🕺🏻 Models on models on models

Since the dawn of time - no, that’s too grand.

Since sometime in the 1900s - yes, that’ll work - a subset of humans have been hard at work solving a problem:

More recently, we have accelerated our problem-solving within a fledgling legal industry. We have dedicated technical resources to solving this problem, spent millions of dollars solving this problem, borrowed heavily from other verticals in pursuit of solving this problem.

And we’re left with a few key ways that cannabis companies - more specifically, cannabis retailers and technology companies - are going about it.

Today, we’ll dive into a few different ways to skin this cat, with a laser focus on the legal retail environment in the US, and borrowing from analogues in other verticals.

💭 But first, Socrates

I borrowed some brain power for this one. Enter Socrates Rosenfeld, my good friend and CEO of my company, Jane Technologies, Inc.

I tapped Soc because he spends a good portion of his day thinking about this very problem, and how best to position Jane to execute the North Star Mission: to get cannabis safely and efficiently into as many hands as possible - while enabling retailers, not skewering them.

In his words,

“In this world of digital retail, there are really three models out there, but we need to create a fourth.”

📦 The “Amazon”

“Amazon may consider themselves a marketplace, but it’s really the Amazon Store with a bunch of different sellers. They inventory, warehouse, and distribute their own products, so you, the customer, are going to one entity who is shipping all products directly to you.

Great for the consumer, really bad for local businesses. Especially brick and mortar businesses. You order the toothbrush on Amazon because they make it so convenient, without ever thinking about the local shop carrying the same thing.”

How would this model work in cannabis? 🤔

Consider a single retail entity that had enough scale to offer most (or all) cannabis products, plus the ability to deliver to damn near anyone in the country.

This hasn’t happened yet. But it would look like this:

This model requires two distinct capabilities:

1) Power a sophisticated front-end shopping experience that also happens to bring in millions of eyeballs,

and

2) Scale a massive network of fulfillment centers, all of which can efficiently deliver products to end users.

Cannabis companies, so far, have gotten close to #1 or #2, but not both. Weedmaps has built a phenomenal base of eyeballs and a functional shopping experience, but they still rely on thousands of licensed retailers to fulfill transactions. On the flip side, various MSO’s have scaled substantial (and growing) retail networks, most of which can act as delivery hubs - their geographic reach is far from universal but is moving in that direction - but, ultimately, their digital reach and inventories are relatively limited.

🛒 The “Shopify”

“On the other side of the spectrum of direct-to-consumer business, you have Shopify. They’re great for sellers of 10, 20, 30 SKUs that you can manage, that never change. You can sell beer koozies out of your garage, you can sell Spanx - limited SKU-set businesses work great on Shopify.

The problem is, Wal-Mart can’t run on Shopify, Home Depot can’t run on Shopify, Whole Foods can’t run on Shopify - why? Very complex SKU sets, taxonomy becoming a major issue, super high-volume retail - Shopify doesn’t have a solution for that.”

How would this model work in cannabis? 🤔

This model is very much alive in cannabis. The problem is that cannabis retailers, if you haven’t noticed, do not pride themselves on holding only 10 or 20 SKUs (some of our partners have 1,000+ products in active inventory at any given time).

A Shopify-like service, which is very manual, will not work in an industry with massive inventories, fast throughput, and complicated product taxonomies. You’ll spend all day updating your menu, and your data will be useless as a screen door on a submarine. (I chose that metaphor over more vulgar ones; you’re welcome.)

A Shopify-like solution in cannabis requires data normalization, which I outlined here.

🏃🏾‍♀️ The “DoorDash”

“And then you’ve got the restaurant world. Your DoorDash, your Uber Eats, etc. But they’re not innovating eCommerce; they’re innovating last-mile and customer acquisition. They tend not to say ‘hey, how can we build adjacencies for you’ or ‘can we help you further up the value chain, can we help you understand who your customer is?’ No. They throw up a menu that doesn’t change, and they take 35%, and they can justify that because they own the drivers.”

How would this model work in cannabis? 🤔

Here’s how I feel about DoorDash, if you missed it:

Also, as some famous companies have proven over the last few years, it’s insanely difficult (and expensive) to grow an on-demand driver network when some drivers have to be employees of the retailer itself (like in California), and all drivers must have specially-outfitted vehicles.

⌚️ The Future

“So you’ve got Amazon killing small businesses, especially local brick and mortar businesses - you’ve got Shopify that can’t service those businesses - you’ve got DoorDash servicing businesses but also skewering them - so what happens to J. Crew? J. Crew goes bankrupt, Sears goes bankrupt, Macy’s goes bankrupt. What happens to the local toy store, paper store, hardware store, pet store - gone.

What we’re trying to prove is that we can provide for the consumer an Amazon-like experience, but unlike Amazon, we are actually empowering brick and mortar retailers to participate in this digital ecosystem that they’ve been blocked from - because they’re retailers and not tech companies.

And, now - if you can do that right, now the model becomes win-win. If I can empower you with cost-effective eCommerce software for high-SKU, high-velocity retail, now you don’t have to spend as much time or effort or money doing other things; you can go buy a car and hire a driver. And we don’t have to take a 35% take from these businesses - we can actually create a win-win model.”

How would this model work in cannabis? 🤔

The next phase is a low-cost solution. It is like Shopify in that it provides white label shopping experiences, but unlike Shopify in that it standardizes data. It allows retailers or delivery operators to retain ownership over their delivery operations, and thus over margin.

Further, it serves as a platform on which other technologies can build and optimize. It uses APIs to enrich content across the ecosystem and to connect disparate systems, so small businesses can achieve efficient workflows - same as the ones that smartly-positioned legacy retailers like Target have spent millions building.

📚 tl: dr

• Amazon powers the shopping experience, warehouses its products, and sells them directly to the consumer; no one has realized that kind of scale in cannabis yet

• Shopify-like models work for low-SKU count industries, which cannabis is not

• DoorDash models tend to extract money from retailers once they scale the demand side

• The future is a white label eCommerce environment that cleanses data and enriches all adjacent platforms via APIs

• It is Tuesday