August 10, 2019 15+ min read

Our guest on the podcast is Cy Scott, the co-founder and CEO of Headset, Inc,  an analytics service provider for the cannabis industry. Their customers look to them for market research and data analysis and they source that data from retailers and dispensaries across the US and soon in Canada. 

So basically, Cy Scott has his fingertips on information about the burgeoning cannabis industry that is very hard to research, and for that reason his customers pay a pretty penny, sometimes up to a quarter of a million dollars, for his research. But you don’t have to pay anything today, because this podcast is absolutely free and Cy has generously lent us his time and his knowledge and today we’re going to look at specifically the millennials and what they are buying and what they are consuming.

So Cy and I had a great conversation. We talk about why and how he started Headset,Inc. after exiting Leafly. We talk about the challenges in collecting data on the industry and how they are working to overcome those challenges. Then we take a deep dive into what millennials want and what they don’t want in cannabis, what their consuming habits are, what they’re purchasing and what are some of the top-selling brands in the space. 

Someone once said that without data you’re just another person with an opinion. I hate opinions, but we’re about to give you some data. Here is Cy Scott. 

What’s the a-little-bit-longer-than-an-elevator-pitch version of Headset?

Cy: Yeah, so Headset, we’re a market intelligence company for the cannabis industry and we help cannabis operators whether that’s retailers, product manufacturers or other interested parties in the cannabis space make more informed decisions based on market data. We source our data. Everything here starts with retailers and dispensaries. So we work with retail and dispensary co-operators and we provide them a variety of services, and in exchange we use all of the transactional information and aggregate, so an anonymized aggregate, to paint a picture of what’s going on in the market. 

So down to the — From the skew level or the product level up to the brand, to the sub-category and category and so on. So you can really better navigate the competitive landscape and really find opportunity in the markets and understand your brand position, if you’re an operator that’s selling products.

 And how long have you guys been around?

Cy: We started Headset about four years ago at this point, after departing Leafly. So we got our start in the cannabis industry back in 2010 founding Leafly originally. We built that up and it ended up with an acquisition as private tier. We stuck around with the private tier guys until about 2015 and then saw a real opportunity in the data space, driven by a couple of factors. There were a lot of groups coming to us kind of asking “What’s going on the industry? What’s going on in the market?” and trying to determine if they should jump into new categories, new product formats and so on and looking for information around that.

Then also, just really looking at the cannabis industry as cannabis might be a consumer packaged-goods at some point and consumer packaged-goods companies need market data to drive decisions and why would cannabis be any different. So it was really the motivation for us to start Headset.

Are you available in every legal use state?

Cy: We are, we are. We do work with retail co-operators in all markets. So any sort of market whether adult use or medical, and we have a sizeable retail and dispensary footprint. Right now, our market measurements are available in California, Colorado, Nevada and Washington, but we’ll be turning on Oregon and Canada really soon. 

What is your background? 

Cy: So technology and start-ups is pretty much mine and my co-founders background… different start-ups over the years. Prior to cannabis, we were actually at Kelley Blue Book, kbb.com, doing consumer internet there; and before that some other start-ups, mostly in the mobile gaming space personally. That’s kind of where I came from. So way back in the day, before the iPhone and all of that. So the old NOKIAs and Sony Ericsson phones that people don’t really remember anymore. 

So I started there and we already saw this opportunity in cannabis back in 2009 when we started building Leafly. We saw this trajectory of new dispensaries coming online and more and more people going to dispensaries and getting their doctor’s recommendation. It was not legal for adult use at that time in any market. We were based in southern California at the time, and so we saw this opportunity to help really demystify the industry and really help people make sense of these different strains and find dispensaries and so on and that really became Leafly. 

So very much a product of opportunity, and then as we’ve been more entrenched in the space and more involved, kind of learning the nuance of the war on drugs and the net benefit that legalization does have, really is a good encouragement for us to stay in this space going forward.

So what’s the biggest question that you get as far as that data goes?

Cy:  With Headset, I like to say we’ve got the best seat in the house for the greatest show on Earth right now, because we can see all these brands that are merging and that are coming to market and getting traction with consumers that are still in brand loyalty and it seems to be kind of top-of-mind for everybody, building the brand that will last for decades to come. 

So I get asked that quite a bit: What brands are doing well? What kind of products are really excelling in the market? What’s resonating with consumers? What kind of purchase behavior do consumers have? and so on. So that’s a common one and then kind of categories, like: What categories of products should I be investing in? Should we making a vapor pen? Should we be diving into pre-rolls or capsules and so on? So that’s another one, certainly.

