Marijuana Business Magazine September 2018

INFUSED PRODUCERS HAVE UNIQUE OPPORTUNITY TO LEVERAGE BRANDS marketing and other operating expenses to lower their tax liabilities. “Price wars are not going to lead to long-term success, especially when tax season comes around,” Nelson said. “We ran models with CPAs and looked at different pricing structures. With some, it looked like we’d make a profit, but when it came down to tax write-offs, we would have ended up owing more than we would have made off the sale. “For us, it’s better to take a conserva- tive approach,” she said. “Price adjust- ments aren’t something we do on a whim. We do our research and see whether what we do is sustainable long term.” Segment Product Offerings Segmenting competitive products by price is a better long-term strategy than simply lowering wholesale prices, said A strong brand – one with wide-ranging name rec- ognition, a large market share and a reputation for quality and consistency – better positions companies to hold steady on wholesale prices. “The absolute biggest impact on wholesale price is the strength of your brand,” said Chris Driessen, president of Organa Brands U.S., a Denver extraction and manu- facturing company with operations in 12 states, Canada and Jamaica. Infused product manufacturers are uniquely positioned to differentiate their products, with varied tastes and textures, ingredients, packaging and visual branding, said Nancy Whiteman, CEO of Wana Brands, an edibles maker in Boulder, Colorado, that sells products in Arizona, Colorado, Nevada and Oregon and has plans to expand to the Florida and Illinois markets this fall. Outside of proprietary genetics, there is relatively little that distinguishes one cultivator’s flower from another, according to Whiteman. “They can have different levels of quality and potency, but at the end of the day, Blue Dream is Blue Dream, and it’s hard to build a brand around that,” she said. “Infused products companies have the opportunity to build a brand and differentiate themselves – and there- fore hold their prices a bit more than companies that just sell flower, for example,” Whiteman noted. “While we’re sensitive to changes in markets, we’re not as sensitive as flower.” Driessen agreed, pointing out: You can pay $20 for a pair of tennis shoes at Walmart, or you can pay $180 for a pair of Air Jordans. The same is true for cannabis. In Colorado last year, there were 103 different brands of vape pens, he said, citing data from BDS Analytics. In theory, all vape pen producers use extracted oil and lithium ion batteries, and consumers all inhale the oil – so why the difference in price? The key is your brand. If you can deliver a consistent, high-quality product and experience, consumers are willing to pay premium prices for your product. Roughly 55 vape pen brands are active in Colorado’s market, Driessen said, again citing data from BDS Analytics, and the top three brands account for 50% of the market share. That means 52 other brands are fighting for the other half of the market. “It’s better to make something amazing and build a brand that people trust and will be loyal to,” he said. “That’s the biggest driver for your company: how well you’ve built your brand. The value of your brand shouldn’t be overlooked when you consider your wholesale costs.” – Joey Peña Evergreen Organix, producer of Canna Cubes lozenges, consults with its accountants to know what profit margins it needs to maintain when setting wholesale prices. Organa Brands U.S., producer of Craft Reserve vape pens, at one point employed two workers to cold-call dispensaries and report back with pricing data. Photos courtesy of Evergreen Organix, left, and Organa Brands U.S., right 74 • Marijuana Business Magazine • September 2018