How To Protect Yourself from Market Oversaturation
More businesses and fewer consumers can lead to problems. Here's how to stay a step ahead.
When a state legalizes both adult-use and medical-use cannabis, licenses are issued, and dispensaries begin to open. Cannabis consumers purchase while dispensary owners analyze revenue and operations to compare their evolving business' performance with previously set sales projections.
As ounces of flower flow from dispensaries into homes, dispensaries often fail to see the bigger picture: how their market is changing. And that's a problem. When a state opens dispensaries faster than the growth of active cannabis consumers, oversaturation in the market occurs, and businesses suffer.
Follow these tips to prevent oversaturation from affecting your business.
Wait to enter the market
New markets can be very appealing for cannabis entrepreneurs, but they should be cautious about entering too soon. According to John Hunt, sales director of Purpl Scientific and operations executive of Alternative Essence, "Cannabis entrepreneurs in new markets should wait two to three years to harvest and focus on gearing up facilities to satisfy actual demand.
For example, the state may estimate 50,000 patients, but the actual number of medical patients may be more like 100,000. "When cultivation is based on theoretical data, there may be more demand than supply. If supply produced matches demand, there's less room for competition to enter the market," says Hunt.
When a state evolves from medical cannabis use to adult-use, dispensaries that once focused exclusively on medical patients experience demand from a new set of customers, and more dispensaries start to open.
New medical markets such as Missouri are preparing for saturation. Mitch Meyers, CMO of BeLeafMedical offers this solution. "When a medical market is new, it's important to focus on delivery services. When more dispensaries offer delivery services, there's less room for new dispensaries to enter the market."
Offer quality product
The quality of cannabis can suffer as the market becomes saturated. This is why Peter DeCaro, the founder of Resinate in Massachusetts, focuses on producing quality flowers and providing quality customer service. "If all cultivators in a state-focused more on quality than quantity produced, the market would grow at a steady rate," he says.
Hold steady on pricing
To prevent oversaturation in a market, it's crucial to control the rate at which demand increases. Shea Hynes, co-founder of Lux Pot Shop, operates a cannabis company in Washington State. Hynes focuses on creating a luxury experience by selling cannabis products known for superior quality. "My company doesn't try to haggle vendors to lower pricing on supply. I encourage dispensary stakeholders to focus on supporting the growth of vendors to increase the growth of the market at a steady rate," Hynes says.
Work as an industry
In oversaturated markets, competition is extremely high, so working with competitors can pay off. Narmin Jarrous, chief development officer of Exclusive, operates a cannabis company in Michigan. When demand for supply was high in her market, Jarrous shared her company's cannabis products with them. "I think market saturation is a topic that people focus too much on," she says. "Increasing access to legal cannabis should be the goal of every grower, manufacturer, and retailer. Competition is inevitable in any industry, and giving the public more choices at varying price points is crucial to building an industry that serves a wide demographic of patients and customers.
She says that she welcomes competition, as it drives brands to increase their quality and widen their offerings to a more diverse population. "The bottom line is you want the cannabis industry to succeed, so if your competition down the street is succeeding, the industry is succeeding too," Jarrous says.
Lobby to reduce licenses
Before officials hand out operating licenses in your state, you should lobby to reduce the number granted. Scott Thompson operates a California cannabis company called WeHikei. He says that in the California market, "between the new dispensaries and illegal trap shops where cannabis is openly sold," California is fully saturated. For this reason, "Certain members of WeHeiki are actively involved in community councils to better the local cannabis industry."
"If local business owners aren't involved in shaping the policies that impact their community and market, they are leaving the future of their business to chance," Thompson says.