Then we get some stuff around CBD versus THC and how that’s shaking out as well and kind of insights into that. So those are some pretty common questions I get asked; kind of what people are purchasing, who’s purchasing it and how is it going to affect my business and so on. 

So you bring up CBD. So are you looking primarily at retail at dispensaries? 

Cy: That’s right. That’s right, yeah. So as the world moves to the CBD and non-psychoactive CBD that’s available in drugstores like Walgreen’s and so on, we do not do a market measurement there. We’re strictly focused on dispensaries and adult use retailers that sell CBD products. So often they’ll be like THC to CBD ratio products, like 1:1 or 2:1 or so on. 

So we track those sales, but it’s really a compelling narrative for someone that’s looking at the CBD market because frankly stuff that is sold at retailers, cannabis retailers, is competitive with things that are sold on store shelves at Walgreen’s, and if you’re in a market like California and you can go to a dispensary or a cannabis retailer and purchase a topical which has a very light amount of THC potentially and a high ratio of CBD, that is a substitute of product or something that you might see at a Walgreen’s. So it’s good to have a good holistic picture, if you’re doing research in the CBD market.

Are you talking to companies like Walgreen’s and some of the other big retailers that are planning on or that carry CBD or are planning on CBDs or putting them into your system?

Cy: Not directly, but we do have a strategic alliance with Nielsen and Nielsen is a global leader in market intelligence services. They really focus on the consumer packaged good industry, so CBG industry. So they support clients that are in the wellness categories or alcohol and tobacco. These are categories that are looking at the cannabis industry from a risk profile perspective but also from an opportunity perspective. So Nielsen, as you can imagine, has great relationships with the large big bucks retailers and not dispensary but pharmacy chains and so on that might be selling CBD products. So we’re working with them to get a market measurement on that side to combine with what we’re getting directly and provide that holistic view of the CBD industry. 

So I’m going to be that annoying guy that approaches you at a conference or at a cocktail party and wants to know what brands are hot. I imagine that question is tricky right, because it’s different in each state and it also is different what form factor we’re talking about here. Like who is the big vape person? Who is the big tincture person? Are there certain brands that transcend all those limitations, like they’re big in every state and they’re big across all the different platforms or form factors?

Cy: Not really. I think you hit the nail on the head there. The market is very fragmented. So every state is its own market in many ways – different regulations, different legislation and different license holders exist in different markets and so its pretty much that every market has a unique set of leaders. That said, there is some overlap. You see some brands that do cross state lines. Often those are licensing arrangements or potentially they have direct production licenses but that seems to be more the exception at this point. So it really does depend on category, on markets, package size or weight (depending on the product type) to kind of determine who is the leader. So yeah, every market is a little different. So it’s kind of hard to call out like “this is the biggest” or “this is the best”. 

When I was putting together the Green 100 List that was a struggle we had, is that there is no one place you can go to find out who is the bestselling vape manufacturer and a lot of people claim to be, too. So maybe you can figure out who the best vape seller — I could go to Headset and figure out who the best vape sellers are in California, but I am not so sure I would be able to figure it out — Or Colorado, but not in the nation, in the world. 

Cy: Right, exactly. Every market’s a little different.

Yeah, and it’s an unfair advantage anyway because there are so many more people in California that I would imagine you might sell more in California just because there’s more people here, but the one in Colorado might be per capita more popular? 

Cy: That’s a very good point. It’s true. California is a massive market. A lot of brands are looking at California as the market. If they have to pick one market, California is it, because of the population and the opportunity there. For a market like Colorado and Washington, they have a smaller population yet it still does a good amount of sales but it’s nothing compared to where California is already and where everyone expects it to be going. The same can be said for Canada. You know, Canada is about the size of California. So people really look to those markets and there are brands that are doing really well there in a variety of categories.

So since it’s hard to kind of identify which brands are the hot brands unless we go state by state, maybe it’s better if we focus on the consumer, because I think — Or maybe not? Are there consistent trends across state lines when we’re talking about a certain type of consumer? Let’s say we were focusing on a millennial consumer. Some of the data on those people as far as their cannabis consumption, does it remain consistent from state to state?

Cy: Yeah, yeah, absolutely. It does. So we get some great demographic data from some of the loyalty programs that retailers are leveraging and we can see most of the sales are still going to the millennial market. So about 50 percent of market share is going to millennials right now with Generation X and Baby Boomers at about 24 percent and then we have — It’s kind of book-ended by the post-millennials or Generation Z, as many people are calling them, and the Silent Generation kind of also coming into the market. 

