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Suddenly, marijuana is a growth industry—and increasingly, a legal one. When the smoke cleared after the November 2014 election in the United States, two new states, Alaska and Oregon, as well as the District of Columbia had legalized the recreational sale of marijuana. They joined Washington and Colorado, which legalized pot in the 2012 election, as well as two dozen states that have decriminalized possession to accomplish something that hadn’t been done in 81 years—make an illegal drug legal.
“THEY DO NOT NEED TO BUY IT AT A FANCY STORE—THEY’LL GO TO A BACK ALLEY BASEMENT SHOP AS LONG AS THE PRODUCT DELIVERS”
Of course, the question remains: How will state residents be able to buy, sell, and use something that is still against federal law? But in the absence of enforcement action by the United States government, perhaps the better question is, what will the inevitable national market in marijuana shake out? Will it consist of grungy underground head shops? Designer weed boutiques? Or will “Big Marijuana” companies—perhaps the existing “big tobacco” powerhouses—muscle their way in and perpetrate “The Bud Light-ification of Bud,” as the New York Times suggested?
Those pursuing answers need look no further than the Mile High City and its surrounding environs, where the first great experiment in selling smoke is already under way. Marijuana for recreational use officially went on sale in Denver and across Colorado in January 2014.
As states continue to decriminalize its use, marijuanais increasingly available to (some) consumers.Photo: iStockPhoto
In a new case study to be available shortly, Marketing Marijuana in Colorado, Harvard Business School marketing professor John A. Quelch and coauthor David Lane look at lessons from the first few months of legalization to see what they may tell us about eventual trends. Quelch, the Charles Edward Wilson Professor of Business Administration, holds a joint appointment at Harvard School of Public Health as Professor in Health Policy and Management.
CREATING DEMAND
One big open question is the degree to which illegal demand will be significantly diminished by the availability of recreational marijuana, says Quelch. “And a second is, how much will overall demand increase—since, now that it’s legal, you’ll have people demanding it who wouldn’t have demanded it before.” Early indications are that demand is there—and growing.
Despite tight regulation, between January and July the number of retail marijuana licenses grew in Colorado from 37 to 200, along with creation of 500 medical marijuana dispensaries. Most recreational buyers seemed to be casual users. In fact, for those six months, recreational marijuana accounted for 80 percent of the $25 million in tax revenue from marijuana sales, with the state predicting $134 million in the next fiscal year.
As Quelch found in his research, however, the picture is more complicated than medical versus recreational users.
“You really have four markets,” says Quelch, “medicinal, individual grower, recreational, and the illegal market.” Each segment shows different dynamics in terms of its sensitivity to price, marketing, and convenience.
Medicinal consumers, for example, do not care so much about variety. “Once you find the strain and supply source that best alleviates your pain, you are going to stick with it,” says Quelch. But medicinal users are frequent customers so they do care about price. “They do not need to buy it at a fancy store—they’ll go to a back alley basement shop as long as the product delivers.”
“I BELIEVE GUYS LIKE PHILIP MORRIS AND R.J. REYNOLDS ARE LOOKING CAREFULLY AT THIS”
