Tools to build and protect brand value amidst booming competition across the cannabis industry.
Overview
On November 17th, 2021, the Michigan Marijuana Regulatory Agency (MRA) issued a recall on Marijuana tested by Viridis Laboratories between August 10th and November 16th following 18 complaints of health complications.[1] Viridis Laboratories was the largest licensed safety lab in the state of Michigan at that time, and the recall pertained to an estimated 64,000 pounds of marijuana worth approximately $230 million.[2] Within a week of the recall, Viridis filed a lawsuit in an effort to have the recall lifted.[3] Hanging in the balance of the lawsuit was Viridis’ reputation and, potentially, the viability of its brand equity. The following provides a framework to understand the broad topic of brand equity, as well as within the special confines of the cannabis industry, and strategies employed to achieve success amidst intense competition.
Brand Equity, Generally
Brand equity is a relatively broad term applied across many business contexts, a polysemy sharing a similar treatment with words like synergy. During the past thirty years, scholarship attempting to agree on a definition resulted the classical definition articulated by Farquhar (1989) which identifies brand equity as “the added value with which a given brand endows a product.”[4] Under the classical definition, brand equity equates to some conference of competitive advantage.[5] Ailawadi, Lehmann, and Neslin (2003) provide a more tailored definition, stating brand equity as “the outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name.”[6] Beyond these definitions, scholars continued to deconstruct the widely applied term of brand equity into connecting parts, settling on three distinct, generally accepted components or “senses”: brand valuation, brand strength (or loyalty), and brand image.[7]
Brand valuation or brand value is comprised of a descriptive, balance sheet valuation, and the product or service’s predicted, fetchable market price.[8] Although a firm can attempt to objectively quantify a brand’s valuation on a balance sheet (generally by crediting goodwill and other intangibles), brands do not possess an absolute value.[9] Complicating the matter, brand strength is implicitly considered in valuation; any capitalization beyond the total tangible asset value of the firm depends upon estimation, including that of sustained or future consumer demand. Simultaneously, sustainability of competitive advantage (inimitability of processes or products) lent from market indicators and the relative size of the firm also bolsters overall brand valuation. The bleed from brand valuation slightly into brand strength and back is, in a sense, separate from the makeup of brand equity.[10] Further, a host of contextual data drives value to both the market price and the valuation on the balance sheet (namely, the brand’s value under different management and a subjective value to the purchaser).[11][12] All components considered, the balance sheet valuation remains a key performance indicator in managerial decision making for most industries, including cannabis.[13]
Brand loyalty or brand strength is a measure of consumer demand.[14] Four data sets help define that strength: price/demand measures, behavioral measures of loyalty, attitudinal measures of loyalty, and awareness/salience measures.[15] Beyond the obvious first set, behavioral data measures a consumer orientation toward the brand, and is often based on records of actual purchasing behavior gathered from consumer panels.[16] Attitudinal measures detail a consumer’s specific associations and beliefs about a brand. Finally, awareness and saliency measures define “the ability to identify a brand as associated with a product category.”[17] In essence, consumers will associate a product with one brand if that brand commands brand strength (Kleenex is the most widely referenced and known example of superior brand strength).
Finally, brand image refers to the public associations or attributions of a brand. Researchers place an emphasis on brand image as a critical component of brand strength (which, considering Kleenex again, reveals the interlinked nature of brand equity components). The brand image drives implicit associations within the broader consumer base, and general public. A brand’s image, therefor, is the key to unlocking the connection between the brand and the consumer, as “brand image drives brand equity”[18]
Achieving Brand Equity in the Cannabis Industry
The cannabis industry as legitimate business continues to fight a war for public acceptance, though the battles are falling heavily in favor of advocates for legalization as of late. Thirty-seven states legalized medical marijuana, and eighteen states, two territories, and the district of Columbia have legalized recreational marijuana use for adults over the age of 21.[19] This seemingly abrupt paradigm shift, akin to the boom of post-prohibition era alcohol sales, is one spurred by the potential for financial benefit, and the success of political advocacy. Like other controlled substances such as alcohol and tobacco, states are now realizing lucrative tax benefits from business projected to eclipse $130 billion by 2024.[20] Simultaneously, public support for expansion continues to grow, as a majority of Americans, approximately 91%, support marijuana legalization in some form.[21]
Expanding legalization is now feeding a rapidly growing marketplace ripe with opportunity and rife with competition. In Michigan alone, there are 945 licensed dispensaries comprising both recreational and medical sellers.[22] Within such an explosively bifurcated market of entrepreneurial drivers, cultivating brand equity becomes a markedly difficult task. Despite contestation, however, brands can transform what are referred to at “logics” to gain brand equity and secure competitive advantages.
