Challenges Faced by Canadian Cannabis Brands: Navigating Strict Marketing Regulations

Introduction

The Canadian cannabis market, a vibrant and rapidly evolving industry, has witnessed significant growth and transformation since its legalization. In 2022, the Canadian recreational cannabis sector soared to an all-time high, with a staggering market value of $4.6 billion, marking a 13% year-over-year growth since legalization​​. This growth trajectory is not just a fleeting trend; projections indicate that the market is set to expand by 15.40% from 2023 to 2028, potentially reaching a market volume of US$7.98 billion by 2028​​.

However, this journey hasn't been without its challenges. The period between 2020 and 2021 saw an extraordinary surge in sales, growing by 88.3%. Yet, as the market began stabilizing post-pandemic, the growth rate normalized to 11.8% between 2022 and 2023​​. This pattern of fluctuation reflects the dynamic nature of the industry, influenced by various factors including the global pandemic, which created a temporary spike in demand.

At High Flyer Media, we've keenly observed these shifts and understand the unique challenges they present to Canadian cannabis brands. The strict marketing regulations in Canada pose a significant hurdle, requiring brands to navigate a complex landscape to connect with their audience. These regulations not only impact the way brands operate but also shape the very essence of Canadian Cannabis Culture. As we delve into this topic, we'll explore how Canadian cannabis brands are creatively overcoming these challenges to maintain their connection with consumers and continue thriving in a tightly regulated environment.

Understanding Canadian Cannabis Regulations

Navigating the complex landscape of Canadian cannabis regulations is crucial for brands aiming to effectively and legally engage with their audience. The Cannabis Act in Canada primarily aims to protect public health and safety, notably focusing on preventing inducements to cannabis use, especially among young persons. This overarching goal shapes the regulatory framework within which cannabis brands must operate​​.

1. General Prohibitions and Permissions

   • The Cannabis Act generally prohibits cannabis promotion, except under specific conditions aimed at helping adult consumers make informed decisions. This includes permitted informational promotion like price and availability, and brand-preference promotion, but with strict compliance to ensure that young persons cannot access these promotions​​.

2. Target Audience Restrictions

   • A key focus is on preventing cannabis promotion from appealing to young persons. This includes any promotion, packaging, or labeling that could be attractive to youth, as well as the sale of cannabis in appealing packages or with certain sensory attributes​​.

3. Celebrity Endorsements and Misleading Promotions

   • Associations between cannabis products or brands and celebrities are generally non-compliant, as they could appeal to young persons or appear as endorsements. Additionally, promotions cannot be false, misleading, or deceptive, including any that create incorrect impressions about the product's characteristics, value, or health risks​​​​.

4. Media and Sponsorship Regulations

   • Cannabis promotion using foreign media is restricted, including publications and broadcasts originating outside Canada. Moreover, while sponsorship itself isn't prohibited, the use of brand elements or names of persons authorized to conduct cannabis activities in sponsorships is not allowed​​​​.

5. Specific Product Restrictions

   • Regulations also include prohibitions on self-service displays or dispensing devices, and promotions suggesting health or cosmetic benefits, alcoholic associations, or certain flavors in cannabis extracts. For edible cannabis, there are specific rules about promoting energy values, nutrients, and dietary requirements​​.

6. Promotion at Point of Sale and Brand Elements

   • At the point of sale, promotions can only indicate the availability and price of cannabis. The displaying of a brand element on items not related to cannabis is allowed, but with limitations to ensure it doesn't appeal to young persons or associate with certain lifestyles​​​​.

At High Flyer Media, we recognize that these regulations, while challenging, are pivotal in maintaining a responsible and ethical cannabis market in Canada. Brands must creatively adapt their marketing strategies within these constraints, underscoring the importance of understanding and respecting these regulations to successfully engage with the Canadian Cannabis Culture.

Challenges for Cannabis Brands in Canada

The Canadian cannabis industry, despite its promising growth, has encountered significant hurdles in 2023. These challenges range from financial strains to regulatory complexities, significantly impacting the sector.

