MSO Exec: Cannabis Industry Wasted Billions on Marketing Strategy

A multi-state operator is challenging a core assumption that's guided cannabis business strategy for the past decade: that the industry has a marketing problem. According to the executive, companies have been funding the wrong discipline entirely.

The argument centers on a fundamental misunderstanding of the customer base. "The customers were always there," the MSO operator stated, pointing to decades of illicit market activity as proof. "The job was never persuasion, it was conversion."

The distinction matters—and it's costly. While traditional marketing focuses on creating demand and changing minds, conversion strategy assumes demand exists and focuses on capturing it. For an industry that spent years operating in the shadows with millions of active consumers, the latter approach may have been more appropriate from day one.

The Billion-Dollar Miscalculation

The cannabis industry has poured massive resources into traditional marketing infrastructure despite operating under severe advertising restrictions. Federal prohibition means no national TV spots, limited digital advertising options, and social media platforms that routinely ban cannabis accounts.

Yet companies continued building marketing departments modeled after traditional consumer packaged goods firms. The result: expensive campaigns aimed at convincing people to try cannabis, when data suggests the real challenge was convincing existing consumers to switch from illicit to legal channels.

Market research supports this view. In mature markets like Colorado and Washington, studies show 70-80% of legal cannabis customers were previous consumers before legalization. They didn't need to be sold on cannabis—they needed reasons to choose licensed retailers over their existing sources.

What Conversion Actually Looks Like

A conversion-focused strategy looks radically different from traditional marketing. Instead of brand awareness campaigns, companies would invest in:

• Competitive pricing against illicit markets
• Convenient retail locations and hours
• Product education for existing consumers
• Loyalty programs that reward switching
• Supply chain efficiency to lower costs

Some MSOs have already shifted toward this model, though often after burning through marketing budgets first. Dispensaries in competitive markets now emphasize deals, points programs, and product availability over lifestyle branding.

The operator's critique also touches on regulatory realities. Federal restrictions mean cannabis companies can't deduct marketing expenses under IRS code 280E, making every dollar spent on traditional advertising even more expensive. A conversion strategy focused on operational efficiency and competitive pricing might have delivered better returns under these constraints.

Industry Response and Implications

The argument arrives as cannabis companies face mounting pressure to demonstrate profitability. Several major MSOs reported losses in recent quarters, with marketing and general administrative expenses often cited as problem areas. Curaleaf, Trulieve, and Green Thumb Industries have all announced cost-cutting measures in recent months.

Not everyone agrees with the conversion-over-marketing thesis. Some industry executives argue that brand building remains essential for long-term success, particularly as markets mature and products commoditize. They point to alcohol and tobacco as examples where marketing investment paid off over decades.

But the MSO operator's perspective raises questions about whether cannabis should follow traditional CPG playbooks at all. The product had near-universal awareness before legalization began. The challenge wasn't making people aware cannabis existed—it was making legal cannabis more appealing than the alternatives.

Looking Forward

As more states legalize and competition intensifies, the industry may be forced to reckon with this strategic misstep regardless of whether companies agree with the diagnosis. Margins are tightening, and investors increasingly demand profitability over growth.

Companies that can efficiently convert existing consumers while maintaining lower operational costs may have an advantage over those still investing heavily in traditional marketing infrastructure. The next few quarters will test whether the industry can course-correct after a decade of what this operator calls misallocated resources.

For newer markets coming online, the lesson may be even more valuable: know your customer base before you build your strategy around changing it.

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This article is based on original reporting by hightimes.com.