The European Union and global markets have invited the next cannabis disaster by disguising asset-poor brands as distributors and clinics.
Early United States and Canadian cannabis companies have repeatedly followed each other off various cliffs by chasing the latest trends, including this latest European folly.
The EU and global distributors are repeating the same mistake and following the next dumb idea — white-labelled EU cannabis — off yet another cliff.
These operators are about to receive the same lesson that other markets learned the hard way.
Manufacturing control is key to cannabis brand continuity
There are very few successful cannabis brands in either the U.S. or Canada that don’t own their own growth and production facility.
In the early days, dispensary owners also tried to be white-label product sellers.
Like a grocery store that makes a few SKUs for non-branded cheaper versions of name brands, dispensary white-label brands also end up in the discount bin and, eventually, the trash.
Think of the largest cannabis brands like worldwide multinationals: If they don’t own their manufacturing, they control their manufacturing as if they own it.
For example, Nike’s factory hubs notoriously produce sneakers and sell excess stock out the metaphoric back door at a steep discount.
Similarly, Apple phones run on Apple systems, and Heineken closely controls formulation.
Every large, successful cannabis company controls its growing, manufacturing, and distribution.
Long ago, dispensaries realised solely selling their own product was a losing proposition; consumers want choices of every brand, or they will shop at different stores for more varied product line-ups.
If you own your cultivation and manufacturing, you more readily control your brand presence and product placements.
Marijuana clinic white-label branding is dodgy at best
EU distributors and clinics are coming up with their own brands almost daily.
Notwithstanding that a clinic pushing its own brand is most likely illegal even with creative structuring — and is definitely unethical — cannabis consumers are sceptical that they are getting the best products and prefer to have a selection.
Additionally, markets like the U.S. and Canada have definitively proven that consumer preference and pricing are the main drivers, so eventually, as prices come down, the white-label shared profitability will become uneconomical for both parties, and consumers will catch onto the conflict of interest probably before regulators take action.
Already, regulators are questioning how clinics are selling most of their products instead of others.
The independence of doctors who jump from clinic to clinic, prescribing one product at one clinic and another at another, is dubious at best.
Clinics need to find better ways to subsidize their revenues than creating their own brands, but unfortunately, they are not profitable without those early form-added revenue lines.
To make matters worse, clinics will most likely go away if U.S.-style dispensaries come into play, as Germany has proposed.
Race to the bottom belies cannabis consumer inclinations
There is a further complication with distributors creating brands and bouncing around to source the next cheapest oil and manufacturer to make their products.
Notwithstanding that changing oils results in creating different products each time, the bigger issue is that there are hundreds of distributors and pop-up brands, but only 20, maybe 30 manufacturers to service them in any given market, and perhaps only five or six that have the capabilities to produce many lines.
This means that the same manufacturer produces many brands, and nothing is unique about these constantly emerging new brands.
Consumers have already noticed that many brands have the same products under varied labels and can squeeze the prices when there is no allegiance to a brand whose white label supports many brands.
There can be 10 or 20 brands with the same product, which makes consumers unhappy. To worsen matters, cheap oil and flower are coming in from global sources, leading consumers to ask themselves, “What am I putting inside of me?”
Price compression signals a cannabis brand death spiral
Then, there is pricing. When the market comes down in pricing, it will continually decrease. The brands will squeeze the white label into insolvency levels.
Then, when it goes down again, the brand will lose margin until, eventually, both groups implode. This inevitable cycle occurred in more mature markets, leaving only a few independent brands standing.
Cultivators and manufacturers can only go down in pricing so far before they push back, and the squeeze goes against the brands that are white-labelled.
Consumers lead the price down, and compression occurs.
The compression leaves cultivators and manufacturers with no alternative but to go directly to dispensaries and, in the EU, directly to pharmacies.
Distributors eventually disappear in mature markets as the pricing compression occurs.
They exit because prices must come down for consumers, and cultivators and manufacturers are sitting at breakeven or insolvency.
There is no room in the future of cannabis for go-betweeners.
Keep it under control with proven vertically integrated cannabis models
The only proven profitable cannabis model has been direct vertical integration whereby cultivation, manufacturing, and distribution are all handled in one company to reduce pricing as an entire group and address customers adequately while markets compress.
There are very few stand-alone cannabis business models that work correctly and are unique to the operator, geography, specialized products, or a combination of the three.
For sure, standalone white-labelled cannabis brands are few.
The EU and global markets follow an already-proven-to-fail model, hoping to grab margins via white labelling and have no future when prices contract.
You need only look at the U.S. and Canada’s respective $32 billion and $4 billion markets to determine following a lousy trend is a dead end when prices come down.