1. Economic and Operational Struggles

   • Major players like Canopy Growth have faced operational downsizing, with closures and layoffs affecting hundreds of workers. Other large licensed producers (LPs) such as Hexo Corp have reported serious declines in revenue. This economic pressure extends to smaller businesses, with over 80% at risk of insolvency due to the current excise tax regimen and high operational costs​​.

2. Rising Insolvency Rates

   • The sector has seen a dramatic increase in insolvency filings. In 2019, there were five reported insolvencies in the cannabis sector, which escalated to 28 in 2022. This trend indicates a growing financial distress within the industry​​.

3. Financing Challenges

   • Access to equity and debt financing remains a significant hurdle. Some LPs are forced to consider high-interest loans or restructuring. Despite potential relief measures from the government, such as excise tax relief or regulatory burden reduction, many companies might find these interventions too late​​.

4. License Revocations and Market Saturation

   • Since legalization in late 2018, there have been numerous license revocations and expirations, totalling 129 by the end of 2022. This, combined with an oversaturated retail market in areas like Ontario, has led to tight gross margins across the supply chain​​.

5. THC Testing and Market Distortions

   • Issues with THC level testing and market demands for higher THC percentages create additional challenges. The lack of transparency and inflated THC levels distort market expectations and put smaller producers at risk​​.

6. Retail Market Pressures

   • The retail segment of the cannabis market is also struggling with saturation in certain areas, leading to challenging gross margins. Even with proposed relief measures, such as fixed markup pricing models, the financial strain remains significant​​.

At High Flyer Media, we observe these challenges not just as obstacles but as opportunities for innovation and resilience. By understanding these issues, Canadian cannabis brands can strategize more effectively to navigate this complex landscape, ultimately contributing to a more robust and sustainable industry.

The Impact on Cannabis Culture

The Canadian cannabis culture has undergone significant changes since the legalization of cannabis for non-medical purposes in 2018. These shifts have been influenced by various factors, including regulatory changes and market dynamics.

1. Stabilization of Cannabis Use

   • By 2021, the rates of past-year cannabis use across Canada had stabilized, although regional differences persisted. Provinces like British Columbia, Alberta, Ontario, Nova Scotia, and Prince Edward Island reported higher usage rates compared to Quebec. The COVID-19 pandemic might have influenced this, with some studies suggesting an increase in cannabis consumption related to altered routines and stress​​.

2. Age Demographics of Cannabis Use

   • Cannabis use is most prevalent among 18- to 24-year-olds, with no significant increase among 15- to 17-year-olds post-legalization. However, there has been a noticeable rise in cannabis use across other age groups from 2011 to 2021​​.

3. Increase in Legal Cannabis Access

   • The number of legal cannabis stores surged from fewer than 200 at the end of 2018 to nearly eightfold by the end of 2020, and then doubled again by the second quarter of 2022. This expansion reflects the growing accessibility of legal cannabis​​.

4. Economic Contribution of the Cannabis Sector

   • The cannabis sector, which was indirectly represented in the Canadian economy before legalization, began to be directly measured post-legalization. By the end of 2022, the sector accounted for about 0.5% of the total Canadian economy​​.

5. Cannabis Sales Compared to Alcohol

   • The retail sales of non-medical cannabis have become a significant portion of the retail sales of alcohol. In 2022, the annual sales of cannabis for non-medical purposes were $4.5 billion, compared to the annual average of $26 billion from the sale of alcoholic beverages​​.

6. Shifts in Cannabis Sourcing

   • There has been a notable shift towards legal sources for cannabis. In 2020, 68% of cannabis users reported obtaining cannabis from a legal source, a significant increase from 23% in 2018 and 47% in 2019. Additionally, the cultivation of cannabis, either by users themselves or others, has also increased​​.

7. Value of Cannabis Consumption from Legal Sources

   • By the first half of 2023, more than 70% of the total value of cannabis consumed in Canada was from a legal (licensed medical and non-medical) source. This marked a considerable increase from 22% in the fourth quarter of 2018, shortly after legalization began​​.

