Direct-to-Your Door Cannabis: Delivery Frameworks
“When the road is clear for cannabis, when federal laws come into play, we’re absolutely going to take a look at it,” — Dara Khosrowshahi, CEO Uber
In April, Uber made headlines discussing the possibility of jumping into cannabis delivery when federal legalization occurs, a comment that was welcome to see, but relatively unsurprising when you look at their recent acquisition of Drizly, an alcohol delivery service. Cannabis and delivery have been synonymous for ages, with an entire television series predicated on the dynamic duo. Due to a patchwork of regulatory frameworks dependent on territory, delivering cannabis will be even more challenging than alcohol for a future Uber, but unlocks a whole host of unique strategies.
The Delivery Landscape
Every legal cannabis market varies with its delivery programs, and in many cases states have no delivery option. Legacy states like Washington, which legalized in 2012, currently have no provision for cannabis delivery while others like California have it included. More recent frameworks in newly legalized markets like New York point to the loosening of delivery with more mature markets Colorado and Oregon, having updated their laws to allow delivery in some form.
A Tale of Recent Legal Markets: NY and MA
In the newly legalizing east coast markets this trend towards expansion of delivery is apparent. New York City has a long history with cannabis delivery, a fact certainly considered in the development of a micro-license delivery structure under the MRTA that enables the cultivation, production and distribution of cannabis products to the consumer, although limited in size and scope. It will also enable courier delivery connected to brick-and-mortar retailers that will enable a larger footprint.
In Massachusetts, the story is similar with two different delivery licenses being created, with one connected to the brick-and-mortar retail license and the other purchasing directly from producers and delivering to the consumer, with the latter license planned on being awarded to its social equity applicants for the first three years. Not limited in scope, there was some early friction on this plan with license holders arguing that delivery only networks won’t have the same cost investment requirements as brick-and-mortar retailers, but delivery only won’t have a physical footprint to leverage to drive customers either.
Uber Eats World Aggregation Model
With the Uber Eats model they are positioned as an aggregator, where restaurants are listed within the app for consumers to browse, which ultimately means Uber owns the relationship with the customer. The double-edge sword for restaurants is it can drive sales, but not necessarily longer term loyalty. If you’re interested in Sushi and looking for California Rolls, Uber Eats is more than happy to present you with a variety of options where the purchase is driven more on price and restaurant star rating, potentially fulfilled without the consumer even registering which restaurant the dish came from.
Aggregators and Cannabis
For Uber, being the aggregator is a coveted position, in effect commoditizing restaurants, something even more prominent with alcohol delivery services like Drizly, where a bottle of Jack Daniels can be fulfilled from any nearby liquor store. The closest in cannabis to aggregators is through service providers like Leafly, Weedmaps, Dutchie and Jane. The big difference here is that none of these providers can actually complete the order by delivering it to the consumer, only pass the transaction along to the retailer or delivery service.
Restaurant Pushback
For years, this symbiotic relationship between the apps and the restaurants has been a fraught one, with small to midsize restaurants complaining about fees, yet dependent on the services to drive sales. The customer experience can also cause challenges for restaurants when aggregators like Uber Eats publish outdated menus with outdated pricing, or fail to deliver the correct order. This is causing some restaurants to move away from these platforms, but results in the challenge of finding and bringing in those new customers.
Cannabis Delivery Models
One of the most exciting parts about the cannabis industry is the variety of strategies that are being employed by participants, with the most effective models and clear winners still to be determined. Cannabis delivery is no exception with a variety of models in play, driven by different approaches across a variety of markets.
Variety of Strategic Approaches for Retail Delivery
Diving into a few models we see approaches from delivery-only of local brands to fully integrated with a storefront footprint and product development.
Vertically Integrated, with Brick-and-Mortar
This model is fully vertically integrated across retail and product development, combining the sale of their own private-label/CPG-brand products with brick-and-mortar and courier delivery service. Organizations under this category are generally those with large financial backing as this contains almost all aspects of the supply chain from production, distribution and retail.
The benefits to this model include having your own brands as differentiators and having a physical presence acting as a flagship and showroom to drive sales across both in-store and delivery. Similar to Tesla’s showrooms, where you can buy a car in one of their locations, or just go online and order and have it delivered. The negatives are complexity and cost, developing your own CPG products, and distributing others across multiple channels is a lot to juggle and requires expertise in disparate areas.
Some great examples of this are with Sherbinskis and Emjay (different banner, similar ownership),The Parent Company’s Caliva retail operation, or Terrascend’s Apothecarium.
Vertically Integrated, Delivery Only
This model is also fully vertically integrated, meaning that in addition to delivering cannabis it also includes product development and distribution.
Benefits of this model include differentiation through your own products potentially not available at other locations (although this is rarely the case currently, with most retailers distributing their ‘private-label’ products to other retailers). Being dedicated to delivery also means you can focus on making first-class apps and consumer experiences, with integrated services like ordering via text or recommended shopping based on similar shoppers.
Some great examples of this include The Flower Company and Eaze’s transition to vertical-integration.
Delivery Only, No Vertical-Integration
This model is delivery only of sourced brands, with no private-label or CPG-brand development. This is more inline with a Drizly model, where Drizly doesn’t produce any products themselves but instead sells name brands within the market (although Drizly sources from a variety of retailers, in cannabis the delivery service is the retailer).
Benefits of this model include a focus solely on delivery and sourcing the best products at the best price without the added cost and effort that would go into private-label, CPG-brand product development. Differentiation comes in through assortment, pricing and reach.
Some great examples of this include Grassdoor, Hypewolf and Amuse.
Empowering Omnichannel for Brands
The ability to deliver cannabis also unlocks opportunity for brands through going Direct-to-Consumer. This approach requires brands to either have their own retail license at which point they’d be classified in the manner above, or to take the more common approach and white-label delivery through an existing retailer partner.
Seth Rogen’s Houseplant brand took this approach when entering California, by first selling direct-to-consumer through the delivery partners like Emjay. Advantages of this approach is cultivating a relationship with the customer directly and moving on to achieving broader distribution through retail partners.
Delivery and the Future
Cannabis delivery and food delivery while similar are certainly not the same, but the problem of attracting new customers, providing great service and maintaining customer loyalty is a common need. With the delivery model scaling out in existing legal markets and part of emerging legal markets we’ll see how the different strategies play out and whether organizations like Uber will be set up to jump in when the time is right.
What to watch for:
- What do the micro-licenses look like in NY and will there be an aggregator of these smaller groups?
- Will vertically integrated delivery continue to be the trend, or will we see more traditional models where delivery services aren’t producing their own products
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