Q: With headlines about retailers detailing their general demise, what are the market prospects for cannabis outlets and dispensaries?
By New Frontier Data
A: While it is true that prospects seem bleak for the local mall and businesses from Forever 21 to J.C. Penney (NYSE: JCP) and J. Crew, retail is not dead. According to the most recently available figures from the U.S. Census Bureau, estimates of U.S. retail and food services sales for August 2019 (adjusted for seasonal variation and holiday and trading-day differences, but not price changes) increased 0.4% from the previous month, and 4.1% year-over-year above August 2018. That said, non-store retail sales were up 16.0% from August 2018.
So, what are the prospects for retailers in the legal cannabis space? Pretty solid, it appears, for several reasons particular to cannabis.
As part of New Frontier Data's upcoming Cannabis Consumer Insight Series of white papers, "U.S. Consumer Participation in the Retail Environment" examines consumer preferences and behaviors. In its findings, retail looms large for legal cannabis.
New Frontier Data's research finds that more than 1/2 of consumers (54%) in adult-use markets primarily get their cannabis products from the retail sector. In medical markets, that figure is about 1/5 of consumers (21%). Those figures suggest that even in state-legal, established markets, there remains a significant opportunity for growth within the retail sector.
Among cannabis consumers overall, customer fidelity to brick-and-mortar stores is extremely high – more than 80% of all customers who have ever purchased cannabis products from a brick-and-mortar dispensary identify it as their primary source of cannabis, and that number increases to nearly 90% among adult-use consumers specifically. Brick-and-mortar storefronts dominate the retail channels, with 70% of retail consumers identifying physical stores/dispensaries as their primary cannabis source.
Thus, the evidence suggests that "there's opportunity for expansion in the current market, particularly through conversion of cannabis consumers who are still using informal sources," notes Industry Analyst Josh Adams of New Frontier Data. "To do this, retailers should build from their strengths in offering safe, high-quality products. It is also important to have an engaged and educated staff to create a welcoming experience while providing useful guidance and insights for their clientele."
Among other takeaways detailed:
Dispensaries should focus their resources on bringing new consumers through the door.
While it may seem an obvious objective, attracting as many potential customers as possible is particularly vital to brick-and-mortar stores, and even more important to dispensaries with few or no competitors nearby. Overwhelmingly, consumers are likely to become a repeat customer of the first dispensary they visit, and locations without competitors geographically nearby can enjoy a de facto captured demographic.
Being able to smell, visually inspect, and otherwise appraise quality cannabis products are great value-adds for a brick-and-mortar dispensary.
Where local regulations allow, dispensary operators are well-advised to create ample opportunities for sensory interaction. Running a conveniently located, clean location where customers can interact with knowledgeable and personable budtenders to introduce products will promote comfort and familiarity – and sales.
Consumers appreciate a broad selection.
Brick-and-mortar operations share a particular advantage in being able to introduce new and uniquely enjoyable experiences – for which customers will pay a premium to access. Not only do customers seek confidence in the tried-and-true qualities of regulated, tested, and known products, but a relationship with a familiar budtender allows them to introduce new products which a customer otherwise may be less likely to discover (and purchase).
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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