At High Flyer Media, we recognize these trends as pivotal in shaping the current Canadian Cannabis Culture. The increased accessibility of legal cannabis, coupled with the growing economic contribution of the sector, reflects a maturing market. These changes, however, come with their own set of challenges and opportunities, particularly in terms of how brands engage with an evolving consumer base within the confines of strict regulations. Understanding these cultural shifts is essential for effectively connecting with and serving the Canadian cannabis consumer.

Innovative Marketing Strategies under Regulations

Despite stringent regulations, Canadian cannabis brands are adopting innovative marketing strategies to effectively engage with their audience.

1. Emphasis on Brand Development

   • There's a growing focus on establishing strong brands that resonate with consumers. While initial consumer behaviour was less brand-oriented, the trend is shifting towards brand loyalty and recognition. This change is partly due to reduced stigma around cannabis, leading to more informed consumers seeking reliable brands​​.

2. Budtender Education and Engagement

   • Brands are increasingly focusing on educating and incentivizing budtenders, the frontline staff in dispensaries. By investing in learning platforms and training, companies are enabling budtenders to effectively communicate brand values and product benefits to consumers​​.

3. Out-of-Home Advertising

   • Out-of-home advertising, including billboards and bus stop displays, is being used to build brand awareness. This strategy places brands in everyday consumer spaces, thereby increasing visibility within the constraints of advertising laws​​.

4. Marketing Activation

   • Companies are enhancing their marketing activation strategies. This involves executing campaigns, events, and experiences to generate brand awareness and facilitate the consumer's path to purchase, often through interactive experiences. Post-pandemic, there's a renewed focus on in-person events and dispensary-based promotions​​.

5. Innovative Product Development

   • The introduction of products that support the cannabis industry, like those helping consumers manage their intake, is on the rise. These products cater to new consumer needs and open up new marketing avenues​​.

6. Social Consumption Normalization

   • Social consumption, including cannabis lounges and events, is becoming more normalized, providing brands with opportunities to create unique experiences and build community engagement​​.

7. Expansion of Smoking Accessories Market

   • There's a growing emphasis on smoking accessories and equipment, which are becoming significant in the industry. Co-marketing these accessories with cannabis products helps in building brand loyalty and customer education​​.

8. Collaboration with Co-manufacturers and Distributors

   • Brands are increasingly partnering with co-manufacturers and distributors to expand their reach. This approach allows brands to leverage economies of scale and create multi-manufacturer promotions and events​​.

At High Flyer Media, we understand the importance of adapting to the evolving landscape of cannabis marketing. These innovative strategies not only comply with regulations but also open new avenues for connecting with consumers, reflecting the dynamic nature of Canadian Cannabis Culture.

Digital Marketing and Canadian Cannabis: Finding a Middle Ground

In the Canadian cannabis industry, digital marketing strategies are evolving to navigate the strict regulatory landscape while effectively reaching consumers.

1. Integration with Entertainment and Celebrity Endorsements

   • Due to strict platform rules on popular social media sites, cannabis brands are turning to entertainment and celebrity partnerships. Examples include Weedmaps collaborating with entertainment companies for TV shows and Curaleaf engaging in partnerships with musicians and artists. These collaborations help normalize cannabis and connect with consumers through relatable content​​.

2. Innovative Product Offerings

   • The shift from traditional flower products to edibles, infused products, and beverages is significant. This move not only helps destigmatize the industry but also attracts new consumers who prefer more familiar and less intimidating product forms. Beverages, in particular, are seeing rapid growth, aligning with broader consumer interest in new beverage types and health-conscious consumption​​.

3. Out-of-Home Advertising

   • Despite the digital focus, out-of-home advertising like billboards remains a key strategy. These traditional methods are effective in building brand awareness without the constraints of digital advertising policies. However, measuring the impact of such advertising remains a challenge, with brands often relying on lead source tracking through websites to gauge effectiveness​​.

