The Bright Future of Cannabis Retail
The regulatory hassles of doing anything in the marijuana business is giving startups an opening that bigger, more risk averse companies dare not enter.
When I was a kid, Christmas shopping looked much different for my parents than it does today. My mom would plan for months, stealthily collecting tidbits of information from her brood, carefully curating our lists of presents. She would do her shopping early, spend a few weeks wrapping everything to the utmost standards (we always felt fleetingly bad ripping her beautiful work apart), and execute with precision. My dad is a different beast. Looking back, I am pretty sure he would wait until the 23rd, then mount a Christmas shopping extravaganza, fighting other parents for parking spots at the mall and ripping Tickle Me Elmo’s from the hands of hopeful soccer moms.
Although their shopping styles and timelines were quite different, their '90s shopping process was virtually identical: go to a brick-and-mortar store, interact with the “experts” roaming the sales floor, decide and buy -- the same process people had followed for a century.
Today, I can order my entire Christmas inventory and receive everything the next day, gift wrapped as artfully as my mom (almost). From my phone. On the toilet.
The future is now.
In case you haven’t noticed, a lot has happened in retail since the '90s. Amazon selected a commoditized category with a bunch of SKUs to prove an ecommerce model, and people got a kick out of it. Then Bezos and company entered every other category under the sun, and other companies followed suit. Increasingly robust data collection and analysis algorithms allowed these pioneers to curate your shopping experience better than any salesman, make suggestions based on your conscious and unconscious shopping and buying behavior, then upsell you relentlessly.
All the while, the fulfillment infrastructure grew and delivery times got sooner. In the early 2000s customers were satisfied with a one-week shipping time. Now, let the seller beware if an online purchase takes longer than two days to arrive. These shorter shipping time have engendered a “try first” mentality, since returning items is no longer a big, drawn-out deal, which has reduced the need and desire to spend time “shopping” in brick and mortar stores, which has precipitated a significant drop in in-store retail sales, all of which have made $50 per square foot rents much harder to justify.
While those ecommerce trends were pummeling traditional retail, online retailers were further enabled by ancillary technological leaps. In 2007, for instance, a turtlenecked fella named Steve unveiled the first iPhone, changing the world of commerce forever.
What about cannabis retail?
The cannabis industry lags behind other retail sectors, due primarily to its long history of prohibition and its persistently strict regulation. In adult-use markets, most customers still go to a store, speak to a budtender about their wants and needs, then make a purchase just like they’re buying a washing machine in the 1950s.
Big technology companies that could modernize cannabis retail relatively easily are hesitant to jump into the fray. Consequently, small technology companies (some solely focused on the cannabis industry) are innovating supportive technologies. Ironically, while the big boys sit on the sidelines, the small players are gaining a sizeable competitive advantage, which they might just retain in light of the industry’s nuance.
Cannabis is one of the most highly regulated markets in the country. Rules for its distribution and use vary not only by state, but also by city and even block by block. The technology that supports cannabis retailers must be tremendously flexible to accommodate every different variable and legality. Building such a nimble platform from the ground up ensures that most of the required legal contingencies will be accounted for, whereas larger companies might be forced to reverse-engineer a fit.
Participants in this industry are also starving for something that is high-quality and sticky. From point-of-sale systems to ecommerce partners, and from loyalty programs to fleet management facilitators, the frequency with which business owners change platforms in cannabis is mind-boggling. That’s not because cannabis people are fundamentally flighty but because they are looking for the right fit that will finally allow them to rely on a functional software for years to come. Once they find the right platform, it’ll be hard for the buttoned-up sales reps from Microsoft to convince them to change.
The future of cannabis retail.
Ultra-curation: Amazon not only knows when I need toilet paper, but which type I prefer (Charmin Ultra Soft). It also knows my favorite Rx Bar, how often I order it, and that I usually buy baby wipes at about the same rate. (I don’t think there’s a causal relationship there, in case you’re wondering.)
My cannabis marketplace should maintain similarly robust data about me and use it to help me make better decisions with a bigger basket ring. I want my seller to know that I use CBD tinctures, for example, and that my dog just turned 11 and may need to start a CBD regimen of her own.
This kind of curation will provide genuine, life-changing benefits to end users -- and it's coming. A lot of great companies are collecting valuable breadcrumbs about our shopping behavior and will soon be able to deploy them in a meaningful way.
Ultra-Delivery: Cannabis delivery is already playing an undoubtedly huge role in democratizing this plant; baby boomers don’t need to brave the dispensary on their corner to get their flower. They can shop, learn and order product from their couches.
Many small companies are innovating on this front, with varying degrees of success. Interestingly, the current business models are very different. Some companies promote their own brand and use dispensary storefronts as distribution centers, while others sit arms-length on the technology side and simply facilitate the logistics of a delivery order from store to customer.
In all cases, however, delivery is (and, let’s be honest, always has been) an established component of cannabis retail. It will continue to grow, and it will get faster and more convenient until the time from online order to front door delivery will be shorter than a walk to the corner. Just imagine clicking a re-order button and getting a delivery within an hour, with an auto-deduct from your bank account.
And don’t get me started on drones.
Ultra-cohesion: Despite my earlier doom and gloom description about the future of brick-and-mortar retail, I actually think most people exaggerate the problem. Physical retail still accounts for nearly 90 percent of retail sales. Yeah, you read that right. Only a little more than 10 percent of the mix comes from ecommerce (though it is growing fast).
To be fair, that tenth has been plenty to kill a host of established brick-and-mortar retailers. It’s often helpful to look at the survivors of a paradigm shift like the one we have experienced in the retail industry over the last 20 years. Look at Target. Target is fine. I go to target every Saturday with my wife and kids. We routinely spend $300 there.
Target, like a select few other legacy retailers, has successfully struck a balance between the online and offline worlds. They have robust ecommerce offerings that compete directly with Amazon (including curbside pickup, as well as same-day delivery after their acquisition of Shipt last year). However, they also offer a bridge over the gap between phone and store with things like an integration of virtual coupons in their branded app. Throw in some private label proprietary brands and a nice environment where you can waste time with your kids, and you’re made in the shade.
Cannabis players should be mindful of bridging this phone-to-store gap. There is still, and will likely always be, a role for physical stores. The technology providers that enable their retail partners to thrive both on and offline will have the advantage going forward.
Ultra-social: Cannabis is innately social. Once regulations ease up concerning onsite use, retailers who successfully integrate a smoking lounge with a fully-stocked inventory and a nice environment will clean up. If you ever have visited a coffeeshop in Amsterdam, that’s what I’m talking about.
Ultra-inventory knowledge: Google Home already lets you to holler at Google Assistant to check inventories in nearby stores for just about anything. The cannabis industry soon will be no different. Cannabis customers soon will be able to browse real-time inventory from every store within a certain radius. The immediacy of the data will allow them to make informed decisions, and shout them into their AI device with the same abandon as we now check on sales at Whole Foods.
Ultra-interesting: The cannabis industry offers a unique opportunity to watch a black market industry that has been enabled by simple technologies like burner phones and Google Maps to make the leap into the light with the assistance of legitimate, sophisticated technology. Companies that understand the nuance of cannabis early will have a huge head start as this experiment journeys on.
Brian Geddes is a husband, father, pit bull aficionado and mindfulness enthusiast. He has worked in the finance and beer industries, and is currently the Head of Sales for Jane Technologies, Inc., an ecommerce partner for cannabis dispensaries.