Luxury Industry Eyes Marijuana as Next Big Opportunity

The luxury industry is taking advantage of marijuana’s popularity. Designers are working cannabis motifs into their clothing, including the likes of Baja East, Alexander Wang, and Jeremy Scott. This is not surprising. Despite Donald Trump winning the presidential election and the current hostility of Jeff Sessions toward marijuana, many believe that weed is on its way to becoming legal nationwide.


Legalization is spreading throughout the United States, and now other industries are noticing. Medical marijuana is legal in most states, and recreational weed is fast catching up. As for the luxury cannabis industry, opportunities abound to capitalize on the trend, and they go for far beyond simply incorporating cannabis leaves into clothing designs.


It began with the most obvious: Accessories. Designers started reimagining bongs, pipes, and vaporizers through a high-design lens. Tetra, the e-commerce website, is one example: Founded by three veterans in the design and fashion industry, it now has a number of accolades for its modern collection of instruments.


Eviana Hartman, co-founder of Tetra with partners Su Wu and Monica Khemsurov, said, “We started this because we realized the market did not have anything like it. While there is a lot of innovation in the area, most of the players are not driven by aesthetics.” Launched in September 2015, Tetra enjoyed a 40 percent sales increase by October 2016.


Tetra’s own collection, which includes stocks at physical outlets such as Creatures of Comfort, ABC Home, and Tenoversix, has luxury items for cannabis consumers, including a three-pack of rolling papers for $12, a white-bronze fog pin for $36 from Vancouver-based design studio Knauf and Brown, and a simple pipe design for $65 by New York designer Jamie Wolfond.


The site also sells other items without Tetra brands, including a geometric ashtray and table lighter set handmade by Andrew O. Hughes, a glassblower from Brooklyn, for $1,250, and a seed bowl cast in solid bronze and handmade by interdisciplinary designer from Chicago, Steven Haulenbeek, for $550. According to Hartman, lighters and pipes remain bestsellers.


Just as designers remade cigarette cases and flasks in the past, pro-marijuana fashion brands will start designing paraphernalia of their own. Some already have. However, if weed motifs are entry-level accessories for the fashion world, cannabis itself is the main cash generator. After all, there already exists a “Gucci OG” marijuana strain, a variant on the widely popular “OG Kush” strain.


According to Cheryl Shuman, founder of Beverly Hills Cannabis Club, which sells “luxury” cannabis for around $700 an ounce, and marijuana-branding expert, “This is like fine wine, fine champagnes, fine cigars. It is becoming more chic to talk about it. Like being part of a tribe, if you will.” The luxury industry has always been cliquey, and folk pay good money to be part of it.


Certainly, spirit and wine companies may look to branded cannabis as a new revenue strategy in the very near future, particularly as alcohol sales continue to stay flat or dwindle throughout the West, and especially the likes of companies such as LVMH, which owns Veuve Clicquot and Moët & Chandon, and Diageo, which owns Cîroc and Bulleit Bourbon.


According to Euromonitor International, alcohol sales increased by two percent globally in 2015, but overall, alcohol consumption dropped by 0.07 percent, its first decrease since 2001. “The growth trajectory for alcoholic drinks in the West has reached its finite limits and has been declining for a while now,” said Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor.


He also said, “In terms of volume, if you look at margins across the West, cannabis could provide an escape route for multinational conglomerates.” Rob Sands, chief executive for Constellation Brands, made news in November 2016 when he told Bloomberg that the drinks corporation was investigating the potential of cannabis.


“We are looking at it,” Sands said. “Why would big business not, so to speak, be acutely interested in a category of that magnitude?” The legal cannabis market in the United States is likely to exceed $22 billion in annual revenues by 2020. This is according to ArcView Market Research, which also reports roughly 53 percent of all legal sales being recreational, and not medical sales.


The legal market reached $5.7 billion in the United States in 2015, roughly eight percent of which were the result of adult sales, an increase of 24 percent from $4.6 billion in the previous year. Even with eight states legalizing cannabis outright, future prospects for brand acquisition are already emerging. Marley Natural is probably the most widely known of them.


Launched in Seattle in February 2016 by Privateer Holdings, Marley Natural is a Washington-based, marijuana-focused, private-equity company that has raised funding of $122 million. Named after Bob Marley in a three decades licensing deal, Marley Natural plans to be the Starbucks of cannabis, selling marijuana, accessories, and personal care products.


