August 14, 2020

Market Interview: Meet Phil McDonald

Headset teammate Phil McDonald talks about what's impacting the Canadian cannabis market.
Written by
Team Headset
Published on
August 14, 2020
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Why does your region/markets need a data solution like Headset? 

Canadian cannabis companies need a data solution because it is still such a nascent industry that changes quite rapidly. When cannabis was federally legalized in October of 2018, we saw a staggered roll out of basic products we call “Cannabis 1.0” which included oil, flower, prerolls and capsules. This past January, new product formats were introduced to the market, a rollout called Cannabis 2.0 that included edibles, concentrates, beverages and topicals. With all of these new products hitting the shelves, consumer preferences and habits changed. This type of information would prove useful to retailers and brands to better tailor their offerings.

It is critically important for all industry actors to have access to these insights, whether they are a retailer, cultivator, brand or investor. These real-time consumer trends help companies properly strategize and plan for future opportunities. With the right information, retailers can identify the best product assortment to have on the shelves. Brands would have a better understanding of which product to introduce next, be able to define the white-space and find the most effective pricing and positioning.

Name 3 of the biggest challenges in the region that you manage.

The first problem is with product inconsistencies. Retailers will reorder a product that, in the next delivery, has materially different THC percentages. This is problematic because consumers expect a product to be the same each time they buy it, especially if they specifically seek out a high or low THC product. Consumers have complained about labels misrepresenting the potency, with a class-action lawsuit filed just four weeks ago against four leading producers for this exact reason.

Secondly, the government’s involvement in the supply chain poses a challenge. Canada is unique in that provinces have three different levels of government involvement. There is either a mix of private company and public government influence, total government control or complete private business control. In Ontario, British Columbia and Alberta, the government runs distribution, buying from producers and selling those products through wholesalers to retailers. The government also has a monopoly online as they are the only organization allowed to sell through e-commerce. This creates an environment where retailers are not only competing with other retailers, but also the government.

The last challenge in Canada are the regulations. The government’s approach was to over-regulate, take a critical look at the industry and pare down unnecessary rules over time. However, the government has yet to remove or alter many of these regulations. For example, many provinces require retailers to have opaque windows, further stigmatizing the industry and affecting public safety through unseen robberies. The province of British Columbia has since rolled back the requirement but it is unknown whether other provinces will follow suit. Ontario allowed private retailers to deliver to customers during COVID-19 closures but has indicated it will not continue past its emergency order. These regulations barring private companies from delivery only hamstring retail operators and create hardships for an industry still in its infancy.

Name 3 of the biggest opportunities in the region that you manage.

The biggest opportunity in Canada is cannabis education. The average consumer is not all that educated on cannabis. Even those who have experience with the plant don’t necessarily know about cannabinoids and terpene profiles. This is an opportunity for people to better understand the plant and some of the effects that may be unique to them. Many people around here aren’t aware of any cannabis brands, either. Strict marketing regulations make it difficult for marketers to leverage traditional advertising channels to connect with consumers and communicate their brand story. Retailers have a lot of power and influence here to teach their customers more about their products.

The second opportunity is technology-enabled retail. Cannabis being such a new industry means businesses are not bogged down by legacy systems. We are now seeing innovative technology that marries with human touch for an improved customer experience. For example, some retailers now have in-store discovery tools on iPads or kiosks that allow consumers to discover brands and products that fit their needs. There is an appetite for a digital-first approach and we have just opened the door to possibilities.

Lastly is the opportunity for Cannabis 2.0 and the evolution of these products. They present a chance to bring innovation and creation to the industry. Cannabis 2.0 brought an explosion of product SKUs, helping brands differentiate from others and helping retailers effectively curate their product offerings to drive in traffic. This introduction is also broadening the pool of potential customers to those who desire a consistent onset and offset like with edibles and beverages, or those unwilling to use inhalables. 

Name a few movers and shakers in your region as far as brands go. Who’s doing something different and why is it noteworthy?

