Cannabis Weekly Round-Up: Price Trumps Branding, Consumer Report Shows

Branding was in focus in the cannabis space this week, with a new report showing that work from major players in the industry is perhaps not having the desired effect.

Meanwhile, the question of when institutional investors may enter the marijuana market was in the spotlight in an online discussion.

Read on for a closer look at some of the biggest cannabis news over the last five days.

Cannabis branding faces lackluster consumer response

A new report from Brightfield Group shows that cannabis companies’ branding efforts have been less successful than they might have hoped. The market intelligence firm surveyed 3,000 Canadian cannabis users in the first quarter of this year, and found that no brand has more than 41 percent recognition; in fact, most have only between 1 and 15 percent recognition.

According to Brightfield, consumers are more likely to buy based on price and not due to brand name, packaging or other factors like word-of-mouth reviews. 

Click here to skip to the Investing News Network’s overview of the Brightfield report.

Tweed and Aurora (Drift) are the brands with the highest recognition at 41 and 34 percent, respectively. Tweed is owned by Canopy Growth (TSX:WEED,NYSE:CGC) and Aurora (Drift) is owned by Aurora Cannabis (TSX:ACB,NYSE:ACB). In third place at 23 percent is Tokyo Smoke, another Canopy product.

Part of the problem, according to Brightfield, is that Canada’s adult-use market is relatively new, and Cannabis 2.0 products are even newer. As a result, consumers have been inundated with choices, and even when they see a brand they recognize, they may not have a connection to that brand.

“When product options increase and brand awareness remains low, consumers get confused. They can get decision fatigue when they do not see a product that aligns with their complex purchasing decisions,” the firm explains in the document. “This has led to a significant gap between consumers aware of Canadian brands and those that report purchasing them.”

Interestingly, Brightfield notes that the brand recognition metric doesn’t tell the whole story. When it comes to converting awareness to purchases, the leading brands are Edison, Solei and Good Supply. Edison is owned by Organigram Holdings (TSX:OGI,NASDAQ:OGI), while both Solei and Good Supply are Aphria (TSX:APHA,NASDAQ:APHA) products.

“This is a strong indicator that these brands may be able to make gains and attain market leadership in the mid-term,” the report states. Even so, the overall conclusion from Brightfield is that at the moment “it’s anyone’s game” — the firm believes that the market is ready to be disrupted and emphasizes that at least right now, company size bears no relation to consumer awareness, purchasing or satisfaction.

Are institutional investors ever coming to cannabis?

The cannabis industry had a difficult time in 2019 as the industry came down from its previous highs, and 2020 has been marked with its own challenges, largely related to the coronavirus.

Access to capital has been a major theme in the space during this time, with one key question being when more institutional money will enter the marijuana space. Speaking in a panel as part of the recent online Prohibition Partners LIVE event, analysts from Jefferies, Credit Suisse (NYSE:CS) and BMO Capital Markets suggested that it’s still too early.

Owen Bennett of Jefferies, for example, said that right now institutional involvement is limited and is coming mainly from hedge funds. In his opinion, the industry’s early reputation for easy money has damaged interest from this class of investor.

“Because money was easy there were a lot of companies in existence, and that still are, that shouldn’t even really be around,” Bennett told the web-based audience. “Those sorts of characteristics make it very difficult for a long-only institution to invest.”

The panelists also brought up the fact that cannabis is still federally illegal in the US, noting that this should not be forgotten. “Unless it’s federally legal, a lot of these institutions can’t invest,” Bennett said.

Cannabis company news

Company news in the cannabis space this week was a mixed bag, from quarterly results to job cuts.

• Aurora Cannabisannounced the retirement of Terry Booth from its board of directors. Booth co-founded the company with Steve Dobler, and was its CEO from December 2014 to February of this year. Dobler also retired from his positions at the company as of the end of June.

• 1933 Industries (CSE:TGIF,OTCQX:TGIFF) released its latest quarterly results, reporting revenue of C$2.6 million and an adjusted EBITDA loss of C$3 million. The company’s revenue was down 17 percent from the previous quarter, but its adjusted EBITDA loss improved by 45 percent. 1933 Industries cited COVID-19-related shutdowns in Nevada, and particularly the drop in tourism in Las Vegas, as major factors in its revenue decline.

• Cresco Labs (CSE:CL,OTCQX:CRLBF) closed a sale-and-leaseback agreement with Innovative Industrial Properties for its facility in Fall River, Massachusetts. The deal is Cresco’s fifth with Innovative Industrial Properties, and total consideration was about $29 million, including $21 million in funding for tenant improvements.

• In a corporate update, Organigram said it is laying off around 25 percent of its workforce, or about 220 employees. CEO Greg Engel said that the company wants to make sure it is appropriately sized for the current market conditions; Organigram also said that for the foreseeable future it will produce less cannabis than targeted at its facility in Moncton, New Brunswick.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.