So we do see some consistent pattern there, which is unsurprising, you know? A consumer in Nevada is probably very similar to a consumer in Colorado. It’s just the product and the format is maybe a little bit different just based on the rules in those different markets.

Let’s talk about millennials. What are the formats do they prefer?

Cy: Millennials seem to be buying the largest percentage of the pre-roll category, so purchasing a lot of single pre-rolls but also concentrates. Some of our assumptions around that are related to pre-rolls being a relatively inexpensive product; you could buy a single-pack pre-roll for pretty cheap. So they are purchasing a lot of units of that, and then on the concentrate side I think it just goes to the higher potency products, which is very different than maybe you’d see out of the Generation X or the Baby Boomers that are looking for something that might not be as psychoactive or as potent. 

But the younger generation seems to be more acclimated to that or more open to having higher potency products like concentrates. So they definitely are over index on those categories. Probably the thing that they purchase the least amount of would be edibles, compared to the other generational demographics.

So they account for less than 10 percent of millennial sales that are going to edibles, and then other demos you see it’s above 10 percent. Not too much above you know, like 12 or 13 percent depending on Generation X and Baby Boomers but for whatever reason they’re not really gravitating towards edibles.

Why do you think that is? 

Cy: Good question! It could be price point. It could be format and packaging. It’s hard to know exactly why that is; and we also see them, millennials, having the highest trial of beverages. So beverages are also consumable and non-inhalable product, but they seem to be trying those a bit more. There are beverages that come in 100mg package size, so maybe they are looking for just the ability to drink 100mg of cannabis, kind of in line with purchasing concentrates which might be more potent than small serving edibles, but it is pretty interesting that they seem to like beverages a bit more than edibles.

Then on the vapor pens and others, they’re about equal – flower or vapor pens and other categories. What they’re not purchasing are things like topicals, capsules, tinctures or more of the wellness products. Those seem to be resonating with the older generation – less psychoactive, maybe more for pain management and relief and things like that. 

Yeah, I understand from the pain management perspective but from the beauty products and stuff, that’s interesting. Of course, you’re not necessarily looking at some of the CBD. You won’t have access to some of the CBD sales that are outside of sort of the markets that you’re able to research, but even like SoulCycle just started this CBD line and I feel like that’s such a millennial brand. It seems like the millennials are kind of into CBD, but what are you seeing as far as that in your research?

Cy: They may be at traditional retail places like SoulCycle, but really the data that we see pretty under-represented, I would say. When we look at CBD dominant products and we look kind of the male to female split, there is a bit of a difference where female millennials, 7% of their purchases are high-CBD products. So a pretty small percentage overall, but when you look at male millennials it’s even smaller. It’s a 4%. That’s why we consider CBD-dominant or high CBD-based products, which could be like a ratio of 1:1 THC to CBD or 2:1 and so on. So it is a pretty small percentage.

Often CBD-based products are more expensive and then that could be partly why they’re purchasing less of it. Millennials are famously known for not having the kind of income that other generations might have. So maybe they’re being a little bit more cost-conscious. 

I want to go back to this edibles thing for a minute. Whenever I have this conversation about edibles with people of that age group or even my age group (I’m more of Gen X-r) but it’s always about “Oh, I would never do an edible” or like “Oh, I had the worst experience with an edible” and I’m wondering if there is also, aside from maybe price, there is something about people that have had bad experience with edibles. 

Cy: Yeah, that’s very true. You know, I think there is a lot of that historical stigma to the pot brownie. You take the wrong bite or the wrong brownie out of the batch and you just have a bad day after that, but there are more micro-dose products that come in 5mg or 2.5mg, so there are alternatives but maybe millennials are just kind of passing by because of that poor experience and it’s definitely something that the edibles category has got to change some perceptions around going forward with consistency and smaller potency, if that’s what you’re looking for, not the 100mg brownie that you eat in one bite.

It seems like so much of the edibles come in candy form. Is that changing?

Cy: It definitely is. We’re seeing more and more products coming to market, so more skews available. So the assortment is getting better for things that are non-confectionary based. That said, still a lot of the sales go to things like gummies, chews and kind of the Starburst style products.

For whatever reason, they still seem to do pretty well. It could be single servings or they can get them in 5mg or 10mg packages versus a brownie, which is a bit harder. You get a single serving brownie in maybe 10mg, but to get 100mg brownie you’d have to have a very small brownie and so on. 