4. Leveraging Wellness Messaging

   • With the growing consumer interest in health and wellness, cannabis brands are positioning their products within this space. CBD, in particular, is seen as a gateway to introducing consumers to cannabis products, building trust and familiarity. This trend mirrors the shift in the alcohol industry towards low-dose and wellness-oriented products​​.

5. Learning from the Alcohol Industry

   • The cannabis industry is taking cues from the alcohol sector in developing responsible marketing practices. This involves setting marketing codes and focusing on campaigns that emphasize responsible usage. Such strategies aim to dispel myths around cannabis and establish the industry as responsible and consumer-friendly​​.

At High Flyer Media, we recognize the importance of these evolving digital marketing strategies in the Canadian cannabis industry. Balancing creativity with compliance is key to connecting with consumers while respecting the regulatory framework that governs the industry. These strategies not only ensure compliance but also help in building a responsible and relatable brand image in the digital space.

Future Outlook: The Evolution of Cannabis Marketing in Canada

As we look towards the future of cannabis marketing in Canada, several key trends and developments are likely to shape the landscape.

1. Continued Market Growth and Diversification

   • The Canadian cannabis market is expected to continue its growth trajectory, with projections estimating a market value of $6.4 billion in 2023. Ontario and Alberta are anticipated to be the biggest markets, with Ontario leading the growth with a compound annual growth rate of over 20%​​.

2. Product Innovation and Consumer Preferences

   • Traditional cannabis products like flower and pre-rolls remain popular, but there is a growing interest in innovative products. Infused pre-rolls and milled flower are gaining traction. Additionally, edibles and cannabis drinks are emerging as popular alternatives, particularly in Canada, where the trend for cannabis beverages is outpacing that in the U.S. This shift indicates a broader consumer preference for diverse and innovative cannabis products​​.

3. CBD and Minor Cannabinoids

   • CBD, integrated into Canada's cannabis program, is playing a significant role. Approximately one-fifth of Canadian cannabis consumers use CBD-only products, and 60% use products with a balance of THC and CBD. This opens opportunities for products incorporating CBD and other minor cannabinoids like CBC, CBN, CBG, HHC, and delta-8 THC​​.

4. Normalization of Cannabis in Social Settings

   • Cannabis use in Canada is becoming more normalized, particularly in social settings. The trend of using cannabis casually during everyday meals or at dinner parties highlights its integration into consumers' lifestyles. This normalization presents new opportunities for brands to develop products catering to specific social occasions, tapping into new revenue streams​​.

5. Staying Ahead of Consumer Trends

   • To maintain a competitive edge, brands need to stay updated on the latest product trends and changing behaviours of Canadian cannabis consumers. This involves understanding the fast-paced nature of the industry and adapting marketing strategies accordingly​​.

At High Flyer Media, we believe these trends point towards a more diverse, sophisticated, and consumer-centric cannabis market in Canada. Embracing these changes and innovating within the regulatory framework will be key for brands looking to thrive in this evolving landscape. As cannabis becomes more ingrained in Canadian culture and lifestyles, marketing strategies will need to be dynamic, reflecting the nuances and preferences of an increasingly diverse consumer base.

Conclusion

Navigating the Canadian cannabis market presents both challenges and opportunities. Despite stringent regulations, the industry has shown remarkable resilience and innovation. As of 2023, the market is forecasted to continue its growth, with an estimated value of $6.4 billion. The diversification of product offerings, including the rise of CBD and minor cannabinoids, points to a market responsive to consumer preferences and trends​​.

At High Flyer Media, we recognize the importance of staying ahead in this dynamic landscape. The integration of cannabis into everyday life and social settings in Canada is a testament to its normalization and acceptance​​. As the industry evolves, so must our marketing strategies, aligning with consumer needs while adhering to regulatory guidelines. The future of cannabis marketing in Canada is one of adaptation, innovation, and growth, and we are poised to meet these changes with creativity and insight.