As of October, Canada legalized recreational pot for the first time in Cannabis history, and the U.S. is still fighting for the same. But all that could change this year, as the House of Representatives passed a bill earlier this month that would end the prohibition on weed in the U.S. The bill has to now go to the Senate, which is strongly against legalization.
The cannabis industry may be at a crossroads. With legalization on the horizon, these days are ripe with opportunities for cannabis entrepreneurs. But the cannabis industry is far from a garden of youth. The cannabis industry is a rapidly expanding platform where a wide array of talents thrive.
As more and more states move toward an adult-use market and the U.S. Senate indicates its intention to continue cannabis reform, federal legalization is inevitable. Industry officials and business leaders are bracing for the seismic changes that legal cannabis is likely to undergo once the federal ban is repealed. In the near future, the cannabis industry may finally have access to interstate commerce and basic financial and banking services. These long-awaited changes will not only bring enormous benefits, but will also have a significant impact on cannabis retailing, particularly e-commerce. The current pandemic has undoubtedly accelerated the transition of the entire retail industry from a brick-and-mortar shopping experience to a digital shopping experience. Demand for food and grocery delivery is expected to grow by $44 billion and $215 billion respectively over the next four years, and it’s clear that consumers are relying on e-commerce and the convenience economy more than ever. If cannabis becomes federally legal, brands and retailers will likely see domestic demand combine with the industry’s burgeoning e-commerce ecosystem to create a truly new cannabis buying experience.
Discovering brands on marketplaces
Legalization at the federal level will finally allow brands to cross state lines without having to enter into costly licensing agreements, or to launch into new markets as operators. Therefore, the growth of interstate commerce will also lead to the emergence of new brands, creating an even more competitive retail environment. What makes this new scenario so competitive is the relative lack of direct-to-consumer marketing channels available to cannabis companies. Despite its legal status, the marketing of cannabis will remain heavily regulated, as is the case with alcohol and tobacco. Major advertising platforms, including Facebook and Google, operate under internal rules and can still ban cannabis companies from advertising on their platforms. Fortunately, marketplaces are therefore the optimal environment for launching a brand. In my experience in the beauty industry, another sector heavily saturated with brands and highly personalized products, the marketplace model is one of the most effective ways to connect with consumers. Today, most beauty shoppers buy and discover products on marketplaces such as Sephora or Ulta, which are able to leverage micro and macro retail information to make accurate product recommendations based on specific consumer preferences and retail trends. Although most cannabis e-commerce businesses are relatively young, when the industry is federally legalized, they will have information on millions of consumers across the country and will offer the same personalized shopping experience currently available in traditional retail.
Some degree of fragmentation is expected for cannabis retailers
Even after the ban is lifted, cannabis will remain a separate issue for the foreseeable future. Senator Chuck Schumer has already indicated that he wants to prohibit large alcohol and tobacco producers from taking over a significant portion of the industry, and it seems unlikely that regulators will allow consumers to order tinctures, Cheetos and beer through a single delivery platform. Major delivery platforms have only recently started offering to buy alcohol, with the most notable development being the acquisition of Lantern’s sister company Drizly by Uber earlier this year. While Uber recently expressed interest in expanding its cannabis delivery business, the industry may have to wait a few more years for an acquisition of this magnitude. Ordering cannabis is not the same as ordering takeout, of course. This fragmentation will allow cannabis e-commerce platforms to specialize to meet specific customer needs. Think of the countless products you can choose from when considering different uses, cannabinoid profiles, dosages, flavors, and effects. Once Gateways opens, many consumers will be new to the industry and will need guidance, experience and comfort to get started. Although attitudes towards cannabis are changing rapidly, there is still a stigma attached to its use. Therefore, it is essential that e-commerce platforms provide a positive first impression and make the right product recommendations so that consumers feel they are buying something that is safe, effective and widely accepted.
Financial gain linked to a relative sense of normality
Legalization at the federal level would also free brands and legal operators from a huge financial burden, thanks to the repeal of 280E. This tax law currently prevents legal cannabis businesses from deducting most of their operating expenses from taxes and is a major impediment to the growth of the regulated industry. The growth of interstate commerce may also reduce the need for vertical integration, allowing more firms to specialize in one part of the supply chain and achieve economies of scale. In this future business model, national operators can invest more resources in their own brands and outsource cultivation or production to specialists. Although industry experts expect the SAFE Banking Act to be passed earlier than federal legalization, the cumulative effect of the SAFE Act and legalization will remove any doubts financial institutions may have about partnering with cannabis businesses. This will finally allow e-commerce platforms to process credit and debit card transactions and access capital like normal businesses. The combination of all these regulatory factors ultimately leads to brand proliferation, lower product prices and greater product availability. In a post-legalization world, consumers will be more inclined to try different brands when prices are lower and products are easily accessible online. E-commerce platforms have the potential to play a crucial role in the future of the industry in this country. The biggest challenge we face is to anticipate the needs of our own consumers and provide a new generation shopping experience for a new generation of products.
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