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"The Industry Still Isn't There:" Rob McPherson, Scourge of Cannabis LinkedIn

"The first area that has the opportunity to develop some stickiness with their value proposition target, who is the shopper, will be the retailer," says Rob McPherson.

This story originally appeared on WeedWeek

Former liquor executive Rob McPherson has become a prominent voice on LinkedIn for his scathing, unsentimental assessments of the legal cannabis industry. In our interview, he discussed why vertical integration doesn’t work for pot companies, the segment best positioned to succeed and the high-profile U.S. brand he liked a lot, until he didn’t.

via WeedWeek

He doesn’t mince words.

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This interview has been edited for length and clarity.

WeedWeekCan you tell us a bit about your background?

Rob McPherson: I came out of grad school with my MBA in 1989. Spent 25 years in consumer packaged goods, primarily in marketing with Proctor & Gamble, Sandoz, Kraft foods, and then Bacardi Limited. For my last four years from 2010 to 2014, I was the president of Bacardi Canada. When Bacardi, reorganized globally in 2014, I effectively was out of a role within the company.

RM: That fall I was approached by a company called Tweed Marijuana, which is now Canopy Growth, to be their CEO. I turned it down, but realized it was consumer packaged goods business and I could add value. With all due respect to the industry and the participants therein, I felt they didn’t know what they were doing, and they could benefit from some of my experience.

I spent the last couple of years providing consulting services, primarily in business strategy, but also in consumer segmentation and brand development. [My cannabis clients include] select companies in Canada and in the U.S., primarily in recreational.

“A field of dreams strategy”

WW: What’s your thesis for who’s going to emerge as winners? I’m not necessarily asking for company names.

RM: In Canada, I think the first area that’s going to really flourish is retail. Retail is where the regulations allow for the greatest opportunity to develop brands and shopper brand connectivity. There’s an ability to envelop the shopper within the brand that the product based brands just don’t have the regulatory ability to do.

The first area that has the opportunity to develop some stickiness with their value proposition target, who is the shopper, will be the retailer. A company,  like Fire & Flower, who are single-mindedly focused on retail and have both the capital input and the expertise input from Couche-Tard, a large Quebec based global C-store business, are well positioned.

There were some other interesting retail concepts like Superette, like Burb that also have the opportunity to do quite well. 

On the grower or the product based side, I think Canopy still has an opportunity to do well, if only because they still have $2B. If you’ve got $2B, you’re pretty well positioned in this industry, given the challenges that so many businesses are having of actually turning a profit. They have the luxury of not needing to turn a profit for some period of time.

I guess Cronos similarly with the Altria equity play. Those are two businesses that at least have the balance sheet wherewithal to weather the storm. In honesty, the jury is still out as to whether or not any of them really understand who they’re in business to delight. Have they really defined who is their consumer target and what that target really wants, and developed a business model to deliver it?

They all built things and put out stuff without ever knowing, and ever asking, and ever really caring about who it was that they wanted to actually purchase this. It was just a field of dreams strategy, “We’ll put it out there and there’ll be fistfights to get a hold of it. We’ll be able to charge whatever we want.” I think they’re quickly now realizing that that’s not the case.

WW: You recently posted about the idea of a cannabis culture, and why it doesn’t necessarily matter as much as a lot of people think it does. What are you getting at there?

RM: There is no one cannabis culture. When you think about how cannabis has grown up in Canada and in the U.S., it would be naive and nonsensical to assume that some sort of singular pervasive culture could emanate out from some source and envelop the entire universe. It just doesn’t make sense.

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It’s a consumer packaged good. Even if you’re purchasing and using from the illicit market, you’re the same person. You’re the same consumer who goes to the grocery store and buys Tide, and then goes to Golf Town and buys TaylorMade, and then goes to Tim Horton’s and orders a double double. You’re a consumer. Why would cannabis operate any differently than that in terms of your belief system and the sort of triggers and motivations to consume?.

My belief is there’s nothing special or magical or mystical or different about cannabis. [REC is] a discretionary consumer packaged good, that a wide range of different segments of consumer types have chosen to participate within. They all have different belief systems, and those translate into different motivations to consume across different need states on different occasions.

