Comparisons can occasionally be dangerous and short sighted. However, when the two variables are cannabis and alcohol, there are some striking similarities between the end of prohibition for the latter, and the slow move to legalization nationally for the former. Both industries were hampered by state lawmakers’ hesitation when responding to change, and they faced a similar challenge because neither knew how exactly they could sell their products to a new generation of consumers.
A new, well-organized marketplace where consumers could easily buy safe, high quality products, and states could collect new tax revenues, was the intended result behind cannabis legalization. But somehow we forgot to factor in the impact the illegal or black market for cannabis would have on the plan, as it continues to thrive and undercut the legal market with similar, less expensive products.
Pricing is key to the black maret’s success. Legal prices are elevated thanks for excessive taxation. Those same high taxes are also hindering new product testing and efforts to standardize packaging. Further, startup expenses are unreasonably high for many people who are trying to open cannabis businesses. Consider, California imposes a 15% excise tax on cannabis sales. Add that to local taxes, which can add roughly a 45% markup on legal cannabis products. So, it’s not strange that California’s illegal cannabis market is worth an estimated $3.7 billion, that’s more than four times the size of its legal market.
The black market solution
The best way to eliminate black market cannabis isn’t simple or clear, but it likely won’t help to unilaterally add more government regulation, enforcement, and oversight. These could actually hinder legal cannabis businesses even more, and further bolster the black market.
Comparatively speaking, the end of prohibition had a similar impact on alcohol, as moonshiners didn’t stop making illegal booze. But when it comes to how to beat the black market competitors, the cannabis industry can learn a lot from the alcohol industry post-prohibition.
Five things transformed alcohol’s black market into a legal one:
- Brand trust
- Quality and consistency
- Convenience and accessibility
- Innovative products
- Expanding the customer base
Price will never be the legal cannabis market’s greatest appeal. But it doesn’t have to be a negative point either. Consumers are often willing to pay more for products they trust, especially if the retail experience is attractive and not one they can find on the black market. That’s where brand identity plays an important role.
Take the prohibition example. After prohibition ended the most successful brands didn’t market to customers who drink moonshine. Instead, they focused on lifestyle marketing and luxury products, which helped to expand their consumer base by introducing alcohol to new audiences.
The value of branding as a customer engagement strategy
Branding was the lure alcohol companies used to get their products into new customers’ hands post-prohibition, and cannabis companies can easily absorb the lessons learned from those who’ve come before. Alcohol and cannabis are obviously different, but in this context they are both products, so there’s no need to reinvent the wheel when one can adapt it.
Once alcohol was legal, companies like Coors and Anheuser-Busch were able to become household brand names and dominate the market — whether someone liked to drink or not — because they tapped into three growth-related strategies to promote growth: marketing, integration, and innovation.
- Marketing: One of Anheuser-Busch’s most successful marketing campaigns ran in the late 19th century. It featured lithograph prints of Custer’s Last Fight, a painting depicting Lieutenant Colonel George Custer during the Battle of the Little Bighorn. The prints were posted in thousands of bars, and there were two results: the painting became one of the most popular paintings of its time, and the company sold a lot of beer.
- Integration: Anheuser-Busch began to refrigerate beer during transport. The company subsequently invested in rail car and railway companies, and has since built a global distribution network for its beer brands.
- Innovation: Coors was the first American brewer to package beer in aluminum cans, and Anheuser-Busch was the first American brewer to pasteurize beer to keep it fresh. They also used new, sterile filtration techniques, and these changes promoted significant brand and sales growth.
Marketing, integration, innovation, branding, these strategies can help cannabis companies to promote growth and realize their considerable potential. Further, cannabis companies can and should borrow from alcohol’s post-prohibition playbook, especially if they want to beat black market competitors.
Regulation is necessary, but cannabis needs more
Having said all of that, some regulation in the cannabis industry is necessary. Again, consider the end of alcohol prohibition. The federal government began to regulate the alcohol industry heavily thanks to the public safety hazards caused by black market alcohol consumption, and those regulations could be a worthy guide for the cannabis industry as well. For instance, no one tests the quality of cannabis products on the black market, and it’s unlikely there are best practice cultivation processes at play. But the solution to help consumers avoid potential danger isn’t rooted in government regulations.
The Drug Enforcement Agency, or DEA, and the Federal Bureau of Alcohol, Tobacco, and Firearms, or ATF, didn’t end the illegal distribution of moonshine during prohibition — they didn’t exist yet. The black market ultimately ended because the legal market created brands that customers could trust to deliver safe, consistent products and experiences. Cannabis must do the same, combining the collective powers of regulation and branding to win in the marketplace.
The ATF and other individual state bureaus, have created laws regulating the manufacture and sale of alcohol. This oversight led to a decrease in deaths and illnesses related to consumption of tainted alcohol, and the work of these government agencies can readily serve as a model to improve the safety and quality of legal cannabis. Regulatory oversight in the cannabis industry would also improve consumer awareness and promote cannabis education, quality and accuracy in cultivation, labeling, and other features specific to cannabis products.
Alcohol and cannabis are not the same, just as no two industries could ever be exactly the same. However, the two products have enough in common that cannabis companies can learn a thing or two from the alcohol industry, and then apply those hard earned lessons to succeed more quickly and less painfully. Replicating the post-prohibition alcohol industry’s success could help bring about an end to cannabis’ black market, and grow the industry’s reach and influence 100 fold — at minimum.