How marijuana entrepreneurs can outsmart black-market competitors

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(This is an abridged version of a story that appears in the March issue of Marijuana Business Magazine.)

Whether you’re operating in a medical or recreational marijuana market, illicit cannabis sales are an ever-present threat to the legal industry.

Marijuana entrepreneurs can’t control how the black market operates, but there are ways to encourage customers to buy from a licensed, regulated business instead.

Put simply, it requires going above and beyond what black-market operators can offer by way of service and products.

From rewards programs and corporate giving campaigns to education, there area many ways cannabis business owners can win – and keep – customers.

Loyalty programs

Many cannabis retailers have turned to rewards programs to build brand loyalty and incentivize customers to choose the regulated market over the black market.

Dockside Cannabis in Washington state uses a points-based loyalty program from Baker Technologies, a Denver-based marketing automation software company that serves MJ retailers.

The Seattle-based retailer’s customers are prompted to sign up on an iPad when they visit a Dockside location, and they immediately receive 50 points they can redeem the same day for $10 off an item of $30 or more.

After their first visit, customers receive 20 points every time they check in on the iPad in the dispensary and can redeem 100 points for 10% off a purchase or 250 points for 25% off a purchase.

Hawaii’s Aloha Green Apothecary also has various loyalty programs and perks for its return MMJ patients.

But the dispensary goes a step farther by offering a 10% discount on product to all patients who sign up to receive email newsletters and text message updates.

The updates ensure the dispensary can communicate regularly with its patients – and that has a positive impact on sales.

“Our sales numbers see a direct correlation with our communication,” said Helen Cho, director of integrated strategy for Aloha Green.

She said the dispensary has seen up to a 25% increase in sales on days when a communication is sent to patients via text message.

Giving back

California-based Bloom Farms tries to appeal to the “conscientious consumer” through corporate giving, founder and CEO Michael Ray said.

The company donates one meal to a local food bank for every one of its products sold.

Bloom Farms, which sells its products throughout California, recently donated its millionth meal, Ray said.

“We see Bloom Farms as equally a customer service company as a social good company and as a cannabis company,” he said.

“That’s something the black market can’t do.”

Originality pays

Some cannabis entrepreneurs believe they can beat illicit sellers to the punch by offering products the black market doesn’t or simply can’t offer – such as CBD-rich strains or extractions.

“When it comes to our brands and products, we have made it our mission to allow customers to customize their treatment,” said Dennis Hunter, co-founder and co-CEO of CannaCraft, a vertically integrated medical cannabis producer and distributor in Northern California.

CannaCraft produces:

  • AbsoluteXtracts, a brand that offers 19 strain-specific vape cartridges that allow consumers to find a strain with the taste and effects that meet their needs.
  • Care By Design, a CBD-rich line that’s available in five ratios of CBD to THC and in eight applications – vape cartridges, softgel capsules, concentrated oils, sublingual sprays and droppers, chocolates, dissolvable strips and pain creams. Such options allow MMJ patients to decide the level of treatment and mode of consumption that works best for them, Hunter said.

Bloom Farms, meanwhile, sells limited seasonal batches of Single Origin Reserve strains of cannabis that come from farms in different regions of California, as well as a CBD-rich, low-THC ACDC strain that’s grown in Calaveras County.

“Much like wine, certain varieties or strains of cannabis thrive naturally in some areas and climates, and growers in those regions master their art,” Ray said.

“We choose the best strains grown in specific regions.”

Cannabis know-how

It’s critical for customers to know that product purchased on the regulated market is tested for quality and safety.

So education is key to encouraging consumers to shun the black market.

Aloha Green and Steep Hill Labs, a Hawaii cannabis testing facility, co-sponsor events that educate consumers about testing for harmful materials – such as yeast, mold, heavy metals or pesticides – in the state’s regulated cannabis.

Consultants at Aloha Green’s dispensary also educate patients about the state’s rigorous testing processes, safety standards and the benefits of cannabis.

“That’s a level of transparency you don’t get from the black market,” Cho said.

Education also is a priority for CannaCraft’s extensive product lineup, said Hunter, the co-CEO.

“We have spent a great deal of time laying out the differences in strain effects, the medicinal benefits of individual terpenes and the benefits of the various applications,” he added.

Education around infused products and extractions is also critical, said Kevin Gallagher, the executive director of Colorado’s Cannabis Business Alliance, which creates print materials on safe consumption as well as edible and concentrate dosing for dispensaries to share with consumers.

Infused products and extractions amount to about half the regulated market’s sales in Colorado, he added.

Whether extracts are manufactured with butane or CO2, they’re safer when they’re produced for the regulated market by trained professionals, Gallagher said. And it’s important for that information to be shared with consumers.

Black-market producers don’t pay for testing, compliance or adequate technology to create safe extractions.

But in Colorado, Gallagher noted, solvent-based infused products are tested for potency and residual solvents, and water-based concentrates are tested for potency and microbials.

Those tests ensure that consistent, safe products make it to market, Gallagher said.

“With the regulated market, you get the assurance of a safe product,” he said.

“It goes through more testing than your grapes at the local grocery store.”