Cannabis company Canopy Growth (CGC -12.07%) has brought some big-name star power to its brand over the years, including Snoop Dogg, Martha Stewart, Drake, and Seth Rogen. But one of the challenges in the cannabis industry, especially in Canada where regulations are very rigid, is that Canopy Growth can't easily use its size, resources, or branding to its advantage. Spending a lot more on marketing may not pay off in the industry, and that's no more evident than in the following two numbers.
Thirty-five percent of cannabis consumers in Canada weren't sure what brand of product they purchased
Research company Brightfield Group has been following the industry's growth, and it found that more than one-third of Canadian consumers weren't even aware which brand of cannabis they had purchased. From that, we can derive that the brand didn't matter to at least one-third of customers. For investors who have seen the packaging of Canadian cannabis products, it's easy to understand why that's the case.
Unlike U.S. cannabis products that often have bright colors on them and attractive pictures, Canadian cannabis products are quite the opposite: plain white packaging with warning stickers taking up a lot of space and little to no room for a company to differentiate its products from others. It would take effort for a customer to ensure they're buying from a specific cannabis brand.
Promotion of cannabis products is virtually nonexistent in Canada as well. That makes building any sort of brand loyalty in Canada difficult, even for large, well-known companies like Canopy Growth. While this arrangement may help level the playing field for smaller companies, it inhibits the potential growth for pot stocks because they can't use all of their available resources to help grow and market their brands the way other industries are able to. Brightfield did not release similar data on the U.S. market, and although advertising is also restrictive in that market, there's at least some room for companies to advertise through their products' appearance.
Thirty-seven percent of U.S. consumers are more likely to purchase a cannabis product if it has a celebrity endorsement
Brightfield Group also found that a celebrity endorsement positively affected an American consumer's likelihood of buying a cannabis product -- for 37% of those sampled. However, for 34% of customers, it made no difference at all. Brightfield also noted in its research that it found "celebrity testimonials to be among the least significant influences in driving them toward new cannabis products." It did not specify which other factors were important to consumers, but given the competition with the black market, it's likely that price plays more of a role for consumers when deciding which cannabis product to buy.
Key takeaways for investors
For investors, what's notable here is that there may not be a payoff for companies to invest heavily in marketing and in getting celebrities on board. While these things may not hurt, the data suggest that people aren't paying attention to brands and that even when they are, that likely doesn't affect their decision on which product to buy. Especially at a time when cash is more scarce than ever in the industry, cannabis companies may be better off cutting costs than being aggressive in their marketing efforts.
Canopy Growth is one of the larger, more notable marijuana brands in North America, and it has not been immune to the cannabis space's struggles over the past year:
Canopy hasn't fared much better than many of its peers, and the Horizons Marijuana Life Sciences ETF is down by a similar amount as well. The important takeaway for investors is that profitability and sustainability should be their top priority when investing in a pot stock. Being the biggest name -- or being the most popular -- isn't going to make an investment any more safe.