Could Schedule III Drive Cannabis Consumers To The Illicit Market?
A recent study from NuggMD says as much as 1 in 3 consumers would revert back to the illicit market. How can marketers prepare and how can we convert illicit market consumers into legal customers?
Aloha and Happy Friday!!!
Not sure if you caught this headline this week, but I think it’s worth diving into:
“About one-third of marijuana consumers say they would go back to the illicit market if cannabis was rescheduled and only made legally available as a Food and Drug Administration- (FDA) approved prescription drug, according to a new poll.
As federal agencies work to complete an administrative review into cannabis scheduling, the survey from Nugg MD shows wariness about how the government could hypothetically become involved with marijuana in the event of a reclassification.
Of course, even though the U.S. Department of Health and Human Services (HHS) has recommended moving cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA), that would not make it a legal prescription drug. The FDA drug approval process is separate, and the agency typically does not approve botanicals as prescription medications.”
This study comes on the heels of a recent Congressional Research Service report that basically says under a re-scheduling to Schedule 3, cannabis products would only be compliant if they were approved by the FDA as a prescription drug and were distributed to patients by distributors who are registered with the DEA.
Moving marijuana from Schedule I to Schedule III, without other legal changes, would not bring the state-legal medical or recreational marijuana industry into compliance with federal controlled substances law. With respect to medical marijuana, a key difference between placement in Schedule I and Schedule III is that substances in Schedule III have an accepted medical use and may lawfully be dispensed by prescription, while Substances in Schedule I cannot.
However, prescription drugs must be approved by the Food and Drug Administration (FDA). Although FDA has approved some drugs derived from or related to cannabis, marijuana itself is not an FDA-approved drug. Moreover, if one or more marijuana products obtained FDA approval, manufacturers and distributors would need to register with DEA and comply with regulatory requirements that apply to Schedule III substances in order to handle those products. Users of medical marijuana would need to obtain valid prescriptions for the substance from medical providers, subject to federal legal requirements that differ from existing state regulatory requirements for medical marijuana.
Matt Zorn and Shane Pennington from the always smart (and sometimes provocative) Substack OnDrugs have a slightly different legal analysis than CRS when it comes to state’s ability to allow for medical cannabis distribution through existing dispensaries under a Schedule 3 regime (which I very much recommend reading up on), but let’s talk about NuggMD’s premise that Schedule 3 could drive as much as one-third of legal cannabis consumers back to the illicit market.
Luckily for cannabis marketers, we already have to contend with the illicit market on a daily basis as it is.
A recent study from New Frontier Data showed that 27% of consumers in adult-use markets who consumed at least once a month, rely on non-regulated channels as their main source of cannabis.
In Oregon, one estimate from Whitney Economics puts the pounds of illicit cannabis grown as three times the amount grown in the legal market.
So how can cannabis marketers and our brands start to convert some of these existing (and potentially additional future) illicit consumers into legit customers?
New Frontier Data has four suggestions from their Cannabis Consumers in America 2023 report:
#1 - Retail pricing must be competitive with the gray market.
This is the most important factor in combatting the gray market in adult-use states. Frequent consumers who rely on dealers to source cannabis in adult-use markets have significantly lower incomes on average than consumers who source from friends/family, and both groups have lower household income on average than cannabis retail shoppers. Retailers should aim to have products at a variety of price points and offer promotions or loyalty discounts where possible. Regulatory and taxation structure set a floor for pricing, so achieving competitive prices in some states with exceptionally high taxes on legal cannabis may require regulatory revision.
#2 - Retailers must offer a variety of product forms, and options within each product category.
Fewer than half of all consumers report having access to any forms of cannabis other than flower, prerolls, and edibles, even in adult use states. Between one fifth and one quarter of frequent consumers in adult use markets who source primarily from friends/family or dealers do shop at regulated dispensaries occasionally; these visits are most likely to acquire manufactured (non-flower) products, which the majority use in addition to flower. Retailers should take advantage of these visits to promote affordable flower products, for example bundled with manufactured products those consumers visit retail to purchase.
#3 - Product quality must be superior to— or at least competitive with—the gray market.
Much of the gray-market flower that is available around the country is grown in California and is of high quality. In addition to competing on price, retail cannabis flower quality must be comparable to that on the gray market. This is particularly true for frequent consumers who source from dealers, as they consume more purposefully and frequently than those who source from friends/family.
#4 - Retail channels must be in accessible locations/cover underserved areas.
Frequent consumers who primarily source from dealers live disproportionately in urban areas, where they may or may not have convenient transportation to dispensaries. They tend to have lower incomes and purchase cannabis in smaller dollar amounts than retail shoppers but consume very often and so would need to be able to make frequent trips to a dispensary. This all means that unless the dispensary is in a very convenient location, achieving loyalty from such a customer would be difficult. Similarly, frequent consumers who source primarily from friends/family live in disproportionately rural areas, where there may be no nearby dispensaries, and where there may be no delivery coverage. Both regulators and businesses should take these factors into account when determining zoning guidelines or potential dispensary locations or delivery coverage areas.
So, will Schedule III send consumers running back to the illicit market?
Maybe, maybe not.
But it's definitely worth throwing some fuel on the fire of this debate, right?