According to Coskuner-Balli, Pehlivan, and Hughes (2021), logics are “symbolic and material organizing principles that direct and circumscribe thoughts, decisions, and behaviors of organizations via ‘socially constructed, historical pattern of material practices, assumptions, values, beliefs, and rules.”’[23] In a highly contested market, successful brands redefine those logics to favor their products.[24] For example, Coskuner-Balli, Pehlivan, and Hughes (2021) identify two strategies to redefine the such logics: constructing consumer identities and mimicry.[25] First, constructing a consumer identity essentially creates the relationship between the brand and the market in which it operates.[26] Constructing a new identity changes public perception and definition of the brand’s consumer through a targeted advertising campaign, which implies the relationship between the brand and the consumer is in the process of redefining the brand image.[27] Once the image has been redefined, and the relationship between brand and consumer redrawn, the brand must succeed in retaining the new consumer through the retail experience. To that end, mimicry—the second strategy —entails associating new practices with existing sets of practices, technologies, rules, and aesthetics to ease the consumer into the new paradigm.[28] In the cannabis industry, Coskuner-Balli, Pehlivan, and Hughes (2021) noted that cannabis products emulating readily identifiable consumer packaged goods or pharmaceuticals helps to foster cultural cognitive legitimacy for the nascent cannabis industry.[29] Moreover, the authors note an example in which MadMen, a cannabis company headquartered in California, mimicked the layout of Apple stores (along with other connections to social media aesthetics) to foster the consumer identity with the new product.[30] In order to properly utilize these two strategies, managers and brands in the cannabis field must both monitor existing trends while experimenting to foster new trends in the marketplace.
Equipped with strategies to bring consumers into the fold while cultivating brand equity, actors in the cannabis industry hold fast brand loyalty by maintaining authenticity, credibility, and trust.[31] However, regulatory actions have public consequences sometimes out oft he control of the firm with the potential for devastating outcomes which can negatively affect brand/product perception and purchasing behavior. Thus, cultivating relationships with consumers to convert them into brand advocates is a essential buffer to mitigate that risk, and transparency and authenticity is paramount to that process.[32] Authenticity especially guides consumer behavior, as it is intrinsically linked to brand quality, and aids in supplementing brand strength through consumer loyalty.[33]
While these strategies and considerations are certainly not exhaustive, they are the tested-and-true standards of industry and scholarship which provide a roadmap for newcomers to meet the particular needs of consumers across a rapidly evolving and heatedly competitive landscape.
Viridis’ Brand Equity – A Diagnostic Testing Brand Disaster
Viridis Laboratories is not a new actor on the cannabis industry stage. As the largest safety laboratory in the state of Michigan for cannabis, it has an established reputation of over seventy-five years of combined expertise. The company promotes itself as the only laboratory in Michigan that is “patient first,” with safety being a top priority. However, despite this history, recall litigation with MRA has the potential to greatly impacted Viridis’ brand equity, whether right or wrong in the eyes of the scientific community.
At the start of 2022, Viridis was the largest safety testing laboratory in Michigan, servicing a market of recreational and medical dispensaries which eclipsed $1.9 billion the previous year.[34] As a safety testing laboratory, Viridis does not necessarily deal directly with consumers, a fact which should have worked in Viridis’ favor in maintaining brand equity; rather than interacting with the end-customer, Viridis tests the product from a grower for the dispensary which then sells to the end-consumer. With this degree of separation, the recall’s impact on consumer attitudes might have been negligible. Though historic in scope, the recall’s toxicity does not extend to the dispensaries that service the end-consumer, whose brand equity drives consumer purchasing habits. Unfortunately, a recall of such a scale, which emptied shelves of product from 70% of growers across the state, caused dispensaries to refuse to stock products tested by Viridis for fear of another recall.