Though I can name many, one that comes to mind is Ace Valley, a local Ontario brand. They’ve leaned on their brand in the alcohol and beverage space to raise awareness. They keep their business strategy simple with high-quality products across different categories - a quality sativa and indica flower, pre-roll and disposable vape. They’ve leveraged their strength in marketing and brand-building, and have built strong partnerships with producers and retailers to enter the market.

Ottawa is my hometown so I’m a little biased here, but with that in mind, the other is a retail brand called Superette, one the first retail stores in Ottawa. Their locations have a 1950’s Diner vibe that is colorful and inviting. They’ve also used elements of design-thinking such as using colour-coded baskets to indicate whether a customer wants assistance or be left-alone to shop. They are great at curating products and picking neighborhoods that fit their image, then building a community around that.

Let’s talk about Headset, what got you interested in working in data and cannabis specifically and why did you choose Headset? 

I have always been a bit of a data nerd. I used to play around with coding and data science projects when I was younger. I also founded a business analytics club while studying for my MBA at the University of Toronto.

Regarding my position at Headset, I always look at three key areas when evaluating job opportunities - the industry, the role itself and the team - and Headset really hit the nail on all three. First, it’s rare to work in a brand new industry. Being on the ground floor helping to shape the industry is extremely exciting to me. Second, my role entails growing and scaling the business effectively across Canada. It’s been great seeing how far we’ve come as a team and organization since legalization and I look forward to what the future holds. Lastly, I really hit it off with the team when I was interviewing for this position. I was impressed with the caliber of people working at Headset - very smart and empathetic, coming from all different walks of life.

What are your day-to-day responsibilities at Headset?

No two days look the same, but the variation is part of the fun. That’s what happens when you work in a growing industry. Each day I keep a pulse on the micro and macro trends happening in each province and work to find opportunities for Headset to better serve the industry and our clients. I explain to clients how to use the data we provide and connect the dots to really advance their business objectives. I teach them that it’s not just analytics for the sake of analytics. Clients need to take a deep dive and correctly discern the data to find their own unique trends and information, then translate that into an actionable strategy.

I also speak to new clients, existing clients and other technology firms to collaborate on bringing new capabilities to the platform. Every day I work towards laying the foundation that will allow us to aggressively scale from coast to coast.

What’s your relationship to the region that you’re managing?

I am currently based in Toronto but was born and raised in Ottawa. Canada is my home. It was exciting to see Canada become the very first G7 country to federally legalize adult-use cannabis. The framework is being built in my home country, and we are playing a global role in influencing other markets.

What makes your region’s approach to legal cannabis different/special from others?

Canada’s approach is unique because it is the only the second country that has federally-legalized adult-use cannabis. However, distribution and retail is handled differently by each province. In Saskatchewan, private companies have complete control over distribution, retail and production. In Quebec, New Brunswick, Nova Scotia and PEI it is a closed market  with the government running all wholesale and retail. Everywhere else it is split, with the government controlling online access and private companies owning brick-and-mortar stores. It makes for a vast difference across Canadian provinces.

We are also unique in that we are seeing advantages from being federally-legal. Cannabis companies have access to traditional banking and financial instruments. Retailers, producers and brands alike are allowed on the public markets and can publicly fundraise. We are also seeing talent join the cannabis industry from areas like CPG, pharmaceuticals and alcohol beverages. They are bringing their learnings and best practices from their past experiences to help accelerate the cannabis industry 

From the data you’ve seen, what have been some of the more significant impacts of COVID in your region?

A lot of regulations have been scaled back to adapt to the times we are currently living in. COVID-19 pushed regulators to temporarily suspend various rules against private businesses. Cannabis companies are allowed - for now - to participate in curbside pickup and engage with customers online. There’s also a temporary decree to allow private retailers to deliver. This aided in the online movement where we saw a spike in online transactions due to stay-at-home orders and closed brick-and-mortar stores.

Consumer behavior around cannabis has changed, as well. We saw stockpiling during lockdown with larger basket sizes and shifts away from inhalables, particularly prerolls, and into edibles, beverages and tinctures. COVID-19 exacerbated that adjustment from smokeable products to edibles, tinctures and other non-inhalabled cannabis.

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