The people who say there’s a singular culture, believe everyone else must believe the same thing because, “How could you not believe this, because I believe it’s so strongly.” Hey, I understand why you think that, but it’s naive to think everyone else thinks that.

“Holy crap, we need to focus”

WW: What are some of the common mistakes you see companies making?

RM: Vertical integration. In some states in the U.S. it’s a requirement. In those states my counsel was, even if you have to do it across multiple value chain links, which link is your link? All the other links, you need to figure out how to be as little engaged in terms of capital, time, and effort as possible.

At some point you’re going to be able to pass those things off, as the regulations change, and you need to be single-minded. In Canada, there was no requirement to be in multiple value chain links. This whole, “Well, I want all the revenue. I want all the margin across all the value chain links.” Great. What you also get are all the costs and all the complexities with all of those value chain links. You don’t get the revenue without the cost and complexity.

To be a startup, to go into multiple value chain links in a new industry that is still undergoing regulatory change, that is still undergoing consumer and shopper trial awareness, trial repeat loyalty, was madness. They’re all now quickly realizing that, “Holy crap, we needed to focus and we didn’t. Now we’re trying to sell off the retail side because we’re not going to be a retailer,” or, “We’re selling off the growing side,” whichever piece it is.

The investors loved it. They like big, shiny things. Their eyes glazed over when you talked to them about, ‘We’re going to be single-mindedly focused. Let me talk to you about the consumer that we’ve segmented and how we’re going to delight them.’ That wasn’t interesting. When you’re in a business to raise money, not make money, vertical integration made sense. The second you need to make money, vertical integration made no sense.

“I’m less impressed with them now”

WW: As an outsider, do you have any thoughts on the US market? 

RM: The only company that I had looked at, and I had initially been impressed with, was Canndescent. They were one of the first that I saw that moved away from street names to move into a simple elegance. They talked about what it was going to deliver in terms of a feeling for the consumer.

I was quite impressed with how their initial branding worked in terms of their naming convention for their strains, how they’re packaging and how their communication worked. They started to wobble off of that, and I found them to really start to lose their way. I’m less impressed with them now than when they first came out.

WW: Why do you say that?

A year or two ago, on April Fools‘, they put out a press release that was completely off-brand. This was supposed to be a luxury play, like Grey Goose vodka. You need to be very careful when you’re playing within the premium or luxury, in terms of what the brand says and what the brand does.

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Brands that are playing in luxury, don’t do silly April Fools’ jokes. They don’t, that’s not what luxury brands do. Luxury brands operate at a higher level of sophistication. I felt that the CEO there, this was more of what he thought would be funny, but you don’t do that. The brand has to have a very clear personality and point of view, and that was inconsistent.

Then they also started to get into things, where the CEO would put out his own personal view on cannabis vs. alcohol. He can have a personal view, but you can’t do that under the guise of the brand. 

Then the last piece was there was one point on the website, when you went on the landing page, it was just a plume of smoke. Then behind, you could kind of see a woman there. That was not the image that a luxury brand would communicate.

I think that a more sophisticated consumer packaged goods marketer would have built a more focused and a tighter brand concept and brand positioning statement. Those sorts of things would never have happened because the brand would very clearly know what it stands for and what it doesn’t stand for. It would never do those sorts of things.

Those were disappointing for me, but they just showed that the industry still isn’t there in terms of really being a consumer packaged goods business. It’s going to get there, as more consumer packaged goods people come in and meld with the legacy participants. It still has work to do to be able to get to the point where it operates at a level like a Proctor & Gamble, a Nike, a Pepsi, or a Nestle. [Canndescent declined to comment.]

WW: Do you have any predictions?

RM: I believe that the next six months are going to be ugly, I don’t think you’re going to see particularly good results. I do believe you’re going to see, at least within the Canadian market, at least one, if not two of the larger players really, struggle, and at least one of them could potentially fail.

My prediction, a company like Aurora, I think is in real trouble. A company like Tilray, who are going to report their results this week, are in some real trouble. The guys who are running them, with all due respect, I believe many of them are very smart, but they’re not very experienced in consumer packaged goods. Their businesses are going to continue to struggle and they need to put their egos to the side and bring in a better quality of management, or they’re going to fail.