Five Reasons Craft Cannabis Is Blowing Up

blowing up
Feb 22 2016

Five Reasons Craft Cannabis Is Blowing Up

Traditionally, people who use marijuana have had no idea where their buds come from. You visited your guy, or maybe he came to you, and you took whatever he had. And despite the increasing professionalization of some black-market delivery services, it’s still hard to know how the plants were grown or what pesticides were used.

But as legalization spreads through more and more states, it’s obviously changing the game. Out in the open, businesses and consumers are getting savvier and more demanding. Cannabis companies are investing in branding, and more customers are willing to pay top dollar for artisanal bud with specific characteristics of taste, potency or sustainability.

And just like the diverse and highly specialized craft beer industry, craft cannabis will only get bigger—despite the possible emergence of Big Marijuana behemoths down the road. With input from industry insiders and consumers around the country, here are five major reasons why.

1. Consumers are ever more discerning.

“The industry is really competitive because people understand what quality is,” says Ashley Rheingold, the owner of Headquarters, a boutique marijuana grower and dispensary in Boulder, Colorado. “Boulder is a good indication of the smart consumer—they can tell the difference between how something tastes and how it burns.”

This awareness forms part of a larger cultural trend towards small producers that is demonstrated by the growth of organic food in recent years, as well as the explosion of microbreweries.

“I think the millennial generation may be part of the growth,” says Adam Steinberg, head of business development at Flow Kana, a sustainable cannabis brand specializing in small-batch, organic weed. “They just care more about what is going into their bodies.”

But it’s not just 20-somethings who are fueling the craft-cannabis trend.

“In the Bay Area, I think the people that are smoking are a little bit older, a little bit more discerning,” says Dottie Lulick, a medical marijuana patient in San Francisco. She says that these somewhat older consumers want to search out smaller, more specialized and individual companies “because they can afford that.”

“I prefer to support small businesses,” Lulick continues. “I think of artisanal cannabis as more pure, and grown from the heart.”

2. In a hyper-competitive market, producers have to distinguish themselves.

Customers who are willing to shop around add up to increased competition, and small growers have certain distinct advantages when it comes to quality. Larger producers may have hundreds of lights, mechanically operated grows and higher yields. But operating on a smaller scale enables you to pay more attention to each individual plant.

Headquarters, Ashley Rheingold’s company in Colorado, has about 40 lights. They hand-water their plants and hand-trim their buds. And Rheingold compares their focus on the growing process to craft brewers’ consciousness of the quality of their ingredients: “We’re looking at our soil in the same way they’re looking at where their hops are coming from or their barley.”

Another way small producers try to set themselves apart is by focusing on genetics. “Our grower has a deeper understanding of cannabis genetics and seeks out plants that highlight certain characteristics,” says Rheingold.

Using that knowledge, the company creates strains that are exclusive to its brand, along with carrying some of the “latest and greatest.”

3. The regulatory framework is (often) right.

2016 is set to be a banner year for legalization. Vermont and Rhode Island may legalize through their legislatures, while Arizona, Maine, Massachusetts, Nevada and—most significantly of all—California are set to have legal pot initiatives on the ballot. And although the federal government continues to resist, an end to federal marijuana prohibition has become less of an “if” and more of a “when.”

As legalization spreads, smaller business are likely to flourish. Right now, unless a pot vendor is a celebrity or has enough cash to buy a celebrity’s name (like these private equity guys who co-opted Bob Marley), it’s tough to build a national brand.

But how individual states regulate the newly legal industry is important. Many states with stringent medical marijuana regulations have vertical integration—which means that the same license-holder is responsible for growing, producing and selling.

“Vertical integration makes it difficult for small producers and growers across the board,” Rheingold says. “We were growers to begin with and didn’t really want to retail, but vertical integration made us both sell and grow.” The obligation to perform multiple roles can stretch limited resources.

But Colorado wised up when it legalized adult-use marijuana following a ballot-box victory in November 2012. “I’m really glad the state changed requirements for recreational,” Rheingold says. “Growers that really want to focus on just gardening can do that now, and people that know how to retail can just do that side.”

In Washington State, where voters approved legalization at the same time as Colorado, stringent regulations forbid holding both a grower and a retail license—which again, arguably helps smaller businesses.

