By Greg James
The results are in, and Oregon, Alaska and Washington, D.C. will be joining Washington State and Colorado as locations in the U.S. where marijuana will be legal for adults to enjoy as they see fit. Call it yet another victory for freedom and the people’s right to responsibly engage in an activity they enjoy, even though it might not be right for everyone. And, I’m also guessing that the 2014 election is yet another step toward the inevitable: full legalization at the federal level.
The exciting thing for folks in the Northwest is that there will now be three states and one Canadian province where it is either fully legal for adults to consume marijuana, or legal for all practical purposes. Washington and Oregon are the first two neighboring states to legalize marijuana, and British Columbia, Canada is probably the most tolerant non-legal place in North America.
Why is this so important? Because it’s a really big population block that will make commerce and business that much more efficient and profitable. Economies of scale will kick in, and 12.5 million folks in the Northwest will have close proximity to others in the business. We are now the center of the legal marijuana universe!
Speaking of commerce, I’ve noticed a lot of aspects where the marijuana market differs from traditional retail — my background prior to launching Marijuana Venture. While I was talking with a retail store owner recently, we chatted about the process of buying product from state-licensed producers and processors. As we talked, I realized that a lot of things that are taken for granted in the rest of the retail world aren’t yet a part of the marijuana trade.
For example, every single big traditional retail buyer I’ve ever met starts out a meeting with three questions: “What’s my price? What are you selling to my competitors for? And how much is my MDF allowance?”
The first two questions are obvious. The third one is something that is asked of every vendor from Proctor & Gamble down to mom and pop operations, and at every retailer from Walmart to the corner grocery store. MDF stands for market development funds, which is the money a retailer asks for (or demands, in some cases) from suppliers who want their product sold in stores.
Ever notice the promotional end caps in Sam’s Club? They come from MDF funds.
The point-of-purchase displays in grocery stores? More MDF funds.
Weekly junk mailers advertising specials in the Sunday paper? MDF funds.
The Costco Connection magazine? MDF again!
In short, if you want to get your product on the shelves of any major retailer in the United States, you’re going to provide an MDF allowance to the customer at one time or another. At first, a lot of people might think it’s a form of extortion, but MDF allowances do serve a valuable purpose: They add a bit more to the retailer’s bottom line, and, if used correctly, are a good way of promoting a product and increasing consumer awareness.
This obviously hasn’t started in the cannabis industry. I hope I haven’t opened a can of worms, but retailers in this industry should ask for — and expect — an MDF allowance from a supplier of between 5-7% of the purchase order amount, and then be expected to use those MDF funds to advertise the product line and increase the awareness of the retail location. It’s a completely normal part of business in the rest of the retail world to ask for and receive promotional allowances, and a great way for retailers to add to their bottom line while also increasing foot traffic in the store through smart displays and advertising.