🏘 Going in-house

Here is a snapshot of earnings for Q2 for publicly-traded cannabis businesses:

Some massive numbers to report, including the top five at $175m+ for the quarter.

So, these players have proven they can generate whopping sums of revenue; now, investor eyeballs are trained on whether or not these businesses can turn toward whopping sums of profit.

🔐 Margins are the key

One of the margin-accretive strategies we have discussed is that large retailers will bring brand-building in-house, creating private label brands via their own supply chain. If they can replace some third party products with their own, the thinking goes - they’ll make more money for each sale.

(Btw, I offered a prediction on LI that 2022 would be the Year of the Big Brand due to the MSO’s inherent leg up on distribution, and it was met with pretty negative sentiment. To be clear, I am not making a value judgment on whether or not this is a good thing - I am just observing the dynamics in the market and outlining them for you 🙌)

👨‍🦲 Jeffrey Bezos - you did it!

To better understand the private label playbook, let’s turn to some big retailers - ending with The Everything Store.

Private labels are not new. Let’s take Wal-Mart’s Great Value brand, for a vivid and sometimes-hilarious example:

Dr. Thunder probably tastes a lot like Dr. Pepper. For the price-conscious (or for those that don’t care about a slightly different taste, or those without a particular affinity to Dr. Pepper), this is probably a solid alternative.

And Wal-Mart pays a fraction of the cost to stock it on shelves - mission accomplished.

Here’s another example - this time from our friends at Costco via their (very popular) Kirkland Signature brand:

So, Kirkland is ~$50 for six bottles; brand name Rogaine is ~$50 for three bottles. Half the retail cost. Same Minoxidil chemical, virtually identical packaging.

And now, Amazon:

In 2017, there were 30 private label brands on Amazon - now, there are over 100.

Amazon was also caught up in some anti-competitive nonsense as the company was accused of collecting information on their 3rd-party sellers and directly leveraging it to create copycats.

Shame on you, Jeff!

🌱 How will this play out in cannabis?

MSOs will develop in-house brands and push them hard - because it’s good for their business. Why else have they been buying up cultivation in relevant state markets over the last 2-3 years?

However, I don’t see direct copycat products yet - I think that indie brands need to gain a better foothold on the market before MSOs are interested in replicating their exact value proposition or look / feel (think about how powerful Coca Cola is, and why you’d want to copy them - we don’t have a Coke yet in cannabis).

So far, at least, we have seen some MSO in-house brands go to market with unique value propositions and their own visual identity, which I think will be the case for the next 12-24 months as independent brands fight for shelf space. Once we establish clear (and profitable) independent brand winners, though, all bets are off.

📚 tl;dr

• Publicly-traded cannabis retailers showed huge revenues over the last quarter

• Investors will start to focus on profitability

• A popular strategy will be to develop in-house brands, because they are more profitable

• Private label brands aren’t new - Wal-Mart, Costco, Amazon - they all do it

• So far, MSO brands have differentiated product offerings (not copycats) - we’ll see what happens when an independent brand emerges as a clear winner

• I may have purchased some off-brand Rogaine to ensure I keep my luscious mane

• It is Friday.