Beating the Black Market

Experts in states with MMJ and adult-use sales share strategies for wooing consumers away from illicit products

By Joseph Peña

Whether you’re operating in a newly medical or adult-use marijuana market, illicit cannabis sales are an ever-present threat to the legal industry.

While you can’t control how the black market operates, there are ways you can encourage consumers to instead buy from a licensed, regulated business. Put simply, it requires going above and beyond what black-market operators can offer by way of service and products.

From rewards programs and corporate giving campaigns, to education and advocacy, executives in states with regulated markets shared tips for how to win – and keep – consumers.

Reward Your Customers

Customer rewards programs are a way for cannabis retailers to build brand loyalty and incentivize consumers to choose the regulated market over the black market.

Washington state’s Dockside Cannabis uses Baker Technologies – a marketing automation software company serving MJ retailers – for its point-based loyalty program. Denver-based Baker’s software gives retailers the flexibility to adjust rewards and discounts on their own and has been a successful tool in engaging consumers, said Jackson Holder, the procurement manager for Dockside.

The Seattle-based retailer’s customers are prompted to sign up on an iPad when they visit a Dockside location, and they immediately receive 50 points they can redeem the same day for $10 off an item of $30 or more. After their first visit, customers receive 20 points every time they check in on the iPad in the dispensary and can redeem 100 points for 10% off a purchase or 250 points for 25% off a purchase.

Hawaii’s Aloha Green Apothecary has various loyalty programs and perks for its return medical marijuana patients. For every $50 a customer spends, the dispensary offers $5 coupons that can’t be redeemed for two weeks immediately following the sale, but then must be used during the two weeks after that.

Veterans, meanwhile, receive a 20% discount on all products, and all patients who sign up to receive email newsletters and text message updates receive a 10% discount on product. The latter ensures the dispensary can communicate regularly with its patientss – and that has a positive impact on sales.

“Our sales numbers see a direct correlation with our communication,” said Helen Cho, director of integrated strategy for Aloha Green. The dispensary has seen up to a 25% increase in sales on days when a communication is sent to patients via text message.

The Honolulu-based dispensary also has The Healing Club, a loyalty program for its highest-spending or most loyal patients. In Hawaii, patients are limited to purchasing 2 ounces of MMJ product every 15 days. Patients who purchase more than half their limit at Aloha Green qualify for The Healing Club and receive discounts on products, advance notice for new products and a call from an Aloha Green manager when their favorite strains or products are in stock.

That “high-touch,” targeted communication with consumers is something the black market doesn’t offer, Cho said.

Corporate giving is another way of appealing to the “conscientious consumer,” said Michael Ray, founder and CEO of Bloom Farms, a California cannabis business that donates one meal to a local food bank for every one of its products sold. The company – which sells its products throughout California – recently donated its millionth meal, a milestone in corporate giving for a regulated cannabis business.

“There’s not a lot we can do to combat the black market beyond offering amazing products and amazing customer service,” Ray said. “We see Bloom Farms as equally a customer service company as a social good company and as a cannabis company. That’s something the black market can’t do.”

Offer Novel Products

It’s important to curate a menu of products that the black market doesn’t or simply can’t offer. Among those products, CBD-rich strains or extractions are particularly popular with consumers.

“When it comes to our brands and products we have made it our mission to allow customers to customize their treatment,” said Dennis Hunter, co-founder and co-CEO of CannaCraft, a vertically integrated medical cannabis producer and distributor in Northern California.

CannaCraft’s AbsoluteXtracts brand, for example, offers 19 strain-specific vape cartridges that allow consumers to find a strain that offers the taste and effects that meet their needs. Care By Design, its CBD-rich line, is available in five ratios of CBD to THC and in eight applications – vape cartridges, softgel capsules, concentrated oils, sublingual sprays and droppers, chocolates, dissolvable strips and pain creams. That allows MMJ patients to decide the level of treatment and mode of consumption that works best for them, Hunter said.

Bloom Farms sells limited seasonal batches of Single Origin Reserve strains of cannabis that come from farms in different regions in California. One of its most popular small-batch strains is its CBD-rich, low-THC ACDC strain, which is grown in Calaveras County.

“Much like wine, certain varieties or strains of cannabis thrive naturally in some areas and climates, and growers in those regions master their art,” said Bloom Farms’ Ray. “We choose the best strains grown in specific regions.”

