It’s no secret that consumers love convenience.
Opening your phone and having gourmet groceries delivered to your home was a strange idea only a decade ago. And it’s already feeling archaic. Soon, Amazon and other delivery services will be offering in-garage and in-home deliveries for everything from groceries to valuables like jewelry and electronics. The difference may seem small, but it represents how far companies are willing to go to appease the customers.
In the cannabis industry, the desire for convenience is no different. Boutique dispensaries have popped up all around major cities in California, Colorado, and Washington. Drivers bring quality cannabis products, ranging from oil pens to edibles, within minutes. However, there is another side to convenience — that of the business. Startups don’t want to jump through hoops to get up and running, just like a consumer doesn’t want bad service and higher costs for poor quality cannabis.
As an emerging market, the cannabis industry is typically on the cusp of innovation. Where the market finds its distinct breakthroughs is a direct result of some of its current limitations.
For example, the federal illegality of marijuana causes banking headaches for a majority of dispensaries, distributors, and growers. And with companies coming out with flashy new products (e.g., THC-infused craft beer, THC-infused soda, etc.) seemingly every day, it can be hard for upstart dispensaries to meet the evolving consumer demands.
That’s why Drop Delivery represents an intriguing case study in a broader e-commerce trend — the aggregation of front-end services for niche markets.
A Unique Problem
Founded by the same team behind Greenlight, the first order-ahead mobile app for the Cannabis market, Drop Delivery is a solution to some of the problems that faced its predecessor.
The cannabis market is fragmented.
Distributors are dispersed across the US’ largest state, dispensaries vie for control of neighborhood enclaves in big cities, and services like logistics, marketing, e-commerce, and payments all are incorporated from individual providers. For any cannabis-oriented startup, the regulatory hurdles can be enough to prevent the project from getting off the ground, let alone the convoluted mess of how to aggregate all the services into a functional and profitable business.
The Drop Delivery’s team first-hand insight into some of those problems. From maintaining banking relationships to sourcing e-commerce services, the troubles induced them to make a change. The result is an all-in-one delivery management platform that encompasses marketing, e-commerce support, delivery management, an analytics dashboard, custom consumer-facing app, and more.
The reason that it’s a fascinating case study is because of how much value can be captured from managing the front-end (i.e., consumer-facing) process of a blossoming, niche market.
Think Uber (car-sharing) or Airbnb (home-sharing).
Startups blow through cash establishing connections and aggregating services under a single roof. Uber and Airbnb needed VC rounds, a luxury most cannabis firms don’t have. Discovering a comprehensive provider that aggregates all the necessary services in a “plug-and-play” format is exactly what they want.
In particular, Drop Delivery takes over the entire front-end e-commerce process. Chatting with drivers, browsing items, recommending loyalty products, and executing the order are completed with the software provided by Drop Delivery — all in one easy-to-use platform. The team knows that dispensaries have bigger issues to worry about (e.g., sourcing new products, banking, etc.), and could save big on a boutique software platform that renders the consumer-facing experience amicable.
But the looming elephant in the room continues to be the financial component of the multiplying dispensaries peppered throughout the West Coast.
Banking, Payments, & Compliance
Drop Delivery recently established a relationship with regulated, digital payments provider Alt36, who primarily focuses on the cannabis market.
Why is this important? Several reasons.
First, digital payments are exploding. Recent data supplied by payment processor Square, who works with troves of small businesses, indicated that cash balances deteriorated under COVID-19 lockdowns, while digital payments surged around the world. Many small business owners reported that they may never return to cash-heavy businesses as consumer preferences may have changed permanently.
The world was already progressing to digital payments, COVID-19 just accelerated the process.
In particular, mobile payments are exploding. Visual Capitalist provides an excellent series of infographics on the digital payments boom, but one of the most salient takeaways is the expanding use of mobile e-commerce. That applies directly to both online and in-store purchases.
Imagine Bob wandering into a dispensary in Los Angeles, paying with his phone using Strike, Apple Pay, or some other mobile payment model, then going home, soon to realize he forgot to get something, so he orders online from a Drop Delivery client using their app incorporated with Alt36. Both orders were executed over a phone, which correlates with younger generations’ payment preferences. Incidentally, they’re also the largest consumers of cannabis products.
But it’s more than just digital payments as a preference.
Many dispensaries and cannabis companies prefer regulated payment processors like Alt36, which removes the anxiety of Uncle Sam scouring over their financial records. In fact, it may even help ease the tension between commercial banks and cannabis firms that has created a banking rift. The distrust has even sent some dispensaries in search of more esoteric solutions, such as using Bitcoin as the store’s payment processor (e.g., Strike).
Paired with Drop Delivery, cannabis retailers can put the front-end order processing and delivery management behind them — payments compliance included. Considering that the financial, regulatory, and independent e-commerce/app development costs can quickly get out of hand without incumbent help, Drop Delivery is the easy solution most cannabis businesses would be happy to work with.
And it all derives from aggregating the front-end services of a blossoming market. Vertical integration of the supply chain and manufacturing process is already underway. But Uber and Airbnb became tech unicorns aggregating services at the top layer, not by competing with the car manufacturer and real estate developer markets at large, respectively.
It’s time the cannabis industry followed suit.