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This story originally appeared on Cannabis & Tech Today
The gears of automated delivery management were in motion long before the arrival of Uber and other sharing services. Tech behemoths like Amazon had already shattered the glass ceiling on next-day delivery, but their buffet of consumer products was missing many of the smaller markets.
Both a product of compliance and payment issues, large corporations like Amazon simply didn’t offer the delivery of products like marijuana. Only four years after Proposition 64 in California, the bespoke delivery market for cannabis products remains ripe for disruption, with the lack of a major player leaving a void.
The cannabis delivery market is fragmented. Not only that, but the diverse set of services face an uphill battle in compliance and payments — the financial infrastructure of the market is immature. Add in the notion that banks are hesitant to offer services to cannabis companies, and a serious problem emerges.
However, delivery management innovation is on the bleeding edge of payments and compliance innovation in the cannabis sector. Delivery management (e.g. Saas platforms) occupy a unique space where they interact with customers, dispensaries, and other startups — like smaller payments processors and app developers. This has given some of them a unique insight into how to fix the payments and compliance problems in the market, and it appears to be paying dividends so far.
A Unique Market Needs Unique Solutions
Contrary to large-scale centralized dispersion of products, such as with Amazon, the cannabis market is distinct for several reasons.
First, the products are primarily THC-infused or CBD-infused, meaning that they are subject to regulatory compliance measures regarding their distribution, such as age-limits concerning marijuana. Dispensaries are subject to regulatory oversight to ensure that they comply with state laws and don’t deviate from some of the strict frameworks for legalized cannabis.
One of the downsides of the stringent regulatory codes is that many financial entities (e.g., banks) feel that there is too much compliance risk in the cannabis market right now. Legal marijuana businesses, whether a local dispensary or distributor, are subsequently locked out of many financial avenues that other businesses are not precluded from.
The problem of underbanked cannabis companies is well-established and has created a legitimate issue in how payments are processed, and cash-flows are managed.
Second, the cannabis market is highly fragmented. There’s no central aggregator for e-commerce manufacturers and distributors like Amazon in the blossoming industry. Instead, the market is flush with a garden variety of dispensaries, growers, manufacturers, distributors, and highly fragmented technology solutions.
Because there is no large corporation operating with economies of scale (e.g., Amazon), cost-efficiencies, like data sharing, marketing, route optimization, marketing analytics, and other marginal business expenses are higher than a more established consumer market.
“As a team, we got our start in the cannabis space with our previous company Greenlight, the first order-ahead mobile app for Cannabis with built-in loyalty for dispensaries,” details Vanessa Gabriel of Drop Delivery. “Customers could order on-demand or schedule a pickup of their products and skip the line at their local dispensary.”
Greenlight would eventually go on to be acquired by a publicly-traded cannabis firm just eight months after launching. However, before the deal, Greenlight’s team experienced first-hand many of the problems that stemmed from the cannabis market’s fragmentation.
“We quickly realized that, even though delivery was the future of the cannabis market, dispensaries and delivery services had to tap into five or more services just to manage their entire delivery process efficiently,” continues Gabriel. “It was a major problem waiting for a solution.”
Efforts, like Drop Delivery, have gone on to emphasize the concentration of the market’s fragmented components into all-in-one SaaS platforms. Delivery management includes everything from delivery tracking and branded e-commerce solutions to marketing tools for cannabis retailers.
But delivery management also extends to one of the cannabis market’s endemic problems — payments and compliance. And delivery management services are rapidly converging with compliant payments processing.
Payments & Compliance
Whether you agree with the sentiment or not, financial institutions mostly still view the cannabis market via the prism of too much risk. The primary reason for their risk management when it comes to marijuana is that, despite being legal in states like California, Colorado, and Oregon, marijuana remains illegal at the Federal level.
Financial institutions are not comfortable being in the crosshairs of Uncle Sam.
Cannabis companies’ attempts to acquire better banking services have ranged from gaining a master account at the Federal Reserve to exercising the flexibility of credit unions. The latter has been much more successful than the former, which was an attempt in vain.
But the banking industry is changing. A new class of “challenger banks” have tinkered with the conventional banking model, offering hybrid payments and account services — a boom for the cannabis market. One of those companies is Alt 36, the cannabis market’s first and only compliant digital payment platform.
And Alt 36 is partnered with Drop Delivery. And the partnership sheds a light on some of the ongoing payments and compliance innovation right now.
For example, Drop Delivery manages delivery, marketing, brand applications, and more for cannabis retailers while Alt 36 processes the payments on the back-end. For entrepreneurs wary to enter the market because of the excessive payments, compliance, and fragmented market conditions — that’s a double-edged solution to most of their concerns.
Some solutions are even more creative, relying on cryptocurrencies for processing customer payments.
One project, called Strike, is relying on Bitcoin’s network as a back-end payment processor while masking the complicated experience from users entirely. The project’s parent company, Zap, was founded by Jack Mallers, whose parents actually own a dispensary in Colorado and have been using the application before its official launch.
From a regulatory standpoint, it appears that marijuana won’t be legalized at the Federal level anytime soon. In the meantime, the cannabis industry will need to get creative, which it appears to be doing already. With a more robust financial footing, the industry can really take off, and delivery management solutions are at the forefront of those financial developments.
“There are still some notable obstacles in the cannabis market that are preventing it from reaching its full potential,” says Gabriel. “But those obstacles are rapidly withering away.”