'Uptown Stoners' Are the Next Hot Market: Ex-Clinton Strategist Mark Penn

Q&A April 30, 2018 at 04:56 PM

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The most recent Gallup poll on marijuana legalization, in October 2017, found that a record number of Americans — 64% — support it. This may prompt you to say, "I'll drink to that!" Or you can get moving and start seeking marijuana investment opportunities.

Indeed, the emerging marijuana marketplace is "spectacular" and "unstoppable," pollster and marketing expert Mark Penn, founder of private equity fund The Stagwell Group and chair of Harris Poll, tells ThinkAdvisor in an interview.

His new book, "Microtrends Squared: The New Small Forces Driving Today's Big Disruptions" (Simon & Schuster), written with Meredith Fineman, identifies 50 new microtrends that will determine the major shifts manifested during the next decade. Marijuana firms that serve the elite — whom Penn dubs "Uptown Stoners" — is one of these trends.

He has spent more than 40 years in polling, marketing and advertising. His vision of the future: Consumers want experiences and services more than just hard goods. That's where his great expectations for cannabis commerce come in. By 2021, it's forecast to be a $20 billion-plus industry.

In the interview, Penn discusses this and other microtrends, including the phenomenon of Korean beauty products, digital customized apparel, potential services for the increasing number of folks ages 90 to 99, drones, and what Penn considers to be "the next big businesses on the planet" — "human enhancement." (He also opines on why Hillary Clinton, for whom he was campaign strategist in her 2008 presidential bid, lost to Donald Trump in 2016.)

Managing partner of two-year-old Stagwell, Penn, 64, has helped elect 25 heads of state globally, including Bill Clinton, when he was chief strategist for his presidential campaigns. He has also advised Israeli Prime Minister Menachem Begin, U.K. Prime Minister Tony Blair, Bill Gates and companies like Ford and Verizon. He was formerly Microsoft chief strategic officer — right before he founded Stagwell — and CEO of the public relations and ad agency Burston Marsteller.

Penn's new book is a follow-up to his New York Times bestseller "Microtrends" (2009), which focused on dozens of small trends on which businesses, politicians and entrepreneurs capitalized in making decisions about the future.

Though Stagwell, an RIA, invests heavily in the digital marketing world, Penn has deep concerns about the use of big data and artificial intelligence, which he discusses in the interview. This month Stagwell acquired, from Reputation.com, ReputationDefender, a leader in online reputation and privacy management.

ThinkAdvisor recently chatted with Penn, on the phone from his Washington, D.C. offices. He talked about how, when caught at the right time, changing tastes can create investment opportunities. He personally enjoyed success in the chicken boom, which stemmed from the microtrend to healthful protein.

A bit late to start getting rich with chicken stocks, he says, but early enough to look into the possibilities of alternative proteins, such as soy and coconut. They're pegged to go from $8.35 billion in 2016 to an estimated $14.22 billion by 2022. Tofu, by the way, is no longer consumed only by those who eschew meat.

Here are excerpts from our interview:

THINKADVISOR: What microtrend is important to financial advisors, in particular?

MARK PENN: Two-thirds of the people leaving the middle class are moving to the upper-middle class. Between inheritances and business owners doing well, the top 25% is accumulating very significant assets. And there's growth in the $10 million households — that's the new golden number. All this says that the personal wealth management service industry has a very good future.

Where are the investing opportunities in microtrends?

The emerging marijuana marketplace is really quite spectacular. It started as a medicinal marketplace; now it's a couple of billion dollars in recreational marijuana. The liquor industry is $200 billion; so the room for growth [in marijuana] is there, unless legalization is turned around.

What area of that business has the most potential?

Today, people are buying experiences — so one service would be marijuana spas because where you want to be is in what I call the Apple of the marijuana business — the Uptown Stoners. Apple was very successful at taking the top of the marketplace [with its tech].

Isn't it risky to invest in cannabis companies because, as you say, the laws could change?

The risk would be in what we're seeing with Facebook — events that say, "Wow! This is too dangerous." But it looks like an unstoppable marketplace because it used to be just the younger generation that supported legalization, and now the older generation supports it too. That's really the big change.

What are the overall stats?

In a poll we did, 58% support legalization. Gallup's poll showed that 64% does. Whether or not we go back to prohibition, boy, if I had to bet, I'd bet that this thing is moving forward.

What about the internet-driven retail upheaval that's taking place? You write, for example, about reasonably priced customized clothing marketed online. How meaningful will "digital" tailoring be?

It's going to be huge. This will become more important and is a substantial growth market. We're very much in the world of infinite choice and luxury for less — that is, super-luxurious things that formerly were accessible only by a few.

What's an example?

The typical cost of a custom-made shirt is $250. With a digital tailor, you can be measured through your phone 20% more accurately than a human tailor does it — and the shirt price can be brought down to $69. You'll see more and more products, such as jeans, fully customized this way.

So, then, this will become a hot trend?

You should be on the lookout for companies that do this because it means they can deliver an infinitely different product tailored to people's needs. And that's what today's economy — the "Uber economy" — is all about.

Is the Korean beauty products microtrend a good investing opportunity?