While average consumer was likely unaware of the facility in which their product was tested for market, their buying habits were affected, unbeknownst to them, based upon regulation and subsequent damage to brand equity one tier up the value chain. As Washburn and Plank (2002) noted in their research of top brand associations, brand awareness and associations are necessary but not sufficient conditions to secure high customer-based brand equity.[35] In the case of Viridis, it was not the end-consumer which shunned their services, but their direct buyers for whom trust was destroyed by actions potentially beyond Viridis’ control.
As the market grows, so too will grow the regulatory actions against market actors, and Viridis is not the only testing laboratory facing regulatory scrutiny.[36] Though the recall is arguably more severe, several other testing laboratories face regulatory ire for quality assurance issues, erroneous testing, and failures to submit testing data. Thus, such regulatory actions, even a recall, are less of a detrimental anathema to the recipient’s brand equity and more of a mainstay in a rapidly evolving market, and a cost of doing business which must be considered in forecasting.
Regardless of the recall’s total impact, Viridis responded to the recall appropriately by attempting to clarify the scientific validity of methods in use (which we will do completely in a forthcoming article). Importantly, Viridis’ response to the recall aims to both remain fully transparent and restore the brand image. Should litigation result in Viridis’ favor, absolution would likely remedy whatever damage was dealt to the brand. If the alternative should occur, however, then Viridis should assess the impact to brand valuation and whether to pursue restorative or redefining measures related to its institutional logic.
In a climate of rapid evolution and stringent regulation, recalls may simply be expected risks and have littler bearing over consumer perception. However, as the recreational industry evolves to rapidly engulf its medical counterpart, data regarding consumer purchasing and buyer sourcing habits and attitudes in response to such regulatory actions may require further study to fully define risk profiles for those throughout the cannabis value chain.
Conclusion
Brand equity is as robust as it is fragile. It is a house of cards comprising three senses that are difficult to cultivate and maintain but easy to lose if not carefully nurtured. This is especially true in the burgeoning cannabis industry, where intense competition and stringent regulations create an arduous institution wherein an actor can distinguish itself for better or worse. Viridis Laboratories had a distinguished history of quality service with a patient focused approach. However, a recall may place its brand image in precarious straits should regulatory action have a sustained adverse effect on consumer perception. While more data is needed on consumer habits and attitudes in the cannabis industry in Michigan, the overall effect of the recall on end-consumer behavior is likely negligible. Regardless, Viridis, and any other brand along the cannabis value chain, can leverage successful strategies from similarly competitive environments through transparency and restoration to redefine, salvage, improve, or sustain brand equity.
Appendix A[37]:
References
Anderson Economic Group. Michigan Cannabis Market Growth and Size, 5 Oct. 2021, https://www.andersoneconomicgroup.com/michigan-cannabis-market-growth-and-size/. Accessed 06 Jan 2022.
Aaker, David. Managing brand equity: capitalizing on the value of a brand name. New York: The Free Press, 1991.
Ailawadi, Kusum, Donald R. Lehmann, and Scott A. Neslin. “Revenue premium as an outcome measure of brand equity.” Journal of Marketing, vol. 67, no.4, pp. 1-17, http://mba.tuck.dartmouth.edu/pages/faculty/kusum.ailawadi/docs/Revenue%20Premium%20JM%202003.pdf. Accessed 04 Jan. 2022.
Baalbaki, Sally, and Francisco Guzmán. “A Consumer-Perceived Consumer-Based Brand Equity Scale.” Journal of Brand Management, vol. 23, no. 3, 2016, pp. 229-251. ProQuest, http://ezproxy.msu.edu/login?url=https://www.proquest.com/scholarly-journals/consumer-perceived-based-brand-equity-scale/docview/1785709792/se-2?accountid=12598, doi:http://dx.doi.org/10.1057/bm.2016.11. Accessed 04 Jan. 2022.
