👨‍🦲🌱 The Everything Store cozies up to cannabis

Amazon made media waves with its drug policy recently, after it loosened employment restrictions for cannabis use.

But…why?

Is it to enter the space as an aggregator - or direct retailer - and dominate?

Nah - probably not. At least not in the near-term. Their positioning has much more to do with their continued expansion, and the army of workers that their business requires.

☝️ First thing’s first - what are they doing?

From an article published on The Hill in September:

So, the policy was enacted in the name of equity! And, sure, that’s a wonderful byproduct of the change. However, what is much more likely is that this policy change was implemented in response to a commercial limitation:

Amazon is running out of American workers. 

There was such a massive shift toward online commerce during COVID, Amazon had to go on a hiring spree to fill its warehouses with able-bodied humans to pack and ship items. However, the turnover rate is about 150% - meaning they lose 15 as they hire 10.

So, priority one for the Amazonians - make sure to increase the applicant pool to continue churning and burning. Not a great humanitarian reason, but logical from a business standpoint (though you might want to fix that leaky boat first).

✌️ Secondly, is this scary?

I think we spend a lot of valuable energy wondering and worrying about the implications of a massive market entry by a player the likes of Amazon. They’re the biggest, the baddest, with the most data, and the most money. Wouldn’t they just come in and put every single retailer out of business?

Let’s look at some examples:

🥦 Whole Foods & Grocery

In 2017, Amazon scared everyone by picking up 40-year-old Whole Foods, a high-end grocery store. This was the end of the grocery business as we knew it!

That didn’t come true.

Grocers - especially ones that pivoted quickly to a digital-first strategy (great eComm, curbside pickup, delivery partnerships) - have thrived since then.

Kroger sales popped 11% during the pandemic, and in their most recent earnings report (Aug), they still improved YOY sales by 4%.

Albertson’s popped 20% in the early stages of 2020, too.

Regional chains - smaller and with less capital - also experienced growth in recent history, in particular as consumers shifted toward grocery stores over restaurants for cleanliness, product selection, etc. during the pandemic.

No, the Whole Foods acquisition was not the disaster that some industry participants feared. Amazon is scary because it’ll drop prices (and margins) until it’s not making any money to put you out of business. But, alas, Trader Joe’s is still here (and it’s crowded).

🛍 General Merch

How about the super giant and smaller, redder giant: Wal-Mart and Target? Has their performance eroded exponentially in the last decade?

Not really - although Amazon dethroned Wal-Mart as the largest retailer in the world recently (due to pandemic delivery preferences), Wal-Mart’s most-recent quarterly revenue was $141 billion. Target’s was $25 billion (but up 10%).

The takeaway: other companies have room to grow and innovate, even alongside Amazon. They definitely will eat into your business, to be sure - but my point is that they won’t put everyone out of business immediately.

The more important takeaway: not everything is books. Bezos initially chose books because there were essentially an infinite selection, but physical retailers had finite space in which to store inventory and showcase items. Amazon did destroy most of the brick and mortar book business quickly - but it’s a totally different product.

🥃 What about booze?

To drive the example home, here’s a snippet from Bruce Barcott at Leafly:

💚 What about for cannabis?

Even if Amazon’s actions are indicative of their appetite to enter the space, that’s probably fine.

For their workers: congratulations. Smoke a joint and relax about your drug test.

For cannabis retailers: implement a digital-first strategy. Engage with your current customers. You’ll likely maintain your market share for a while, as local liquor stores do. And maybe you’ll get some acquisition offers so Amazon can use your space as a distribution hub. Or maybe they’ll provide a great opportunity to facilitate your last-mile delivery efforts.

For cannatech companies: continue building your moat. Integrations are hard. Endemic tech is hard. Amazon doesn’t have a magic wand. They’ll compete over time or buy you.

📚 tl: dr

• Amazon is running out of people to hire, so they’re relaxing their hiring requirements around cannabis

• Amazon destroyed books - but other industries are more resilient (booze, general merch, grocery)

• Don’t be afraid - build and sell good products

• It is Thursday