It may seem years away, but it’s better to be prepared for international distribution than caught napping.
August 29, 2018 5 min read
Opinions expressed by Green Entrepreneur contributors are their own.
The cannabis industry is quickly starting to grow beyond its infancy phase. Using strategic partnerships and licensing opportunities, large enterprise businesses are crossing state lines.
But what’s coming next will flip the current cannabis industry landscape upside down. With some of the major names creating a presence in key markets like Canada, Jamaica, Peru, and Colombia, it’s become evident that the time is now to prepare for trade across international borders.
Canada’s first out of the gate
So far only a handful of companies are performing wholesale transactions internationally and each of them is based in Canada. This is largely due to the country’s status as the first G7 country to fully legalize adult-use cannabis, which enables the production capabilities and legal frameworks to facilitate international transactions.
Related: Canada Legalizes Cannabis
Because of its first-mover’s advantage, there has been a lot of talk about Canada’s potential to be a production giant for international cannabis trade. But some experts are skeptical about Canada’s ability to meet global demand as the industry becomes more widely accepted.
Although it will likely be another few years before U.S. companies catch up with their first international wholesale transaction takes place with a U.S. business, you still have to be ready for the inevitability long before it arrives. Companies like Khiron, Knox, and GTI already have the funding, the geographic and regional infrastructure, and the momentum they need to make it happen, so the differentiator will come down to strategy and execution.
Are you ready for international distribution?
Execution means understanding what it’s going to take from an infrastructure and process approach to essentially have the capability to “flip a switch” on the day the U.S. industry gets the green light. If operators wait for that day to begin getting their infrastructure in place, it’ll already be too late. How quickly can businesses obtain the proper export and import permits for both the producer and the retail distributors? Do they have the logistics in place to physically transport the product in a way that’s cost-efficient and sustainable?
Most importantly, where do producers establish their facilities internationally that will yield the most ROI? Costs of doing business quickly come to light as businesses identify preferable market conditions to set up shop.
Another critical factor for global expansion involves consumer perceptions and brand loyalty.
As an example, Jamaica is almost always in the conversation for international trade because of the notoriety and allure of “Jamaican Ganja”. The common perception is that any producer there is a sure success, and they could be right considering how loyal consumers can be to brands and regions (think wine produced in France, Spain, Chile and California).
However, superior products have come and gone in the marketplace, failing without the proper execution and brand marketing agency. The biggest advantage to international producers will be figuring out how to convince consumers that they are getting a comparable product in terms of quality, at the lowest cost possible.
International trade vs. local economy
The heaviest impact of international distribution will hit at the local level for United States licensees. Right now, retailers are legally bound to obtain all of their product not only from within the U.S. but within their respective state. Even opening up trade within the U.S. will drive a significant shift in the industry landscape, with retailers naturally looking for the most cost-effective provider.
And once cannabis trade opens up internationally, a dispensary in Colorado will likely be able to get product that’s comparable in overall quality from somewhere like Jamaica or Colombia for a lower cost than it could get if it was produced literally blocks away. Inevitably, the competition for cannabis production is going to increase significantly, with U.S. producers wisely putting their fate in the hands of a reputable brand name that consumers prefer, or better yet, becoming a part of that brand by angling for a strategic partnership.
Production origin, branding and overall quality aside, consumers have a tendency to prefer cost-effective products in commodity-style markets such as cannabis. Not everyone agrees that cannabis operates as a commodity, but as international trade grows, it will inevitably become more commoditized due to standardization that creates consistency in product and thus, reliable expectations for consumers and retail buyers.
One of the most frustrating experiences for a cannabis consumer is inconsistency in quality when you’re a repeat customer to a given retailer. You don’t go to McDonald’s because you want a 5-star meal. You go there because you know exactly what you’re going to get and exactly what it’s going to cost, even if you visit an unfamiliar location. If a cannabis consumer can count on consistent quality for a reasonable price, they’re more likely to become loyal to that product.
Keeping your corner of the legal market is important, and maintaining local compliance will always be key, but global planning and branding are the new watchwords. It’s time to get moving.