a lot of ways. It doesn't have some of the side effects that alcohol does.

Behavior change marketing in the cannabis industry

Rudy: That's a good strategy because you are taking triggers, things that people already have, and changing. It’s the same habit but you're changing the behavior.

Johnathan: Absolutely. And you know, you can drink your cannabis. I mean, we see lots of beverages here and if you wanted to create your own beverages, there's there's dissolvable, tasteless, odorless powder that you would pour into, say orange juice or something like that.

Rudy: But not into your wine.

Johnathan: Not into your wine. We definitely do not recommend that to anybody. That's a big no no. But like a mocktail, for example. You mix up a pitcher of margaritas without tequila. And then you add your your cannabis, by way of one of these dissolvable powders, and you can kind of enjoy a pitcher of cannabis Margaritas with your friends. I mean, that one's kind of an easy switch, because it's the same mannerism, the same habit, you're still drinking. It's just not got alcohol in it.

Cannabis industry stereotypes

Rudy: So you mentioned women twice. Are women a bigger growth market than men in the cannabis industry?

Johnathan: I haven't seen any data that tells me that women are growing more than men. But those are examples. I think I feel like some people outside of the world of cannabis just don't see it in that way as a lot of women participate in. And that's really not true. There's a lot of stereotypes that exist in the cannabis this world that are not rooted in any truth at all. That might be one of them.

Rudy: Yeah, I was gonna ask you about that because there is a stigma, right? I have an image of someone I knew in high school or college or whatever, of someone who was a frequent user of cannabis. We didn't call them that. But there is that view and and so I'm guessing that stigma exists. How much of an obstacle is that and how do you overcome them?

The pothead stigma

Johnathan: Well, sure. And hey, we can call it what it is. It's the pothead stigma. It's the stoner stigma. I mean, yeah, that existed when I was in school too. And that still definitely exists. So, there is no easy answer. I will say, the long term answer is just time. You know, that is what this takes is time. As an industry, some of the things that we see really help our corporate social responsibility programs. That's something that we recommend for almost all of our clients. Programs that you set up that help demonstrate to the community that you and your business are good actors. You're not a hindrance or hurt to the community. You're you're a good addition to the community in the business world. That's one thing that we recommend all the time.

The other recommendation is providing education, getting those facts out there as much as possible about cannabis. About the people that use cannabis, telling the stories. I mean, hey, you're a storyteller too. So telling stories about people that took a thoughtful approach and a very intentional approach to their cannabis use for a specific reason. And the impact that has on their life. Allowing folks that are outside of the typical cannabis world to see themselves.

Creative marketing strategies

Rudy: I remembered when Viagra was introduced. And one of the first spokesperson they got was Bob Dole, who was a respected politician. He ran for president. He was in World War II. When I look back, I thought, well, that was a way to put a face on something that a lot of men experience.

Johnathan: That would be a great way to go. But it's still like the stigma still very much exists. Even in places like Colorado where it's becoming more normalized, you do still find people in that in the public realm hesitate to come out and say, “Hey, this is something I do. I'm a totally normal person. This is this is why I do it. And this is what it does for my life.”

But that is changing. I can say especially in athletics, there's a lot of athletes now coming out and saying, this is something that I use, especially because hey, I'm getting beat up every day. Well, I'm willing to participate in whatever sport but my knees hurt or my elbows hurt. Or maybe I'm dealing with something now that I'm retired or maybe I'd like to smoke. Like I just like it. We do see that happening a lot more in athletics, but It's taken a long time to happen anywhere else. I mean, like if you're talking about politics, I don't know of, and I would love for somebody correct me, but I can't think of any major political figure that has come out and said that they're a cannabis user.

Changing minds about cannabis

Rudy: Hopefully we're not too far from it. I think we're getting there. If you can use it like anything else responsibly…I can tell you this, anecdotally. I have terrible Achilles tendinitis. And I take Aleve and Advil and all that stuff. But the only time I can remember in the last year and a half when it did not hurt at all, was when I was visiting my family member in California, and got a cannabis gummy, and it stopped hurting.

Johnathan: Yeah, that's, that's great. That's the kind of story that changes people's minds about cannabis. And I would like to note too, that you pointed out that you used the cannabis gummies. A lot of people's perception of cannabis is that you just smoke weed, you smoke it. And that is so far from the truth. And in fact, dried flower smokeable flower as a product category is shrinking, compared to all the other stuff: the edibles, and the vape cartridges and all that stuff. So if people don't want to smoke, they don't have to. I don't smoke at all, but like, I'm not interested in smoking cannabis. And there's a lot of people out there like me, and you know, maybe like you.

Brand differentiation in the cannabis industry

Rudy: We talked about the category itself. And like you said, the perception is that it's the flower, it's the thing you smoke. How do you differentiate one brand from another in the cannabis industry? I assume many people perceive it to be a parity product because even we're talking about the category, not about a specific brand. How do you create a brand in this atmosphere?

Johnathan: Well, the perception of cannabis as a parity product if we just look at flowers, just Zero in on that for a minute. If you take one trip to a good recreational dispensary, that will completely demolish that perception because you have price ranges that go from very cheap to very high and you have different grades you have like the top shelf cannabis. If we compare it easily to alcohol, you've talked about the really expensive stuff that you see in the bar, way up high, that only comes out once in a while. Or you've got sort of the more accessible stuff, the economical stuff. Your well whiskey compared to your super fancy aged scotch or whatever it is.

