What will the 2023 cannabis industry look like? Mergers, acquisitions, branding, and the entourage effect, according to HEXO‘s President and CEO, Charlie Bowman.
HEXO is an award-winning cannabis brand with a solid reputation among Canadian consumers. After acquiring their competitor Redecan, they became the number one cannabis company in Canada in the third quarter of 2021.
Since then, the company has been busy building its brand and maintaining its loyal customer base. Their president and CEO, Charlie Bowman, was able to take some time out of his schedule last week and talk to me on the phone.
The cannabis industry in 2023 may have to rein in some of its excesses. Especially in Canada, where investors threw in a lot of money, but “it’s behind where they thought it would be.”
“We’ve had tremendous mergers,” says Charlie. HEXO isn’t the only cannabis company that’s had to “shrink the business to make it profitable.”
Charlie says they had to “get it to the point that every sale is a good sale, and then rebuild the business back up from that. And we’re not alone, there are other companies that are going through that transformation.”
“Strengthening the balance sheet is probably the most important,” he says. “Ensuring that the operations are cash flow positive is the next key thing you’ll see more of.”
But the HEXO CEO expects more mergers and acquisitions in 2023.
“I’ll be shocked if you don’t see some mergers that occur here. Some people are really great at growing, others are phenomenal in the medical side of it, some have incredible distribution and reach into the market through their networks and retail. I think you’ll see more and more of these mergers come together.”
2 – 2023 Cannabis Branding
When it comes to the cannabis industry in 2023, especially the Canadian cannabis industry, the question always leads back to branding.
HEXO is no stranger to Canada’s anti-marketing laws. Mike Tyson and his team approached HEXO to work together. And while the relationship has been positive, HEXO has had to rebrand their Tyson products north of the 49th.
Despite the drama over Canadian regulators rejecting Mike Tyson’s cannabis brand, the reality is less sensational. When HEXO applied to bring these products to Canada, they filed them under the “T20” brand.
“You can’t have a cookie-cutter approach to your brand, your markets, and the strains you bring in,” says Charlie. He mentioned certain products sell better in BC than in Ontario. And that Quebec is a tough market to crack.
“I think you’re going to see brand companies in 2023,” says Charlie. Adding that, it’s not impossible to brand and distinguish yourself in Canada’s cannabis market.
“You’re now seeing the boutique grow,” he says. “That has to be a sustainable practice. You can’t just throw money at it and expect to get a great product. You have to really understand the agroscience.”
1 – Higher THC vs. The Entourage Effect
If the race in 2021-22 was to get THC as high as possible, then the race in 2023 will be about minor cannabinoids.
“I think the consumer has gone from ‘oh it’s marijuana, it’s legal’ to now I see the benefits and occasions that I take the product. And this is probably the most exciting part,” says Charlie. “We’re now having conversations around the entourage effect, the roles of terpenes, the roles of minor cannabinoids. It’s not just about THC and CBD.”
Charlie sees the 2023 cannabis industry heading in this direction. He says, “they’ll always be a market,” that wants high THC. “But you’re going to see the bigger market come in where they see certain terpenes, certain profiles, entourage effect, and you’ll see the THC go down but the total cannabinoids will still be quite high,” Charlie says.
Charlie says in 2023, more cannabis consumers will realize that higher THC levels aren’t precisely what they want.
Speaking as this hypothetical consumer, Charlie says: “I’ve actually seen better relaxation, some better calmness, I’ve seen better pain control, when I start looking at the total cannabinoid and not just THC as a standalone. And I start seeing certain terpenes that I like better, I like the smell, I like the aroma, I like the way they make me feel.”
“I think that’s what you’re going to see in 2023,” says Charlie. A more informed cannabis consumer.
The companies that exceed will also be the ones “that can grow and scale effectively, and the companies that can grow in the boutique environments and maintain those craft principles.”
Final Word on the Cannabis Industry in 2023
What will the cannabis industry look like in 2023? For Charlie, if we want a perspective on the future, it helps to look at the past.
“Four ‘n’ half years ago, this was an illegal market and now it’s legal,” he says. “Canada was the first in the world to take the stage. There’s areas we can improve but look at what happened in just four ‘n’ half years. It’s been an amazing transformation. I think people forget that sometimes because they get frustrated with the day to day without stepping back looking at the amazing big picture that’s occurred.”
“We’re at the forefront of an emerging industry that is going to be global. And the spotlight is still on Canada. This was impossible five years ago.”
That said, the mergers and acquisitions trend is likely to continue in the foreseeable future. Consumers will become more aware of what they like versus don’t like, and brands will reflect these choices.
In other words, the 2023 cannabis industry will be a mature market where terpenes and flavonoids take precedence over THC concentrations. But where, ultimately, business mergers continue unabated.