Aloha Green has an extensive menu of CBD products. The dispensary carries more than 100 CBD products from 15 brand names and oil infusers so consumers can make their own edibles, which can’t be sold in dispensaries under Hawaii’s current regulations. When consumers learn more about CBD and how effective it can be, they consider legal THC products, too, Cho said.

“In the black market, you get what you’re given – you can’t question it and you can’t expect consistency,” she added. “When we tell you we’re selling our high-CBD Pennywise strain, that’s the strain you know you’re getting, and it’s backed with testing that proves its cannabinoid and terpene profiles, and you know it doesn’t have harmful elements in it.”

In terms of unique product offerings, Dockside’s annual themed ADVENTure Calendars have been popular with customers, Holder said. The calendars are curated collections of products from different producers that Dockside partners with.

Holder said the products are “thoughtfully assembled” so that each day builds on days that came before.

For example, an early day in Dockside’s “Road Trip” calendar includes a battery for cartridges with an attachment that can accommodate loose concentrate as well. By the end of the “Road Trip,” the calendar reveals both a custom quarter-gram cartridge of high-terpene oil from Puffin Farms as well as a half-gram of Dope Cup Award-winning BHO from Solstice.

The idea is that even if you haven’t previously used a concentrate, the calendar ultimately provides you with everything you need to try them out. Designed to be a satisfying progression on its own, the thoughtful curation goes a step further, Holder said.

“We try to imagine not only what gets a calendar out the door, but what happens in the life of our customer afterward,” he said. “By selecting a dab that is high enough in THC to be enjoyable as a recreational experience – but even more rich in CBD – we can help ensure that the first dab someone takes will be deeply pleasant but not overwhelmingly intense. Conversely, Hindu Kush, the strain selected for the cartridge, provides a very heavy, comforting effect so that the experience is satisfying with a relatively low number of puffs.

“At the end of the day, it’s the experience and the memories a customer have that really build a bond with your brand,” Holder said. “So, don’t just consider how your deals look in the store. Consider how they will feel when they’re actually being enjoyed.”

Educate, Educate, Educate

Education is another tool for encouraging consumers to choose the regulated market. It’s critical for consumers to know that product purchased on the regulated market is tested for quality and safety.

Aloha Green and Steep Hill Labs, a Hawaii cannabis testing facility, sponsor events together that educate consumers about cannabinoid testing and testing for harmful materials – such as yeast, mold, heavy metals or pesticides – in the state’s regulated cannabis.

Patient consultants at Aloha Green’s dispensary also educate patients about the state’s rigorous testing processes, safety standards and the benefits of cannabis.

“That’s a level of transparency you don’t get from the black market,” Cho said.

Education also is a priority for CannaCraft’s extensive product lineup, said Hunter, the co-CEO.

“Our strategy for competing with the black market is similar to what we’ve done to compete with inferior products in the existing market place,” Hunter added. “We have spent a great deal of time laying out the differences in strain effects, the medicinal benefits of individual terpenes and the benefits of the various applications.”

CannaCraft also educates consumers on the pesticides or additives that may contaminate black-market product.

“Once the customer knows why a product is being offered for a cheaper price, a lot of the time the inferior product becomes much less appealing and the customer is willing to pay more for a safe and effective product,” Hunter said.

Education around infused products and extractions is also critical, particularly because those products amount to about half the regulated market’s sales in Colorado, said Kevin Gallagher, the executive director of Colorado’s Cannabis Business Alliance, which creates print materials on safe consumption as well as edible and concentrate dosing for dispensaries to share with consumers.

Whether extracts are manufactured with butane or CO2, they’re safer when they’re produced for the regulated market by trained professionals, Gallagher said – and it’s important for that information to be shared with consumers.

Black-market producers don’t pay for testing, compliance or adequate technology to create safe extractions. And butane-based extractions that aren’t in properly ventilated spaces compromise the product and create a safety hazard, he said.

In Colorado, solvent-based infused products are tested for potency and residual solvents, and water-based concentrates are tested for potency and microbials. Those tests ensure consistent, safe products make it to market, Gallagher said.

“With the regulated market, you get the assurance of a safe product,” he said. “It goes through more testing than your grapes at the local grocery store.”