What To Expect As Cannabis Retail Evolves
Joel Milton, CEO of the cannabis-focused CRM Baker, describes the challenges and opportunities of a burgeoning industry as more U.S. states legalize recreational marijuana
Only a short time ago, the legal cannabis industry did not exist. While this industry has quickly transitioned from a black market to an emerging market, it continues to face an interesting conflict. The usage of the plant dates back to ancient times, but the modern commoditization of cannabis is coming of age during the technology revolution. It’s as if part of the industry is stuck in the past, and the other part is leaping ahead into the future.
In addition to this old-versus-new conflict, cannabis businesses are establishing themselves within a unique context that is unmatched by any other infant industry. It is operating in a context of federal illegality. The status of marijuana as a federally illegal drug presents cannabusinesses with a whole other set of unique challenges that affect its ability to operate.
Yet despite these challenges, the cannabis industry continues to grow expeditiously. Between the years 2016 and 2017, alone, marijuana sales grew 33% nationwide. It is projected that by 2021, marijuana will add $24.5B to the American economy. For perspective, this is roughly the same revenue the NFL strives to bring in by 2027.
Which brings us to the question, how is this infant industry able to grow so quickly, while operating under this challenging context—and what does the future of the cannabis industry look like as it continues to face these obstacles?
Though legalization is sweeping the nation, cannabis remains illegal at the federal level. Nearly every facet of the cannabis industry is affected by this, including operations, marketing, financing and technology.
Banks are less inclined to work with cannabis-affiliated companies, causing capital restraints. Another financial hurdle is the IRS 280E tax code, which burdens cannabis businesses across all states, despite their legality status. The only deductions that retailers can make are on what they must buy in order to sell, so they majority of their expenses cannot be claimed as deductible.
All governance and compliance regulations are implemented and monitored by the individual state. Therefore, the regulations and the tools used to track and monitor these regulations differ between states. This has made it challenging to bring operations and streamlined processes across state lines.
Despite being an infant industry, we are handling each of these challenges with poise. Instead of letting these challenges hold us back, we are using them to push us forward.
Our status as an emerging industry has provided us with a tremendous opportunity to observe and learn from the growing pains of other industries.
Industries such as agriculture and retail have been adopting bits and pieces of technology over the last 40 years. While technological innovation has occurred quickly, the adoption of new technology is typically slow. In addition to employee resistance to change, adopting new technologies requires onboarding employees, and integrating them into their existing processes and software.
In the cannabis industry, we have had all this time to watch and learn from these growing pains. We are starting out with a blank slate and embracing the adoption of the latest technology.
Any emerging market’s development is accelerated by skipping inferior technologies and moving directly to more advanced ones. In the case of cannabis, this means skipping over traditional selling and agricultural practices and moving straight to the most efficient and profitable practices, in all verticals of our industry.
The agricultural industry reached a point where in order to keep up, it had to move away from small family farms, creating a new agricultural concept: Big-Ag, which turned agriculture into a manufacturing process. Recently, Agtech came on the scene as one of the first viable investment and growth opportunities for the agricultural industry.
Thus, the timing for us in the cannabis industry is perfect. The advanced vertical farming technology that is disrupting Big-Ag today is at the tips of our fingers. So while they take the time to implement and streamline this technology into their already existing processes, we are starting fresh, and able to immediately jump into the scene with this technology.
Traditional tracking, inventory and marketing software cannot easily be used by cannabis businesses. The cannabis industry must abide by strict compliance measures and report data back to the government. This takes both a software and a team that is familiar with the state’s cannabis regulations, in order to maintain compliance.
While this may initially be seen as a setback, it has also presented us with a unique opportunity. After all, in any SaaS business, a common objection is “you don’t know my industry.” While many companies desire industry-specific software, it’s usually not a viable option for SaaS businesses.
Meanwhile, in the cannabis industry, the compliance requirements have incentivized us to develop this cannabis industry-specific software. Software like Baker is tailored to the marketing, retail and compliance needs in the cannabis industry. Additionally, it integrates with dozens of other software services used by cannabusinesses—something that can be tricky in other industries that feature outdated, legacy software which is difficult to integrate.
Marketing software tailored to the cannabis industry is enabling businesses to pursue compliant and effective marketing methods.
We cannot use popular forms of advertising such as AdWords, display billboards, or retargeting through Facebook or Instagram. Instead, we have focused on SMS campaigns and pushed for e-commerce sales. Additionally, loyalty programs have proven to be highly effective for the cannabis industry.
Through criminalization, underground growers had no accountability to report truthfully about the conditions and quality of their facilities. As a buyer, you would take whatever you could get. After the first wave of legalization, this began to change. Growers are now being held accountable for accurate reporting. In turn, consumers are demanding higher product quality, and a wider range of product offerings.
Currently, as an industry, we are focusing on fulfilling these customer demands. Whether nitrogen-sealed for freshness or battery-powered for convenience, the vast range of product categories offers a fit for everyone. Blue Kudu vs. Pineapple Express has evolved into “energy, sleep, concentration, creativity, relax, and pain relief.”
We have also transformed our packaging from plastic baggies into award-winning packaging and product displays. These products and their packaging are designed to entice customers to learn more and try new variations.
The consumer purchasing experience has completely transformed. What was once a back alley purchase from a drug dealer has become a legal commodities exchange. With increasing competition in the legal cannabis industries, dispensaries have to differentiate their customer experience in order to survive. The thriving dispensaries are creating comfortable, educational and desirable experiences for their customers.
Legal consumption is becoming more popular than black market trading as the retail experience becomes easier and more enjoyable. Purchasing is becoming expedited through online ordering, giving budtenders more time to engage with those seeking their advice and expertise.
Dispensaries like Euflora, whose retail store designs are inspired by Apple, provide kiosks where shoppers can browse, and learn about available strains’ characteristics and effects. In addition to education and engagement, more and more dispensaries are adopting high-quality store designs and atmospheres that appeal to a wide demographic of customers.
The Future of Cannabis
There is no doubt that this industry is here to stay. It’s growing larger and larger each day, and we can expect to see a lower barrier to entry as the stigma around cannabis disappears. As the industry grows and becomes more successful, more people will enter, bringing new ideas and capital to further push growth.
As pioneers in this industry, we are setting high standards for the future of commercialized cannabis. Our focus over the coming years will be to pursue transparency and education. Never before have systems existed to give the consumers and patients the reliable information they need to choose products that will work for them. Moving toward operating as a collaborative ecosystem, companies across the industry are working together to provide a transparent flow of information to both businesses and consumers.
In the near future, this ecosystem will be apparent across every industry vertical including agriculture, software, marketing, product offering, and the retail experience. We are already on our way to achieving this goal through the expansion of technology integrations that enable this information transparency and provide businesses with the insights they need.
Joel Milton has been involved in a number of early-stage startups, as an employee, partner, advisor and founder. As co-founder and CEO of Baker, he is primarily responsible for fundraising, business development and company strategy.
Baker is the leading CRM for the cannabis industry, servicing more than 800 dispensaries across the U.S. and Canada. Baker helps dispensaries generate more revenue and build relationships with their customers through a variety of products featuring online ordering, customer loyalty, messaging and analytics. The topic of this piece is the foundation of an upcoming campaign Baker is launching with a series of cannabis tech companies on the future of cannabis retail.