“I think comparing Marley Natural to Starbucks is premature, as they are a young company,” claims Katie Shapiro, a Colorado-based style, travel and culture journalist for online publication The Cannabist and digital editor of Aspen Sojourner magazine. Having said that, she also says, “It is a beautiful line. A lot of their accessories and body care products I personally own and love.”


However, if Marley Natural is about to become the Starbucks of weed, what is its Seattle Coffee Co.? Clement Kwan, former president of Yoox Corporation, its tackling this area. Launched earlier this year, his low-dose Beboe line is a luxury cannabis brand he founded with tattoo artist Scott Campbell. Beboe was the name of Campbell’s grandmother, who treated his cancer-battling mother with pot brownies.


The duo hopes that Beboe will become just one of several well-known brands under the umbrella of For Success Holding, a firm the pair founded in 2014. Beboe will enter the market with two products: A pre-filled vaporizer with a low-dose THC, or tetrahydrocannabinol, and CBD, or cannabidiol, oil for $60, and pastilles infused with five milligrams of THC and CBD for $25.


According to Kwan, who was chief operating officer of both Marley Natural and Privateer Brands before creating the Beboe line, “It is really bringing a level of sophistication and fluidity to this industry.” Kwan’s cannabis experience goes back to his days at university. He grew and sold marijuana to cannabis clubs to put himself through University of California – Berkeley, which were the original weed dispensaries.


Now, Kwan is using his industry knowledge to make, sell, and market luxury marijuana. “It is putting the customer first as opposed to the product,” says Kwan, who also has plans to open multi-brand stores throughout California. “Right now, it is really product-driven, but it is missing the branded piece and the storefront itself. The retail experience is horrible, choppy. We need to build the experience.”


Kwan intends to build the consumer experience through presentation (including experiential retail and distinct packaging), customer service, and a mission that appeals to cannabis aficionados who do not consider themselves “high-dosage stoners.” Naturally, Beboe and other brands have a few roadblocks to cross first, mostly legal and regulatory challenges.


During Obama’s administration, federal legalization seemed a likely probability in the United States, particularly when the House of Representatives approved three amendments in 2015, including slashing the Drug Enforcement Administration’s budget by a whopping $23 million. Everyone thought the end of prohibition well within reach.


Although many believe that President Trump will not fight legalization at state level, it is unlikely that federal cannabis law will favor legalization during his administration term. Because the U.S. Postal Service is a federal agency, this means that it will not be able to ship marijuana products while the substance remains federally illegal.


Banks do not recognize marijuana businesses as legitimate companies either, which means that, for the most part, the industry relies heavily on cash. Financial institutions must comply with federal laws, which prohibit cannabis even where states have legalized it. Malandrakis says, “The situation is not clear enough for a big multinational to get in at the moment.”


“I do not expect them to be active for a couple of years until legalization is federalized,” he continued. “There is potential in the medium to long-term, though. The way things are looking currently, I do not think legalization is reversible. History tells us that whatever happens in the United States tends to slowly happen across the West and, from that point, globally.”


As Shapiro added, “There is also a big boom on the lifestyle side, with smoking accessories to enhance the experience.” Accessory-type products, with outlets like Tetra catering to the luxury market, generate millions, possibly billions, annually in dollar sales. Wells Fargo valued the vaporizer market alone at $3.5 billion in 2015, which includes many tobacco-smoking products.


Even more important, the inability for companies to ship products could in turn create a new type of market, a shopping tourism of sorts. Just as some luxury shoppers will travel to Paris to buy handbags from Louis Vuitton, still many more are likely to visit Colorado or California to indulge in their favorite weed product. There is opportunity for firms like For Success Holding in Canada and elsewhere too.


Weed will become legal in Canada in the spring of 2017. Of all the G7 nations, Canada will be the first to take this step. Around the world, several countries are striving toward full legalization with no signs of slowing down, including Germany, Spain, Australia and Israel. Many more are toying with the idea, such as South Africa, Mexico, and the Philippines.


For Kwan and entrepreneurs like him, the momentum for legalization is only growing. Kwan offers some foresight for the high-end cannabis market, “When the luxury conglomerates come in, or even people from the wine industry, they are going to want people who have things that are already built out. No one wants to recreate a wheel.” The time is now for innovating early investors and risk takers.

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