Will ‘Big Marijuana’ Be Fact or Fiction?

Source: http://www.flickr.com/photos/prayingmantisswag/

Source: http://www.flickr.com/photos/prayingmantisswag/

In 2009, Jamen Shively apparently grew bored of his life as a corporate strategy manager at Microsoft. Presumably underwhelmed by the prospects of a long career at the top of America’s highly competitive and rapidly evolving tech industry — really, who wouldn’t be? — Shively quit his job and began focusing his energy on an industry with just a little bit more character to it. Something with fewer established players, more room to grow, and the opportunity to earn enormous returns at the cost of high risk: Marijuana, medical or otherwise.

Shively founded a company called Diego Pellicer, named after a famous hemp grower from the island of Cebu in the Philippines, and set about trying to become “the first retail brand in the United States focused exclusively on legal, premium marijuana for pleasure and creative pursuits.” The company suggests that people think of it “as the ‘Davidoff of marijuana,’” Davidoff being a Swiss luxury tobacco company.

Shively’s ambition captures much of the buzz that surrounds the marijuana industry right now. On Diego Pellicer’s site, he has optimistically projected that the global marijuana industry could grow as large as $500 billion and that he “would be happy if we get 40 percent of it.”

The actual size and rate of growth of the marijuana industry — medical, recreational, or both — is hard to determine, but most estimates serve as a carrot on a stick for businesses and investors interested in the space. Tens if not hundreds of billions of dollars appear to be up for grabs as the gray market moves out of the shadows and into the light of the law.

One of the big questions as this process occurs is who will dominate the industry. Will it be large, national and international brands like Diego Pellicer? Or will marijuana effectively remain a cottage industry for the foreseeable future?

The question appears to have an obvious near-term answer: Given the dubious legal environment, marijuana companies — those that actually deal with cannabis itself — will have to remain small and intrastate. The infrastructure for a marijuana business within the states that have legalized it (Washington and Colorado) is sketchy enough as it is, and the feds can be expected to promptly shut down any interstate marijuana business.

In an April panel discussion on marijuana investing, Nima Samadi, a senior analyst at IBISWorld, said: “The medical marijuana industry has grown at a rate of 13.8 percent per year over the last five years to about $1.7 billion in 2013. Over the next five years, we’re going to see even stronger growth. It’s expected to grow 24.3 percent per year and approach about $5 billion [by 2018]. The majority of that revenue growth has come from the nonprofit medical marijuana collectives.”

It’s light, but Samadi touches on a point that is critically important to the marijuana industry: There is a lot of chatter suggesting that the most successful brands will be small and homegrown. Brand loyalty, strength, and value will emerge from the social networks and customer relationships that exist within the market as it exists now. These networks are as much communities as anything, and there has been some friction between this kind of localvore approach to marijuana and more broad-based approaches like Shively’s.

This is not to say that one day there won’t be a Diego Pellicer smoke lounge in major cities around the world, but the idea that the same style of branding that has worked for tobacco companies will work for marijuana users is suspect.

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