How Building a House of Ancillary Cannabis Brands Fuels Cannabis Industry's Growth

By Nick Kovacevich, CEO of Greenlane

In the cannabis world, the vast majority of plant-touching operators are heavily investing in CPG offerings and retail experiences as cannabis breaks into the mainstream consumer sector. However, these successful operators often lack the tools and accessories to support their burgeoning product lines. Curating compelling accessories for target consumer audiences remains an afterthought for most dispensaries. Not only is this inconvenient to customers who have to go to more than one shop to purchase everything they need, it is also a missed revenue opportunity for retailers in states where it’s legal to sell accessories in-store. 

This situation strategically positions ancillary companies to create a “house of brands” that supports the plant-touching side of the business. For the entire industry to reach its full potential, ancillary cannabis brands must also scale and consolidate in a way that will better serve multi-state operators (MSOs). Given the current state of the regulated market, accessories brands can achieve this goal and maximize their own growth opportunities through streamlined and sophisticated ancillary operations. 

Elevating the entire consumer experience

At this point, most CPG industries offer a full retail experience upon walking in the door. When you enter an Apple store, you can not only buy your iPhone or MacBook, you can also find all of the accessories that go with it and enhance the user experience. Consider the Apple Wearables line—a selection of products that enhance the overall user experience –including cases, chargers, AirPods, Apple TV and more. The Apple Wearables, Home and Accessories business alone has grown to the size of a Fortune 500 company. This ancillary sector has become a major fuel of Apple’s financial growth, bringing in $6.5 billion in Q3 of 2020 alone while also offering a one-stop-shop experience for the customer.

The process of purchasing cannabis products at a dispensary should be elevated to this same level. Wherever regulations permit, accessories should be sold alongside cannabis products right in the dispensary. Rather than having empty, unused space, dispensaries can complete their floors with products that complement their selection such as water pipes, high-end vaporizers, rolling papers and more. This makes a dispensary more inviting and visually appealing while saving the customer time and trouble. Offering these bespoke accessories that align with the needs and preferences of target demographics will also foster consumer loyalty—a crucial element in the increasingly competitive retail landscape. 

A powerhouse ancillary industry minimizes retailers’ opportunity cost

In an industry as supply-constrained as cannabis, dispensaries would much rather focus their efforts on what they excel at and what consumer demand dictates. As a result, most retailers are not spending their limited resources on sourcing or vetting ancillary products, especially if they are unfamiliar with them. Cannabis is lacking a powerhouse ancillary industry that can take the headache out of procurement and distribution. Currently, most retailers are still doing “spot buys” locally for the accessories that consumers need—an inefficient, costly process that should be replaced by a more centralized purchasing strategy. Establishing such a program is integral to creating desirable retail experiences and minimizing operating costs in an already capital-intensive sector. Greenlane, for example, aims to be that one-stop-shop supplier that frees up the bandwidth for plant-touching operators to focus on the core competencies that grow their business. 

This consolidation and house-brands approach can add significant long-term value for plant-touching businesses, from local mom-and-pop shops to nationwide MSOs. Even with cannabis retail in its early innings, we can look to the mainstream sector for an idea of how ancillary cannabis sales can boost revenues. Like the success of Apple Wearables, cross-selling strategies at McDonald’s generate an additional 15-40% in annual revenue for the company. Adapting such tactics to dispensaries, like asking customers if they want to check out a new whole-flower vaporizer to fully taste the terpenes in the flower they’re about to purchase, will boost the sales at any business. 

Taking cues from competitive markets

The current accessories market is relatively sophisticated but still fragmented. Like with plant-touching businesses, strategic consolidation is essential to finally streamline operations and allow the wider industry to reach its long-term growth targets. Looking to more competitive regional markets, we see that cannabis prices and margins decrease, prompting smart retailers to look for creative ways to create additional revenue streams. Not only does this drive up margins in a tough market, this offering also allows retailers to differentiate themselves from the competition and attract more repeat customers.

If the cannabis industry is going to become a flourishing, mainstream CPG industry, retailers are going to need to sell cannabis and accessories side by side. Investors looking to either break into the cannabis industry or diversify their portfolio should consider the upside of further developing the ancillary side of cannabis. If retailers are smart and ancillary operators step up to the plate as a powerhouse in the space, ancillary space could be the linchpin in fueling top-line growth for all industry stakeholders in the near future.