Despite daunting market conditions, distressed capital markets and extraordinary levels of political uncertainty last year, several West Coast brands and operators thrived under these strenuous circumstances and were able to pull away from the pack.
Now, many of these ambitious companies are vying for national recognition, but in order to become household names, they must first win over consumers on the East Coast. This will be no simple feat given the regulatory constraints of the region, but the unique retail environment created by these limitations may allow established brands to truly blossom in this competitive market.
Stakes for brand loyalty
Mature brands that land on the East Coast will be engaging with consumers who already have higher expectations and likely know what they’re looking for. Popular brands that are aggressively expanding have very little room for error. There are already consumers who are ready and willing to buy these products, and brands need to live up to the hype they’ve created for themselves.
The regulatory environment on the East Coast will likely allow only a limited number of operators to compete in the space, which means brands must deliver high quality and consistent experiences right out of the gate or risk losing a customer to a competitor for the foreseeable future.
Higher risk, higher payoff
Leaders from New York, New Jersey, Connecticut and Pennsylvania have all agreed to a limited license structure that will create a fiercely competitive retail environment. Although the learning curve will be steep, these conditions can also provide a critical opportunity for vertically integrated operators to not only create a new set of best industry practices but also showcase how cannabis businesses can successfully scale on a national level.
The disparities in retail and general business opportunities between the two coasts are stark. New Jersey, the most recent state to move forward with adult-use legalization, currently only has 12 active dispensaries and will only allow 37 cultivation licenses over the next two years. California, on the other hand, has issued more than 10,000 licenses that cover every step from seed to sale.
The relative scarcity of products and retailers on the East Coast is certainly a double-edged sword. Lower supply will drive up the average price of products, but it could also drive consumers to be more loyal to brands that have made a memorable first impression.
For California-based, vertically integrated operators like Glass House Group, these retail conditions could be even more attractive than the ones in their home state. In 2020, the company’s Glass House Farms-branded flower was the second-highest selling flower product in the state, and the company has invested a significant amount of resources to maximize the consistency and efficiency of its cultivation operations over the past year. Operators who are equipped to successfully replicate brand experiences at scale will be the ones who benefit most from the limited license structure.
Brands that enter the East Coast early will also have a considerable first-mover advantage. It is likely that other states will follow New Jersey’s example and only allow a handful of licenses for the first few years.
Brands will be battle tested
Leading cannabis companies have a unique opportunity to prove themselves as true consumer packaged goods brands on the East Coast. Consistency and predictability are central to the mainstream CPG industry, and brands that have established themselves on the West Coast must demonstrate their ability to meet these expectations to compete on a national stage.
Ultimately, West Coast brands that decide to enter this emerging market will be battle tested by the region’s regulatory environment. Mainstream investors and policymakers alike will be monitoring how these companies rise to the occasion.
Fortunately, it appears that legal brands and operators have a track record of flourishing under challenging constraints. The success of these companies will play an essential role not only in the national legalization movement but also in proving the legitimacy of the industry to the wider business community.