Burns, Gus. “Largest marijuana recall in Michigan history responsible for 18 health complaints, official testifies.” mLive, 06 Dec. 2021, https://www.mlive.com/public-interest/2021/12/largest-marijuana-recall-in-michigan-history-responsible-for-18-health-complaints-official-testifies.html. Accessed 03 Jan. 2022.
Burns, Gus. “Michigan labs keep marijuana safe with microscopes and microwaves.” mLive, 27 Apr. 2021, https://www.mlive.com/public-interest/2021/04/michigan-labs-keep-marijuana-safe-with-microscopes-and-microwaves.html. Accessed 04 Jan. 2022.
Cain, Charlie. “The cannabis consumer adoption curve: Building iconic brands in an evolving market.” MJ Brand Insights, 28 Aug. 2020, https://mjbrandinsights.com/how-to-market-to-the-evolving-landscape-of-consumer-preferences/. Accessed on 02 Jan. 2022.
Cobb-Walgren, Cathy, Cynthia A. Ruble, and Naveen Donthu. “Brand Equity, Brand Preference, and Purchase Intent.” Journal of Advertising, vol. 24, no. 3, 1995, pp. 25. ProQuest, http://ezproxy.msu.edu/login?url=https://www.proquest.com/scholarly-journals/brand-equity-preference-purchase-intent/docview/236599066/se-2?accountid=12598. Accessed 03 Jan. 2022.
Coskuner-Balli, Gökçen, Ekin Pehlivan, and Mine Üçok Hughes. “Institutional Work and Brand Strategy in the Contested Cannabis Market.” Journal of Macromarketing, vol. 41, no. 4, 2021, 663-674, https://owl.purdue.edu/owl/research_and_citation/mla_style/mla_formatting_and_style_guide/mla_works_cited_electronic_sources.html. Accessed 02 Jan. 2022.
Feldwick, Paul. “What is brand equity anyway, and how do you measure it?” International Journal of Market Research, vol. 38, no. 2, 1996, https://journals.sagepub.com/doi/pdf/10.1177/147078539603800201. Accessed 03 Jan. 2022.
Fourcher, Mike. “Active Michigan dispensary licenses increase by 42% in seven months.” Grown In, 23 Aug. 2021, https://grownin.com/2021/08/23/active-michigan-dispensary-licenses-increase-by-42-in-seven-months/. Accessed 04 Jan. 2022.
Hartman, Michael. “Cannabis Overview, Legalization.” National Conference of State Legislatures, 06 Jul. 2021. https://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx. Accessed 04 Jan. 2022.
McVey, Eli. “Chart: US cannabis industry’s economic impact could hit $130 billion by 2024.” MJ Biz Daily, 17 Dec. 2021, https://mjbizdaily.com/chart-us-cannabis-industrys-economic-impact-could-hit-130-billion-by-2024/. Accessed 04 Jan. 2022.
“Michigan marijuana sales reach record $115.4 million in March.” MJ Biz Daily, 17 Dec. 2021, https://mjbizdaily.com/michigan-marijuana-sales-reach-record-115-4-million-in-march/. Accessed 04 Jan. 2022.
Smith, Samantha. “Creating a Deeper Client Relationship with a Customer Success Mindset.” Cannabis Industry Journal, 12 Nov. 2021, https://cannabisindustryjournal.com/tag/success/. Accessed 02 Jan. 2022.
Van Green, Ted. “Americans overwhelmingly say marijuana should be legal for recreational or medical use.” Pew Research Center, 16 Apr. 2021, https://www.pewresearch.org/fact-tank/2021/04/16/americans-overwhelmingly-say-marijuana-should-be-legal-for-recreational-or-medical-use/. Accessed 04 Jan. 2022.
Viridis. About. https://viridis-labs.com/about/. Accessed 03 Jan. 2022.