In California, which legalized medical marijuana in 1996 and is widely expected to approve adult-use weed in November 2016, rules are in place to protect craft producers, says Adam Steinberg, whose employer, Flow Kana, is based in the Bay Area. “There’s definitely a focus on putting their regulations in place that will help the small farmer succeed and not get drowned out.”

The government passed state-wide regulations for the medical marijuana industry in October 2015, putting rules in place that try to prevent big companies from dominating the market. The California Medical Marijuana Regulation and Safety Act sets up 17 different license types, with 10 specifically for cultivation. Six of those cultivation licenses are for small growers, three for medium growers and one for nurseries.

Why go for a small cultivator license at all? Small growers get the added benefit of being able to apply for a manufacturing license, something that the medium growers are prohibited from doing.

Solidarity helps, too. Independent producers who have operated in challenging conditions are banding together to help influence legislation. “There’s a lot of organizing now from smaller farmers and producers as to how to remain viable,” says Andrea Brooks, the founder of Sava, a delivery platform for artisanal cannabis goods based in San Francisco.

4. Marijuana culture stands up for the little guy.

Cannabis consumers’ and producers’ preference for a microbrewery model runs deeper than mere artisanal-organic fashion. The legalization movement, which gave birth to this industry, is still to a large extent fueled by social justice, and entrepreneurs are people who are willing to deal in what the federal government still regards as a Schedule I drug.

“In terms of what it takes to be in the cannabis industry, you have to really care, you have to be passionate,” Andrea Brooks says. “It’s not an easy road to go down. I’m really hoping the people who can be sustainable in the business for the long term are people who really care about the plant, as opposed to making tons of money.”

Wishful thinking? Maybe. But many consumers have similar aversions to big business. Voters’ rejection of a legalization initiative in Ohio in 2015 was arguably because the terms of that proposal would have given a few well-financed companies a monopoly over commercial production.

“When you go into a dispensary, you’re kind of overwhelmed by how many products there are,” says Nurit Raphael, a medical marijuana patient in San Francisco. “When you go to a mom-and-pop shop, they listen to you and they really help you. It feels like there’s just more care in it. I just hope that the little shops are the ones that get more recognized and not left behind when the big players come in.”

Will there be a Budweiser of marijuana post-federal legalization? Probably. “There are some people who prefer their Bud Light, and they’re getting the same thing every time,” Adam Steinberg says. “And there are some people who like to try different types of craft beer.”

Understandably, small operators’ feelings about this aren’t particularly positive. “There’s a fear that big companies are just waiting in the wings, and the second [federal] legalization happens, they will just come in and dominate,” Brooks says.

But even Big Alcohol is uncomfortable enough about craft beer to be making Super Bowl commercials targeting “hipsters” for liking it. And the truth is, there’s probably room for both.

5. Retailers are investing in hipster branding.

Among legal marijuana companies, there’s a desire for more sophisticated branding that will broaden their appeal to different types of consumers. Retailers want to get rid of the “stoner stigma” surrounding cannabis consumption—and branding can help them target the same demographics who now shell out for farm-to-table meals and rare vintage wines.

“I certainly see it here and other major metropolitan areas,” Rheingold says. “Places where high-end, conscious consumers have the privilege of good food and beer and wine.”

Flow Kana, the delivery service in the Bay Area, is clearly tapping into this trend with its mason jars of cannabis and company tagline: “Connoisseur-grade cannabis straight from farms to your home.”

Edible manufacturers are also tapping into the trend, with companies like Canyon Cultivation in Colorado highlighting its use of “high-quality organic ingredients.” Customer testimonials on its website praise its “commitment to Gluten-Free, Vegan and Non-GMO practices.”

Not to be outdone, Oregon boasts its fair share of craft cannabis, which makes sense for a state with the highest number of craft breweries per capita. In Portland, consumers can head to Brooklyn Holding Company, a speakeasy-style dispensary that’s keeping up with the city’s “artisanal economy.” Wicked Kind, another Portland-based company, emphasizes its “legendary genetics, craftsmanship & tenacious authenticity… by crafting a boutique cannabis experience.”

Plus, there’s always the cool factor of small-batch weed, as Dottie Lulick acknowledges. “When you go into the collective, the smaller versions are always a cooler thing to have.”

Mona Zhang is a New York-based writer and editor of the cannabis newsletter Word on the Tree. You can follow her on Twitter: @ZhangMona.