A Mini Marijuana Masterclass
7 years ago California legalised the possession, cultivation and distribution of Marijuana. 2 years ago NYC did the same.
Last year legal Marijuana in California stacked up $5.4B in sales. A impressive figure indeed – that is until you look at illegal Marijuana sales over the same period: $8.1B. The picture is even worse when you account for the significant price differential between the two – putting the likely sales volume for illegal Marijuana at 3x that of its legal counterpart.
The story is even worse over in NYC – with a illegal to legal dispensary ratio of 280:1.
What’s interesting here is that this is not the case in many of the other US states that have legalised the drug –
so what happened?
In short – there’s a clear imbalance in the value equation. The Value Equation is simple – it has just two parts:
Reward (WIIFM – What’s In It For Me) and Pain (WAFM – What’s Awful For Me). The two coalesce to create a decision.
So let’s apply this ever so quickly to the situation for Californian Marijuana buyers.
Rewards (WIIFM): No fear of legal penalty Confidence in the safety and quality of the product Pain (WAFM): Sparing, inconvenient locations mean increased travel to purchase The product is double the cost of its illegal version due to excessive taxation This creates a genuine fear of looking foolish for being ripped off Switching costs – the pain of developing a new habit and changing away from existing and known suppliers. Decision: Probably not worth it. Rewards (WIIFM): Cheap, highly accessible marijuana Known suppliers with existing relationships Convenient locations Pain (WAFM): Potential quality concerns & fluctuations (which are minimised through using existing/known distributors). Fear of legal action (however, this again minimal based on wide-spread use and lack of related law-enforcement) Decision: Much easier.
The thing to remember here is that illegal marijuana is the incumbent market leader in California & NYC. …and you don’t dethrone the market leader with a mildly better product at a significantly higher price.
Question: What does the value equation for your users look like in areas of poor uptake or low compliance? – And how can you rebalance it in your favour?
Staying on the marijuana situation for just a moment longer – a couple of months ago marijuana supplier Curaleaf pulled out of the Californian market. Matt Darin, their chief executive was very clear about who they lost against:
“Our No. 1 competitor is the illicit market.”
The phrase had interesting parallels to an exercise I ran with a client today – we were exploring which of their functions they had an internal monopoly on (i.e.
staff must use us), which they needed to compete on ( staff have viable internal alternatives) and which functions they needed to revisit the inherent value for ( staff don’t have to do it at all).
The key insight from the exercise: their main internal competitor were those humble old copies of Microsoft Excel, sitting on everyone’s desktops.
Question: What are the true alternatives to your new solution? And how do you compare?
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See you all next week.
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