It seems that no matter how the DEA ultimately rules, there is a lot of education that needs to be done for consumers.
That same New Frontier Data report showed that 62% of consumers believe that regulated cannabis is safer than unregulated cannabis — so are we as marketers doing enough to drive product safety and education in our messaging to consumers?
New Frontier Data also reminds us that even the best educational campaign can't fully combat price pressure. Superior product at an accessible price point is the ultimate trump card when it comes to the legal market winning out.
We can do all the clever marketing and branding in the world (and readers of CannabisCMO definitely do!), but ultimately, cannabis is a commodity* and the best products at the best price will always win out — whether they are sold at a licensed store or in a CVS parking lot.
*I fully recognize that the value of a good brand is that you don’t get stuck in the commoditized race to the bottom (that’s why we’re here!), but that’s an exception to the rule.
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Headlines:
Here are some of the headlines that I’ve been following over the last week that I think you should be paying attention to as well.
#1: What does the end of the cannabis print age mean for businesses?
The landscape of cannabis media is undergoing a significant transformation, signaling a shift in both the industry and culture surrounding cannabis. Key publications that once served as cornerstones for cannabis information and advocacy, such as Dope Magazine, Civilized and even High Times are disappearing or rapidly declining. The decline of these niche media sources is largely attributed to the broader acceptance and legalization of cannabis. As the subject integrates into mainstream media, specialized publications are losing their previously vital role. This change presents various challenges and opportunities for cannabis businesses, including the need to reach broader audiences, adapt marketing strategies, and navigate a more competitive and regulated environment.
My thoughts:
First off, cannabis media is hard. Period. Print media is even harder. So it’s both a bummer but unsurprising that we’ve seen so many cannabis media outlets close up shop over the last few years.
I’m of the opinion that too many industry magazines had become advertisements catalogues with the occasional article intermixed. It’s hard to say that many of them truly drove a value to readers other than being a freebie you could pick up on your visit to your local shop.
When I was doing ad sales for some cannabis websites, I would go to dispensaries to grab whatever magazines I could find just to see who was already advertising in them and go pitch them with my digital opportunities.
This article does raise a good point about how the death of print media puts the pressure on the limited digital channels that are available to cannabis brands and forces cannabis brands to compete for attention in more mainstream outlets.
Niched down digital outlets like CannabisCMO will be in a good position to take advantage of a world where mass market magazines are a thing of the past and targeted digital engagement is what sponsors are willing to pay for.
#2: Here's Why Companies Need to Escape the Tyranny of Algorithms
This article explores how social media algorithms are influencing business aesthetics and marketing strategies. Kyle Chayka, author of "Filterworld," discusses the phenomenon of "AirSpace" where businesses globally adopt similar designs to cater to digital platform aesthetics, losing uniqueness in the process. This trend, driven by the need to appeal to algorithmic feeds on platforms like Instagram and Airbnb, results in a homogenization of culture and design. Chayka argues that adapting to these trends is ultimately a losing strategy, as businesses lose their identity and become indistinguishable from others. Chayka believes in the power of authenticity and long-term growth over quick scalability driven by social media trends.
My thoughts:
I really appreciated this piece because I think it speaks to much of what I see in the cannabis industry today.
To be honest, I actually think the cannabis industry has always had too many followers and not enough leaders.
Whether it’s a million different “T-H-C” acronyms for business names or the endless number of dispensaries with green as their main color, cannabis has always had a lot of trend surfers and way less trend setters.
When I had a dispensary in Portland called Brightside, we didn’t have any cannabis leaves, green crosses or any other common cliches — I took a lot of flak for it from employees, friends and family — but it made us stand out.
Now with the advent of social media algorithms that use deep psychology to alter consumer behavior, cannabis brands risk falling into the trap of chasing social media enagement and in the process losing their identity and becoming indistinguishable from each other.
It reminds me of this clip from Simon Sinek where he talks about how Apple obsesses over their vision of where they are going rather than what their competitors are doing.
This is a key takeaway: the power of authenticity and long-term growth over quick scalability driven by social media trends.
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Cannabis Industry Blogs + More Headlines:
The Modern Cannabis Consumer: What Marketers Should Know About the Older Demographic - Rolling Stone Culture Council
How Investing In Cannabis Almost Took Down Scotts Miracle-Gro - Forbes
Seniors Who Smoke Weed & Drive Are Road Hazards: Study - U.S. News
Blink-182's Drummer Travis Barker Releases Mini Barkies Prerolls As Part of His New Cannabis Brand - Celeb Stoner
Why Social Media Platforms Flag Influencers Who Promote Cannabis Products - And Tips To Avoid It - Benzinga
Cannabis marketer, distributor Petalfast raises $8 million from family offices - MJBizDaily
A Day in the Life of a Weed Journalist - High Times
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Mainstream Marketing Chatter:
You Can Now Cancel In-Progress Stories Uploads on Instagram - Social Media Today
6 Strategies To Convert the Content Clueless in Your Brand’s Leadership - Content Marketing Institute
Google Ads Launches Gemini-Powered Campaign Creation Tool - Search Engine Journal
5 Reasons Why Sonic Branding Is Important - Rolling Stone Culture Council
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