So it’s kind of changing. We’re seeing more savory-type products coming to markets and stuff that’s less sweet, but you’re absolutely right. A lot of it is confectionery and that could be a reason why they’re not gravitating towards it. 

What do millennials think about flower? I feel like we did a story recently and I don’t remember where we got the research, but that they preferred vaping or the oils to flower? Has that been your finding as well or is that not accurate?

Cy: Yeah, no. That’s very accurate. The flower market in general continues to decline in its percentage of overall sales. I mean, dollar sales of flower… Dollar sales of everything keeps going up. More and more people are buying cannabis and more and more products are available, so the markets are climbing but as far as percentage of sales going to flower, it’s getting a bit smaller. Every new market starts out at about 80% of sales going to flower off, and that has to do with that there’s not other formats available. When we look at the Canada market, for instance, they don’t even sell much outside of the flower products. They sell some oil and capsules, but they don’t have [indecipherable 18:18] or vapor pens and so on. So it’s about 80% flower in that market right now, and the same could be said for California or Washington and other US states, but what happens is it gets much smaller.

Right now, millennials are about 48%, so just under 50% of their purchases go to flower and yeah, they’re gravitating more towards the concentrates or the higher potency or if they are buying flower it would be in the pre-rolled format where they’re purchasing a larger percentage of pre-rolls. 

Do they tend to buy that sort of disposable vapes, as I would imagine? Like the quick vapes?

Generation X actually seems to be the highest purchaser of vapor pens and I’m with you in that generation as well and I find myself just anecdotally — You know, I find the convenience pretty nice and for my peers as well. So it seems to resonate, but that said, I mean millennials are definitely buying vapor pens. As far as disposable versus cartridges and reusable or re-chargeable, its a good question. I don’t have those numbers off the top of my head, but I’m happy to kind of dig in after to give you some metrics.

As far as how they buy it, are you looking also at some of the online and the do they prefer to have it delivered or to order it online or to go actually to a physical storefront and buy it?

Cy: Yeah, you know, the delivery model really is only relevant in California. Other markets like Washington, there’s no delivery. So there are some limitations there. We haven’t parsed out the California data at that level yet to really see the nuanced difference, if they’re purchasing delivery versus in-store, but I would imagine if we were to dig in you would see it more represented of delivery. You know, it’s the whole convenience, the Uber Eats model and the DoorDash model and the time savings. That seems to be resonating. So I would suspect that we would see that. 

In markets like Canada, it’s pretty interesting because you have the online e-commerce where it actually gets shipped to you. So we’re just trying to look at those metrics as well, but it’s a little early to say there, but it’ll be quite interesting to see how that shakes up. People that prefer to go a store versus ordering online – and we found that in Canada specifically, as the Ontario province, it used to be strictly e-commerce, driven by the OCS which is an Ontario cannabis store. So it’s the only place to buy cannabis in all of Ontario which is the most populous province in Canada and it wasn’t until they started opening these retail brick and mortar stores, which only happened in April this year; that you really saw some of their revenues and have climbed to match their population. 

So it kind of goes to show that a lot of people are new to the industry, coming into cannabis today and they want to go to a store to learn more and to talk to the bud tenders and to be a bit educated and not they’re not really doing the online ordering quite yet because it’s harder to get the information you need to make that informed purchase decision versus going in and asking questions and learning about all of these new brands and products.

Are there any markets than you feel are not markets or products? We’re talking about millennials specifically here. So are there any sort of holes in what they’re looking for and the market isn’t quite providing? Maybe I shouldn’t even say “holes”. Let’s say “opportunities” that seem a bit under-served that you’re noticing?

Cy: Yeah, I think kind of based on their purchase behavior I think yeah, it’s continuing to push where they are buying. So investing in pre-rolls, we’re seeing a variety of different pre-roll types. You’re getting kind of the more connoisseur pre-rolls. They go beyond just the flower. And if you kind of combine this idea of them purchasing concentrates which are traditionally more potent, the shadows and the waxes and so on, with pre-rolls you’re starting to see –

Although it’s few and far between right now, this idea of wax-dipped pre-rolls or [indecipherable 21:46], so more potency around the pre-roll, and I think if you could look at developing products in that format and keeping the price pretty low, like single serving size that’s more affordable for the millennials, I think that’s a bit of an opportunity right now as people are looking to crack that market. It might be one example.

Are you able to see any kind of brand loyalty? 

