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The Bengal Bite 
Lessons from California - Brands in Cannabis, Part II
August 13, 2021

It’s been a few months since we last checked in with our brand new “Antarctic IPA” consumer, so we thought we’d check in with them, or at least see if we could find some data that supported our thesis that when consumers first discovered a new product category in cannabis they “want to try some different types and experiment before settling in on a definitive brand of choice.” In this environment, what then gives a company’s valuation and revenue potential protection is not just a punchy brand, but a consistent underlying infrastructure -- the ability to get on dispensary shelves and stay on the shelves thanks to sales execution and consistent distribution. 

Building brand affinity among consumers who are new to a product is extraordinarily difficult when they have nothing in their internal database to compare it to. Oftentimes, even if the interaction with the product was delightful, it emboldens the customer to try other types in order to experience more of that category. Eventually, they may come back around to the first brand that they enjoyed but it's often a long and circuitous path.

We see this trend when looking at flower sales. The top-selling cannabis brands in California in 2019 were Flow Kana and Candescent, two brands that pride themselves on consumer education and also increasing transparency and accessibility in the cannabis space. Both of these values are incredibly important, but it looks like after consumers were introduced to legal cannabis by these brands they quickly started experimenting, oftentimes landing on bulk brands such as Pacific Stone or with higher-end, premium brands such as Cannabiotix - which went from last in our cohort in 2020 to be on a run rate to being the #1 selling flower brand in California. (Disclaimer: granular retail sales data is not always accurate, but can generally show trends well)

This trend is also seen in California vape brands. The industry leader in 2019 was Select, which was one of the first companies to create a multi-state, recognizable brand and was ultimately acquired by Curaleaf. However, Select did not keep its place for long, succumbing to Refined Live Resin pioneer, Raw Garden. Raw Garden’s vertically integrated model of owning their biological supply through expert genetics and farming allowed it to withstand some of the turbulence of late 2019 and 2020’s vape crisis.

However, as consumers returned to vapes across the board, Raw Garden began losing the top-selling vape spot to Stiiizy. Stiiizy has been able to build out robust infrastructure by owning most of their own supply chain AND supplemented that with their own fleet of beautifully branded storefronts to support and promote their brand.  As you can see - the trend thus far has been MORE verticalization, and MORE infrastructure has led to better results for the industry-leading brands in the Vape space. 

Verticalization is an interesting trend because many industry watchers initially predicted that many brands would live above growing and processing, and would just use commodity inputs to create their products. For now, the opposite seems to be true - operations ability is still a material advantage in cannabis. 

Regardless of where consumers move next, the winners are consumers because the pace of innovation certainly doesn’t seem to be slowing down.

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This Week's Bite:
  • The Constantly Changing Cannabis Industry with Sanjay Tolia at Bengal Capital (PrimeAlpha - Podcast) | Bengal Capital's Managing Director and Founder, Sanjay Tolia sat down with PrimeAlpha to talk about the “Second Inning of Cannabis.” Sanjay simply explained how to think about cannabis in an investor's portfolio: Counter-cyclical, Growth at a reasonable price, and Uncorrelated.
  • The Man Behind Green Thumb Industries (MG Magazine) | Founder and Chief Executive Officer Ben Kovler has ported his family’s entrepreneurial tradition into another runaway market.
  • Cannabis Site Leafly to Go Public via SPAC Merger (Reuters) | Top cannabis-focused website Leafly on Monday agreed to go public by merging with a blank-check firm owned by one of its biggest backers, Merida Capital Holdings, in a deal valuing the combined company at about $532 million.
  • Scotts Miracle-Gro Announces Cannabis Investment Entity, and a $150M Investment in RIV Capital (Yahoo News) | Scotts Miracle-Gro knows how to make plants grow, and now the company is looking to cannabis companies to grow its balance sheet.
  • Cannabis Earnings Season Continues:

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About us

We’re Bengal. We’re an aligned group of people with the good fortune of having immersed ourselves in the emerging cannabis industry. We pride ourselves on intentionally selecting where we place our attention; we’re lucky that way. We aim to roll up our sleeves and be partners, whether as a trusted advisor, capital provider or friend. We feel like we’ve made every mistake and can hopefully help prevent others from the same. Our lessons learned keep us humble and we are balanced by an inner confidence borne from our track record and trusted relationships; we are most grateful for these vibrant connections. We simply like to help and get aligned with great people and great opportunities.

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