The Trial and Error of Cannabis Delivery

August 5, 2017

With only a handful of success stories to emulate, mobile cannabis delivery startups from Seattle to San Diego face tough challenges in scaling their businesses.

It comes as little surprise that mobile technology is playing such an important role in the evolution of the legal cannabis industry. Silicon Valley, with its well-earned reputation for cutting-edge, disruptive innovation, lies on the doorstep of San Francisco, the American city that enjoys the warmest historical relationship with cannabis. A wave of mobile platforms have come and gone over the past year aiming to create solutions to various market deficiencies, many of which represent penetration points in which digitally-savvy entrepreneurs can access a potentially explosive market.

Creating a new mobile platform is cheaper and easier than ever, and the list of apps carving out spaces in the cannabis industry is growing despite being banished form Apple’s App Store. The current champion is Eaze, a San Francisco based medical cannabis delivery startup that made headlines when it secured $10 million in venture capital funding in April. This presents one of the first real opportunities for an on-demand cannabis delivery service to develop a scalable business model. While this is unique in the industry, the market conditions in the Bay Area and the entrepreneurial ecosystem of neighboring Silicon Valley present numerous opportunities for similar companies.

San Francisco is currently the center of the cannabis delivery universe.

San Francisco is currently the center of the cannabis delivery universe.The luxury of on-demand

In addition to simple convenience, there are many factors that account for the increasing popularity of delivery services in the Bay Area. With the average work week now 47 hours, people who consume cannabis may lack the time or energy to make the trip to their local dispensary, or simply don’t feel like it. This is particularly true for people who use cannabis to treat chronic pain, arthritis, or other conditions that make travel unpleasant. Unlike most other agricultural products, cannabis does not ripen, spoil, or expire on the shelf, so consumers find it less necessary to physically inspect the product before buying. Delivery also allows customers to avoid that uncomfortable moment of self-consciousness walking in and out of a cannabis dispensary- right or wrong, a stigma still exists against cannabis in the eyes of much of the public.

The demand for delivery services is matched by the immense importance of mobile technology for business development across the world. Facebook made this abundantly clear when it forked over a cool $16 billion to acquire WhatsApp last year. Growing slices of company advertising revenue are now coming from mobile advertising, and many are permanently switching to a “mobile first” business model. The proliferation of mobile apps designed to supply the demand for cannabis delivery services was inevitable. The question is, why have so few been able to grow beyond the initial seed stage?

Planting vs. growing

One obvious answer is that the industry is currently operating in a foggy legal environment, and different states have responded to cannabis delivery services in different ways. Colorado, Washington, and Oregon have outlawed it entirely and clamped down on sites like Seattle-based Canary that had been able to exploit legal loopholes. California allows delivery between drivers and patients as long as they are both members of recognized medical cannabis collectives, allowing companies like San Francisco-based Meadow to operate. However, market and regulatory conditions vary greatly across city and county lines. NestDrop, a popular delivery service in Los Angeles, was shut down by the L.A. County Superior Court when it ruled that the company had violated municipal laws. Ineffective or sporadically-enforced regulatory mechanisms have made it difficult for new companies to gain traction, and scaling a new business carries the risk of greater attention from law enforcement entities.

Another answer is that industry infrastructure is underdeveloped and expertise in critical areas of business development is harder to come by. While any reasonably skilled programmer can create a minimum viable product such as a low-yield delivery app, launching the product is only the first step. They often lack the essential skills in terms of optimization, marketing (to the extent that it is allowed), sales, or consumer data collection and analysis, all of which is required to create a value-generating product that drives growth. The cost of hiring skilled labor in these areas can be high as well, and the availability of experts willing to transition into a stigmatized industry is limited.

Uniquely positioned

Silicon Valley is consistently at the top of nearly every entrepreneurship index, and is widely regarded as the best place on earth for startup companies to learn to scale. It undoubtedly has the potential to be the bridge between cannabis and mobile technology, in the Bay Area and beyond. Accelerator and incubator programs, support networks, and vast amounts of knowledge are available for cannabis companies to take advantage of, and can be leveraged to gain exposure to a pipeline of potential investment. However, a lack of scalable business models in the realm of on-demand cannabis delivery platforms is a red flag for risk-averse investors, and many significant obstacles must be overcome before the next million consumers can expect door-to-door service.