Cy: Yeah, definitely. The data that we have, we can see loyalty and it really just depends on the brand. So right now for our clients we’ll do kind of ad hoc or bespoke work for them where we can give them a sense of the kind of behavior of their consumer. How often do they repeat purchase? When they purchase your products, are they throwing in other products or other formats that are complimentary and so on. So we do definitely have that type of information. I think in general we’re definitely starting to see it. I think the sales trends are somewhat a combination of loyalty but also just exposure and reach; essentially how many doors is your product in and how many locations is it available at? 

We find that the groups that have the largest distribution with a consistent product at a reasonable price seems to sell really well, but the shelf space is getting crowded and consumers are getting smarter and in a market like Colorado or Washington where it’s been in operation for well over four years at this point, people are starting to learn brands and look for brands. In a market like California, that’s definitely happening. It’s just a bit newer, you know? It’s 18 months or 19 months old at this point. So I think it’ll get there certainly, just like any CPG industry. People go to the store to buy beer or what have you and then often are very brand driven. So we expect cannabis to be the same. 

You mentioned consistency, and you mentioned price. Are there other factors?

Cy: I think in traditional protocols like alcohol a lot of brand-building is driven by marketing and brand positioning, how people perceive a product and how it might resonate with their belief structure and so on and that’s frankly pretty challenging in cannabis because of the marketing limitations that we have, and so that being said, I think pricing and consistency; but I think that in in the in-store experience and having good packaging, good positioning at the retail and kind of how the retailers talk about you, so how the bud tenders articulate your brand is paramount. 

So when a consumer comes in they can talk about your company in the way that hopefully you’d want to be talked about in a consistent manner across all the different stores and a lot of that has to do with bud tender training and we see a lot of companies out there in the years that we’ve been in the space that are investing quite a bit in doing outreach. You probably see them in products in stores where there’ll be like, vendor day. 

So they’ll come into the store themselves and talk to the consumer about the products, and if you can scale that by getting the retailers to do that work on your behalf, I think that really resonates with the consumer because the consumer really needs to know: What is this product all about? Why is this one different than that one, given its similar price and similar format? What am I going to get a bit differently here with this brand versus another and having the retailer articulate that will go a long way.

In California, who are the big sellers right now?

Lowell Herb Co. or Lowell Smokes.  Right now when we look at the last 365 days in California, they’re definitely number one. Loudpack, High Grade Farms, Dime Bag, Henry’s Original, Ganja Gold, Sublime Canna – those are all in the top there. Canndescent, as well. 

 State-wise what’s the second biggest market, after California? Colorado or Washington or — 

Cy: Maybe Nevada? Given its small population and it gets a lot of tourism, but as far as total dollar sales I think right now Colorado with Washington close behind there. So pretty close, but yeah. In Colorado, looking again at the last 365 days, it actually has a lot of vertical integration, so a lot of the pre-rolls are just house brands. We classify them as house brand if they’re sold only at that dispensary chain but nowhere else. 

 

There’s a lot of sales, but following that we’ve got Bonsai Cultivation, High Level Health, Caviar, Willie’s Reserve, The Flower Collective (or TFC), Yuma, District Date, Kayak Cannabis – those are all there in the top ranking

If somebody wants to use your services, I know it comes in different tiers. What’s the best way to sort of figure out what tier is right for you?

Cy: We sell our insights products based on market and category. So it’s designed that way because if you are only producing pre-rolls and you only really care about the pre-roll market, you can purchase just that data set and not having to look at capsules and tinctures and maybe stuff that’s not relevant to you and your business. So that’s kind of how we structure it. We work with every one of our clients to kind of better understand what they’re trying to solve and kind of once we get them plugged in, then we can navigate the app with them and give them great training so that they can really know how to use the service. 

 

It’s a SAS model. Our software is a subscription, as they call it. So you go in, you log in and you can browse all of this data and kind of deep dive. Looking at the example of the top brands, you might want to dig into one of those brands and understand what makes Caviar a Top 10 brand for pre-rolls in Colorado, like what products are driving those sales, at what price point and what wholesale price. All of those kinds of analytics can really help drive decisions in the market. So I just encourage your listeners, if they’re interested, to reach out to us. You can find us at headset.io and we can help you navigate the market. 

 

Can you give me a sort of price range for the services? I know it can be as far as from the kind of most minimal level to the really — You get in there. I know it gets to be pretty pricey? Or do you talk about prices or is that kind of different for each person?

Cy: It’s a bit different for each person and it really depends on category and market that you’re looking at. It can be as low as like a four-figure annual contract for a single category in a smaller market, to depending on if you buy all categories and all markets. We have six-figure contracts for those types of services.

Cy, thank you so much for your time.

Cy: You got it! You got it. It was a pleasure.