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Investing in Cannabis: The Next CPG Brand Has Yet to be Born

Typically when people think about investing in the cannabis industry they see buildings and fancy equipment. They see lights, rooms full of plants, intricate fertigation systems, high-level security, and state of the art storage and vaults. Before wiring those funds, take a minute to ask yourself “is this really the most valuable piece of the cannabis industry for your investment?”

Let's take a stroll back in time. In 1886 a Doctor by the name of John Stith Pemberton produced a flavored syrup, which he took to his neighborhood pharmacy, where it was mixed with carbonated water and was turned into what we all know today as Coca-Cola. Interestingly enough, the famous name and script, which is still used today, was developed by Dr. Pemberton’s bookkeeper. Large scale bottling of Coca-Cola began in 1899 when three entrepreneurs purchased bottling rights for just $1. Today Coca-Cola manufactures and sells its syrup to authorized bottlers. These authorized bottlers then add water and carbonation to make and sell finished Coca-Cola products that they can place the Coca-Cola logo on.

Now ask yourself:

  1. Is the syrup valuable without the name Coca-Cola attached to it?

  2. Is the authorized bottler valuable without being able to put the Coca-Cola name on the bottle?

Sure, there is some value, but is there $87.6 billion in value? No.

There is not $87.6 billion in value of a sugary syrup that is mixed with carbonated water and put into a glass bottle. So where does the $87.6 billion in value come from? Brand equity.

As you have now read the first few paragraphs, I am sure you are asking yourself what does Coca-Cola have to do with cannabis?

The simple answer is they are both consumer packaged goods. Unfortunately, cannabis is being treated like a unicorn. This magical industry that is just going to rain money on operators and investors. Those who enter the industry thinking this will overspend with stars in their eyes and go out of business at a rapid pace. When this happens investors also don’t get paid back.

Right now investors are putting money into the authorized bottlers instead of the brand. As I said earlier, brand equity is where all the value comes from. In theory anyone can produce Coca-Cola. Sure, there is IP around the formulation, but I find it hard to believe that in today’s highly technical and scientific world that somebody can’t replicate that formulation in a couple days. What they can’t do is build $87.6 in brand equity in a couple days.

What should a cannabis investor actually focus on?

Being able to produce a product that fits a brand is important. What is more important is understanding the brand that you want your product to fit. Growing cannabis on a large scale, throwing it into jars and hoping that a dispensary will buy it is a fool's game. A cannabis company needs to have a plan for how they will brand, market and sell their products. In theory, cannabis can be grown anywhere. Yes, I understand there are legal and regulatory intricacies that go into that statement. In all honesty they don’t matter that much. If I want to start a cannabis brand, can’t I have another cultivator grow for my brand? What if a cultivator has unused real estate capacity, can I use that capacity to grow for my brand? The answer to both of these questions is yes. There is a thoughtful process that needs to be followed to stay within specific state regulations, but it can be done.

Now ask yourself:

  1. Is the flower valuable without the brand name attached to it?

  2. Is the cultivation facility valuable without being able to put the brand name on the jar?

Cannabis is a consumer packaged good industry. Cannabis companies that understand this and create a business plan around this idea, rather than believing cannabis is a unicorn industry will be the ones that gain brand equity with consumers. These are the brands that will be here to stay. Cannabis does not involve selling flower, concentrates, vapes, edibles, beverages, etc. It involves selling a feeling, an emotion, a sense of belonging to a customer base that will be loyal to you for years to come.

Is salt really just salt? If so, how does Morton own such a large market share of the industry?

What about coffee? Starbucks has created a one of a kind experience around sipping on a cup of joe. Oh, and I can’t forget a simple mediocre cheeseburger. Off of selling mediocre cheeseburgers and chicken nuggets, McDonalds has gathered a brand value of $154.92 billion.

Can you name a cannabis brand that is on the path to doing the same? No? Me either, because the next big brand in the cannabis industry has yet to be born.


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