We interviewed CEO Cy Scott to learn more about the cannabis industry, how fast the industry is growing, and how applying data to business strategies can help companies stay ahead of the competition.
Data is valuable to any type of company since they rely on it to make significant business decisions. Data is especially important in cannabis, however, since it’s evolving into a more traditional industry in that there are numerous operators, competition is intensifying, and companies are innovating at a rapid clip. It’s critical to have data that helps navigate this changing landscape.
Five to ten years ago data was rarely, if ever, used in cannabis because the market was so young. There wasn’t as much competition or as many brands in the market as there exists today. Now, cannabis operators are much more sophisticated and it has reached the point where data is more valuable.
Headset is primarily focused on retail-derived metrics that help us understand how cannabis is being purchased and who is purchasing it. The data is sourced directly from retail and dispensary cooperators by connecting to their point-of-sale (POS) system, which allows us to track real-time transactions and product inventory. The data we get access to is pretty comprehensive, as you can imagine just how much information retailers have at their disposal.
At the sales level we can see receipts, otherwise known as “baskets,” as well as inventory carry, pricing information, and staffing, such as the kind of staff on-hand at any hour of the day, and how that staffing impacts sales. We also collect demographic data through loyalty programs, from which we can extract behavioral information for each demographic. This tells us who is purchasing cannabis and how.
We chose to focus on the retail side because we consider it to be the source of the richest set of data on how cannabis is purchased. The transactions happen right through the retailer, so the best place to find such data would be with the retailers.
We opted for POS integration over asking retailers to push data to us because POS systems provide information in real-time. POS integration shows us how things are happening as they are happening, whereas retailers can typically only share data on a monthly basis. This is an important component because things change daily in the cannabis industry, and monthly data wouldn’t allow us to keep up with the dynamic nature of the space.
We do this in a number of ways. We have a mantra at Headset of taking analytics and turning it into action. With any sort of intelligence company, whether it’s marketing intelligence or business intelligence, the user is typically confronted with a lot of dashboards displaying different sets of data. This makes it difficult for the user to connect the dots between what they’re seeing and the actions they should take. Our solution is to turn that data into actionable insights by making those connections for them.
Impact-analysis reporting is a great use case for how people are able to leverage data to determine actions. Let’s say you want to measure the performance of a particular promotion. With Headset, you are able to look at the duration of promotion, laser in on sales of the brands or categories that you are promoting, and find the impact it had. You can then compare its impact to your prescriptive data, or projected revenue for that time. Based on the projections you can identify the percentage lift, or fall, in revenue that occurred while you ran that campaign. That insight helps you diagnose the next steps to take, whether it’s running more promotions similar to that one or pivoting to another strategy.
For brands and product manufacturers, a great example is pricing analytics. They’re able to examine pricing from a competitive set, looking at companies they’re competing against and their pricing strategies. If they want to align more closely with a competitor’s strategy, they can even test it in select stores, using Headset to measure how it impacted sales. Then they can look back at Headset Insights data to see if they are gaining market share against those competitors they were looking at from a pricing perspective.
It all starts with data normalization. We work with over 1,200 retailers and dispensaries and they each enter data in their own way. They have a taxonomy of how they enter products, different naming conventions, and so on. We take all data sources and normalize them to our product database, which is a set of products that are sold in the cannabis industry, then map everything that comes from the retailers back to those products. This process creates a uniform language of how to articulate how well products, brands, categories, and entire segments of the industry perform.
It is quite challenging to do and is unique to Headset. By doing so, we are providing value to our audience with one language - the “currency” of cannabis. We are showing them what works and what doesn’t work in the cannabis retail space.
Data is our core business so making sure it has solid integrity is paramount to what we do. We are transparent in the number of organizations we source data from, in the size of our sample sets, and in how we process the data. While others in the space may not articulate that, it gives our audience comfort that they’re using data with great integrity and which accurately represents the market.
We also validate our data with customers and those in the industry by comparing our numbers to theirs. We report on how well they sell in the market and they inform us of any discrepancies between our data and theirs. It’s a valuable data feedback loop.