Yes. The South Koreans carved out this market, particularly in skin care: "glass skin" [translucent skin, a sign of youthfulness]. They're very good at finding trends and playing into them. This is now a $13 billion marketplace — an enormous export for them. It's a phenomenon. You can buy glass skin [products] at Target!

So isn't it late to start investing in this microtrend? The fact that the Koreans were able to sweep in the way they did says it's an open marketplace to continue innovation. There's room for that to grow in other countries and cultures as well.

What's another microtrend in which technology can play a big role?

The growth in nonagenarians [ages 90-99], projected to go up to 8 million in the next couple of decades. Home health care is one area where [companies] should be looking to adopt bots and robots both as companions to play games and as medical monitors because we don't have enough people willing to do that job.

You point out that surviving cancer is a growing microtrend. What does that mean as to business opportunities?

There are about 15 million cancer survivors, including me. But no organizations ever follow up with them. Every person who had a cancer has had their life changed. When I look at the ability to crystalize a microtrend, this is a group of people who are sitting there [waiting to] be helped: "Your treatment is over — now we can help guide you through the later years." Nobody's doing any of that.

Another microtrend is women's taking a more prominent economic role. They're earning about 60% of the college degrees; they're the majority in law school and medical school. What does that augur?

The information age tended to shift what a successful person's skills are, and a lot of guys are struggling in the information age. Women were so far behind for so many years. Now the opportunities for this generation are incredible.

You write that "technology is at the center of our growth and future"; but you question whether we have "the foresight and resolve to survive the power of the internet age," which could "destroy us all." Please explain.

With some of the more sophisticated technology that's built on artificial intelligence and relies on big data, you're seeing privacy and ethics concerns: Is the technology serving to carve us up rather than bring us together?

What's an example?

My concern is about algorithms that we don't understand, bots that we think are human. I don't have much concern about target-market technology, but I do about the more sophisticated tech that uses personal data.

Such as?

I'm very worried that people consider using bots the same as having a human relationship. I asked Alexa: "Are you a he or a she?" Alexa said, "I am a female character." Now that's a slimy answer. Alexa didn't say, "I'm an it" or "I'm a bot." The [product] literature doesn't disclose what Alexa really is. And that's a problem. You don't know whether you have something in your home whose programming is there to serve you or to sell you things — like having a door-to-door salesperson in your closet.

What else concerns you about technology?

The market power of tech companies. We thought there would be pretty heavy competition, but it seems that the major companies separated themselves into their own lanes because they realized that competing with one another would be enormously expensive: So Google has 98% of worldwide search; Amazon isn't really challenged in terms of online shopping, at least in America; Facebook and Instagram pretty much own social interaction. Snapchat is a competitor there, but can it succeed in the face of Facebook's ability to leverage its core assets in a way that Microsoft wasn't allowed to leverage its Windows into a browser?

You write that technology is "squeezing out the next generation of startups." How so?

A lot of the big companies are investing in creating their own startups: They have a built-in sales channel and other competitive advantages over the startups that they [themselves] once were. So the number of startups is diminishing. We need to make sure that more rules are written that are favorable to the startup culture because it's becoming increasingly difficult to have a startup as a career choice.

What else has been largely overlooked in technology?

I'm surprised that there has been so much tech investment in driverless cars and yet almost no investment in human enhancement. We should be 200% of human standard: With today's technology, we should be able to hear like our dogs, and have a better [sense of] smell and increased strength. I'm surprised at the lack of investment in those areas because the technologies are now completely ready. I think they'll become the next big businesses on the planet.

What's your take on driverless cars, then?

I'm quite dubious about them. It's fantasy [at this point]. The accidents happening today are right in line with what I wrote about six month ago for my book. We're 20 to 40 years away from driverless cars. Some of the technology can work on the highway; autopilot, for example. But for completely autonomous driving in myriad situations, computers aren't even remotely close to being able to duplicate a human. There's been over-optimism.

What are the opportunities in drones?

Right now we have the line-of-sight rule, which means drones can be operated only in view of the operator. So until that rule is lifted, the market is limited because most of the [drone] applications are for delivering packages.

What's another use for drones?

Law enforcement will look like science fiction movies, where they send drones and say: "You can't park there!" It's going to be a very big business in revolutionizing law enforcement. But the commercial business is pretty competitive because it turned out to be much easier to make a drone than people thought. However, until we lift the line-of-sight rule, it isn't going anywhere.

You were chief strategist for the presidential campaigns of Bill Clinton and Hillary Clinton (2008). Why did Secretary Clinton lose the 2016 presidential election to Donald Trump?

Primarily because working-class voters, who were a core constituency of hers, drifted away from her — they were the critical swing group that made Donald Trump president. Despite being a billionaire, he made a real connection with folks between Indiana and Pennsylvania. Hillary barely campaigned there. [Her] campaign seemed to be more toward satisfying the Eastern elites than the Midwestern working-class voters.

From what you're saying and as written in your book, it seems you don't think Russia meddled in the election.

I tend to throw a lot of cold water on that. It's pretty clear what the Trump message was, and everyone heard it hundreds of times. [Russian involvement] isn't a legitimate excuse for what happened.

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