Washburn, Judith H., and Richard E. Plank. “Measuring Brand Equity: An Evaluation of a Consumer-Based Brand Equity Scale.” Journal of Marketing Theory and Practice, vol. 10, no. 1, 2002, pp. 46-62. ProQuest, http://ezproxy.msu.edu/login?url=https://www.proquest.com/scholarly-journals/measuring-brand-equity-evaluation-consumer-based/docview/212206895/se-2?accountid=12598. Accessed 04 Jan. 2022.
Williams, Jessa. “High & Mighty: Cannabis Brands Doing Good.” Rep. Co, 18 Apr. 2021, https://representcollaborative.com/stories/equitable-cannabis-brands. Accessed 03 Jan. 2022
Wu, Qingqing. “The influence of brand equity on customer purchase intention.” BCP Business & Management, vol. 16, 2021, http://www.bcpublication.org/index.php/BM/article/view/238/222. Accessed 03 Jan. 2022.
[1] Burns, Gus. “Largest marijuana recall in Michigan history responsible for 18 health complaints, official testifies.” mLive, 06 Dec. 2021.
[2] Id.
[3] Id.
[4] Farquhar, Peter H. “Managing Brand Equity.” Marketing Research, 01 Sep. 1989, pp. 24.
[5] Baalbaki, Sally, and Francisco Guzmán. “A Consumer-Perceived Consumer-Based Brand Equity Scale.” Journal of Brand Management, vol. 23, no. 3, 2016, pp. 230.
[6] Ailawadi, Kusum, Donald R. Lehmann, and Scott A. Neslin. “Revenue premium as an outcome measure of brand equity.” Journal of Marketing, vol. 67, no.4, pp. 2.
[7] Feldwick, Paul. “What is brand equity anyway, and how do you measure it?” International Journal of Market Research, vol. 38, no. 2, 1996.
[8] Feldwick, supra.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Feldwick, supra.
[15] Id.
[16] Id.
[17] Aaker, David. Managing brand equity: capitalizing on the value of a brand name. New York: The Free Press, 1991.
[18] Feldwick, supra.
[19] Hartman, Michael. “Cannabis Overview, Legalization.” National Conference of State Legislatures, 06 Jul. 2021.
[20] McVey, Eli. “Chart: US cannabis industry’s economic impact could hit $130 billion by 2024.” MJ Biz Daily, 17 Dec. 2021.
[21] Van Green, Ted. “Americans overwhelmingly say marijuana should be legal for recreational or medical use.” Pew Research Center, 16 Apr. 2021.
[22] Michigan Marijuana Regulatory Agency. (n.d.). ArcGIS web application. Retrieved May 13, 2022, from https://michigan.maps.arcgis.com/apps/webappviewer/index.html?id=cd5a1a76daaf470b823a382691c0ff60
[23] Coskuner-Balli, Gökçen, Ekin Pehlivan, and Mine Üçok Hughes. “Institutional Work and Brand Strategy in the Contested Cannabis Market.” Journal of Macromarketing, vol. 41, no. 4, 2021, pp. 664.
[24] Id.
[25] Id. at pp. 668-69.
[26] Id.at pp. 668.
[27] Id.
[28] Id. at pp. 669.
[29] Id.
[30] Id. at pp. 669-70.
[31] Cain, Charlie. “The cannabis consumer adoption curve: Building iconic brands in an evolving market.” MJ Brand Insights, 28 Aug. 2020.
[32] Smith, Samantha. “Creating a Deeper Client Relationship with a Customer Success Mindset.” Cannabis Industry Journal, 12 Nov. 2021.
[33] Wu, Qingqing. “The influence of brand equity on customer purchase intention.” BCP Business & Management, vol. 16, 2021.
[34] See Appendix A.
[35] Washburn, Judith H., and Richard E. Plank. “Measuring Brand Equity: An Evaluation of a Consumer-Based Brand Equity Scale.” Journal of Marketing Theory and Practice, vol. 10, no. 1, 2002, pp. 59.
[36] Burns, Gus. “Michigan labs keep marijuana safe with microscopes and microwaves.” mLive, 27 Apr. 2021.
[37] Anderson Economic Group. Michigan Cannabis Market Growth and Size, 5 Oct. 2021.