Unique characteristics of cannabis products

So how you grade cannabis, a lot of it has to do with with the growing the growing method. And then you've got all the characteristics of it. So the tastes, the the aroma, the what it looks like visually. And then of course, the effects and also that THC content, or CBD content. So like each variety, we'll call it a varietal like wine, just to compare. Each one has a different terpene profile, different amounts of all those different chemical components that are in the cannabis. And it's not just the THC level, that impacts how you feel. It's all these other things as well. So, one strain compared to another, there is a slightly different sort of feeling to it, or subtly different effect or different smell, different tastes. If you look at like the connoisseurs, they're more than willing to pay a lot more for a really unique strain with a really unique set of properties.

Cannabis and Inbound Marketing

Rudy: I guess you have to get someone in the store first. And so I guess that would be the first question. How do you get them in the store?

Johnathan: Well, inbound marketing is really a big part of the game for the cannabis industry. Because that's one of the few tools you have. So while you may get some foot traffic, you really have to be attracting people to your website. And inbound marketing is a big way we do that. And then of course, once you get them in the store, how do you keep them coming back? So you got the usual stuff. Email Marketing is big, and offering promos when you're able to special discounts, special product drops, maybe something that's very uncommon, is just showing up in a limited quantity. So telling everybody hey, we've got this super rare strain. We've only got this much of it. It's only at this one store. If you don't come by today, you're not going to get it. For a lot of people, that's motivation enough.

Target Audiences: Bud Tenders

Rudy: You've mentioned to me that for many of your clients, your audience is the bud tender. For those not in the know, a bud tender is someone who is at a dispensary and will advise you on what to buy based on your wants or needs.

Johnathan: That's right, a bud tender is like a bartender, maybe more like a server at a vineyard, or a craft brewery where they really know a lot about the process. They know each different thing that they have. And they can speak to the experience. And they can tell a little story about the different products. So, the bud tender is one of these really, really critical audiences that I think a lot of folks in the cannabis industry forget about.

They're so critical because people that are new or just kind of not experienced in cannabis, really look to the bud tender for suggestions and advice and tend to really listen. If the bud tenders don't like you, if they don't like your business, if they're not fans your product. I mean, you're kind of hooped. That'll that'll be it. Of course, you're marketing to the end user. And of course, you're always trying to do some things to connect with the decision makers at the dispensary, but really you need to be talking to the linchpin of the whole thing and that is the bud tender.

Target Audience: Amateur vs. Aficianado

Rudy: I wonder how many people just want to, let's say, get the feeling and not really become aficionados of whether or not this gummy is better than that one. How will the industry keep from becoming just a low price type transaction?

Johnathan: Yeah, you're right about that. I think many, maybe even most folks are just after that feeling. And, you know, they'll just kind of go wherever it's economically feasible to do that. So you can't alienate those people. You know, if you're a dispensary, you can't not have offerings for folks that are just there to purchase their little amount of the cheapest stuff beyond their way. You still have to do that but you can't do just that. You have to be offering for the folks that are less motivated by price. And more loyal, you have the offering more of an experience.

Marketing in a new niche

Rudy: Yeah, yeah. It's a fascinating industry. I mean, really is

Johnathan: Yeah, I haven't been doing this for that long. Well, actually, I guess I've been doing it for years now, which makes me a veteran. But if you look in the grand scheme of things, if somebody said, Well, you've only been in this marketing niche for a few years. Normally, that would make me a newcomer, but the cannabis industry is so new and changing so fast that yeah, I mean, it keeps you on your toes.

Restrictions lead to creative thinking

Rudy: In terms of marketing cannabis, what's different? What's changed? What hasn't? And why shouldn't cannabis marketers panic?

Johnathan: Well, I think what's changed is the marketing restrictions. While they are still tight in the states that have longer histories of legalization, those restrictions almost always gradually reduced. Over time, it is getting easier, there are getting to be less restrictions. But every time a new state comes on board, it's almost like you're starting back at the beginning. So, you're working with different restrictions on a client in Colorado compared to a client and in Vermont. But you know what? Honestly, I like the restrictions. I really do. Because if everything was available, it will be a level playing field. And you know, anybody could be a cannabis marketer. But that's just not the case. And so I feel like the restrictions, it forces you to be creative. It forces you to try new things. Fail at things and make mistakes. But that's kind of what keeps it interesting for me. The fact that it's cannabis, that that is interesting by itself. But the restrictions too, they make me a better marketer, and they make me a better creative thinker.

Rudy: This has been great, Johnathan, I really appreciate you being on the show.

Johnathan: Thank you so much for having me on. Really appreciate that.

Thanks for listening

Rudy: Wasn't that cool? Listen, if you liked this episode, don't hog it, pass it around, share it with friends. That's what it's for. Check out Hybrid Marketing and hybridmarketingco.com or Johnathan McFarlane at his LinkedIn profile. You can find out more at CreativeOuthouse.com/podcast along with our previous episodes. Thanks to Susan Cooper for producing the show. To Gopal Swamy for creating our earcon and to Jason Shablik for always taking my calls when I have an audio question. And to you for listening and having such great taste in podcasts. Well, that's it for this episode of Marketing Upheaval. And remember, if the current state of marketing has you confused, don't worry. It will all change. See ya.

Rudy Fernandez

Creative Outhouse, Founder & Executive Creative Director

Host, Marketing Upheaval podcast

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Podcast credits:

Host: Rudy Fernandez

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Earcon sound design: Gopal Swamy

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