The most exciting thing about Headset is that we provide data covering the cannabis industry to a wide audience that extends beyond operators in the space. The data is obviously very relevant to those that hold licenses to produce, distribute, and retail cannabis products, but there are also many outside of the cannabis industry that are impacted by it for a variety of reasons, such as the CPG market.
From their perspective, there’s a lot of opportunity to jump into the market. There is plenty of overlap between formats like beverages, edibles, and topicals that the CPG industry really excels at producing, and cannabis could be an exciting new vertical for them to jump into. We’re already seeing the crossover happen in markets like Canada where it’s possible due to federal legalization. We expect the same thing to happen here in the U.S. once we see changes at the federal level, which will inevitably happen.
CPG companies are thinking about cannabis from a competitive risk perspective as well. For example, a topical company may consider how their sales at department stores are faring against sales of CBD or THC-infused topicals available at cannabis retail. It’s important for these types of CPG businesses to understand the amount of market share going to things like pain relief. Beverage and alcohol companies are also contemplating the risks that are posed by zero-calorie THC-infused drinks that don’t cause any sort of hangover. What does that look like for the years ahead?
We also service a lot of other types of businesses that are ancillary to the cannabis opportunity, such as financial services providers. There are many financial companies covering publicly-traded companies in the space who leverage Headset data to understand how these brands are performing and see what the competitive landscape looks like for their covered companies.
There are also suppliers and hardware manufacturers looking for opportunities to enter the cannabis space and who could supply to the vapor pen industry. With Headset, they can evaluate the size of the opportunity by looking at how many companies are already producing cartridges. If they’re in development they can discern which companies to target in the space and what the competition is like.
Headset provides a host of robust data sets covering the cannabis space, so our customers come from across the board rather than from solely cannabis operators. They all have different use cases but they all need to understand the market, and that’s where Headset hits it.
I think ancillary and CPG companies will be first movers. Beverage and alcohol is a great example, as we saw with PBR’s newly launched cannabis-infused seltzer and Lagunitas’ Hi-Fi Hops. There are also examples of investments being made by larger alcohol companies into a Canadian cannabis operator. None of them are directly producing products, rather most of it is licensed-based, but that will change quickly when we see some anticipated federal changes with de-scheduling.
Pain relief and wellness is another CPG niche that will be one of the first movers. There’s a sizable contingent of elderly consumers entering the space who gravitate towards products like capsules and topicals. Companies making pain relief products will soon be looking at how they can put THC, CBD, or other cannabinoids into their topicals to make them more effective for their audience.
Generally, operators should be aware of brands that perform really well in certain U.S. states or Canadian provinces, and which are moving into their market. We see it happen often, where a top brand in one state moves into another state and takes significant market share. As an operator, product manufacturer, or brand in this space, you have to worry about not only the competitive set that you are currently dealing with, but also the brands that are working on bringing their products into your market. This would really accelerate if we saw change at the federal level and in the limitations on cross-state cannabis commerce. Once that happens, the floodgates will open to that type of competitive behavior because there will be fewer barriers to entry. Right now it’s challenging for an organization to move between states - they have to navigate the licensing structure, build or acquire facilities to produce products and then, of course, build their brand in a new region. This will become increasingly easier to do, but in the meantime as the market grows, they need to be very aware of their competitor’s movements.
I’ve been in the cannabis space for 10 years at this point. Five years ago when we started Headset, we saw an opportunity on the data side of cannabis with operators becoming more sophisticated, investment flowing in, and competition increasing. It all signaled a massive opportunity to bring a comprehensive, unified data set to the industry to help them make those difficult decisions around how to navigate risk and find opportunity.
I’ve always been interested in data, and data is very much the exciting frontier these days. When I think about market or business intelligence, which is our specialty, I notice a lack of innovation. You have old guards like Nielsen and IRI who have been conducting and collecting market research for over 100 years using the same methodologies. Some aspects are more modern, but the way they source data and how they report the data has not significantly changed over the years. It was exciting to come in from a technical perspective and rethink how marketing intelligence is executed and how we can bring modern technology to our customers.