A Masterclass In: What Not To Do

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. An 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 an 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.

The Equation for Legal 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.

The Equation for Illegal Marijuana Buyers

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 is 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?

And A Quick Thought: What You’re Really Competing Against

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.