Opinion: 3 ways cannabis retailers can set up their businesses for delivery demand

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Image of a delivery van

Image of Meredith Mahoney(Editor’s note: This story is part of a recurring series of commentaries from professionals connected to the cannabis industry. Meredith Mahoney is CEO and co-founder of Lantern, a cannabis delivery platform based in Boston.)

Ready or not, on-demand delivery is quickly becoming the future of cannabis retail.

According to New Frontier Data’s report, “2021 U.S. Cannabis Consumer Evolution,” delivery demand has increased by more than 87% since 2018 and grew by 25% in the past year alone.

Although certain states have adopted restrictive cannabis delivery laws in the past, both emerging and established markets are catching up and embracing modern retail solutions.

This recent uptick in on-demand cannabis delivery has created an industrywide inflection point that also coincides with a shift in consumer behavior dictated by convenience.

Now, cannabis consumers are eagerly waiting for their shopping experiences to mirror what’s available in mainstream sectors.

The question remains: Are retailers in adult-use states fully prepared to embrace the forthcoming delivery boom?

Here are three tactics they can employ to ensure they’re ready:

1. Invest in delivery infrastructure

Operating a successful dispensary is not for the faint of heart.

The end-to-end process of opening a new retail store can reach up to $2 million and can be exponentially greater if there are multiple locations involved.

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Given the significant capital and resources required to start a retail business, it’s understandable that many entrepreneurs, especially those without reliable fundraising networks, hesitate to invest even more money into a service that incentivizes consumers to stay home.

However, it’s important to remember that delivery paves the way for local businesses to have a greater competitive advantage by making it easier for existing customers to buy. It also expands a retailer’s reach beyond its existing customer base.

The return on investment is clearly reflected in mainstream sectors.

A recent study reported that grocery stores offering “omnichannel” delivery and e-commerce services experienced higher rates of spending and customer loyalty with basket sizes and shopping frequency increasing by 9% and 6%, respectively, compared to the previous quarter.

By going directly to the customer, retailers have more control over reaching their desired audiences and staying relevant to consumers who might not have considered visiting a brick-and-mortar storefront.

In the near future, delivery will make up 40% to 50% of the cannabis retail market.

We’re already seeing this in mature markets such as California, where a recent consumer survey conducted by a California cannabis delivery company reported that 90% of respondents said they use online ordering and delivery services to purchase cannabis.

2. Don’t juggle too much

Store owners who built their businesses from the ground up often feel a need to handle all operational responsibilities on their own.

However, this mentality can create massive opportunity costs, especially when they reach a point where consumer demand ratchets up.

Independently handling customer acquisition, marketing and driving volume not only costs time and money, but it is also nearly impossible to execute at scale.

In our experience, delivery is profitable and worthwhile only when a retailer generates enough order volume to keep cars on the road.

This can be accomplished with tech platforms that offer more features compared to conventional dispensary sites.

Of course, managing delivery and e-commerce logistics is a completely different beast compared to running a physical store.

Many retailers first starting out do not realize that this side of the business requires specialized technology that automates key aspects of the delivery ecosystem.

3. Don’t skimp on compliance 

In certain cases, retailers are hesitant to expand into delivery because of the regulatory headaches it can create.

Business owners that still oversee every part of their dispensary’s operations are often wary of the potential risks associated with products leaving immediate control of the store or exchanging cash in unfamiliar neighborhoods.

Fortunately, the majority of these uncertainties can be mitigated with a compliance team that is fully tuned into a retailer’s specific needs.

Before dispensaries start accepting delivery orders, they must ensure that their internal compliance teams, as well as any compliance advisers from an outside council or third-party vendor, are all on the same page.

In this highly regulated space, it is crucial for all stakeholders involved in the delivery space to have a comprehensive understanding of a specific market’s cannabis technology laws.

A regulatory oversight could cost thousands of dollars in fines, or even a store’s license, so it’s imperative for retailers to hold their third-party technology platforms accountable.

This means walking potential delivery partners through demos and making sure the platform fully integrates with the store’s order flows and payment processes.

Ultimately, proactively investing in comprehensive infrastructure and regulatory safeguards will create an advantageous foundation for dispensaries aiming to grow their businesses through delivery.

As cannabis adoption continues to climb, consumers, especially those who are unfamiliar with the industry, will likely gravitate toward stores and platforms that replicate familiar mainstream retail experiences.

Demand for legal cannabis products is undoubtedly surging year after year, but only retailers with the foresight to embrace technology and delivery to efficiently meet this latest wave of consumer demand will thrive in the industry’s latest inning.

Meredith Mahoney can be reached at meredith@lanternnow.com.

The previous installment of this series is available here.

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