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California cannabis brands begin selling directly to consumers, bypassing retailers

Image depicting direct-to-consumer sales

A handful of California cannabis manufacturers and brands have begun selling their products directly to customers through their websites, effectively bypassing traditional brick-and-mortar retail shops and delivery companies that have long been the gatekeepers to marijuana consumers.

The direct-to-consumer approach reportedly is being employed by some of the biggest marijuana brands in California, including Kiva Confections, CannaCraft, Cann Social Tonic, Old Pal and Roach.

For now, the trend appears to be taking place primarily in California, the largest marijuana market in the United States and the one with the most established and mature delivery infrastructure.

But insiders say they expect the practice will spread quickly to other states that also allow home delivery. The only question is when.

“The (COVID-19) pandemic made it practically a necessity. As people use Amazon more and more … direct-to-consumer made a lot more sense,” said Kenny Morrison, the president of the California Cannabis Manufacturers Association and CEO of marijuana manufacturing company VCC Brands.

“When the pandemic hit, it was like, ‘We better step on it.'”

Different options

Morrison and others said brands have several options for setting up their own direct-to-consumer infrastructure, including obtaining their own delivery licenses or partnering with existing marijuana delivery businesses.

But Morrison said the key selling point for brands is twofold:

  • It allows consumers to shop their entire line of products instead of only what retailers or independent delivery businesses choose to carry.
  • It allows brands to collect and retain customer data, providing valuable business intelligence for product development.

“There are different ways of achieving direct-to-consumer that are compliant,” Morrison said, including what Kiva has been doing.

Kiva is reportedly contracting with a licensed delivery company – Grass Door – to deliver customer orders placed directly through Kiva’s website.

A Kiva spokesperson declined to comment for this story.

Others, including Old Pal, have partnered with delivery businesses such as Amuse to create brand-specific websites for brand “super fans,” as Old Pal CEO Rusty Wilenkin referred to loyal customers.

“A store might not carry all of your SKUs, whereas your online experience carries all of your SKUs. so people who are big devotees may go, ‘I had no idea they had all these flavors, I’ve got to try them all,'” Morrison said.

“It also gives brands a way to try out new products.”

That’s been one of the primary motives for Old Pal, which specializes in white label flower, pre-rolls and vape cartridges.

“We have a pretty wide assortment of SKUs, so for the Old Pal super fan to have one place where they can look for all those SKUs is really exciting,” Wilenkin said.

“It was really just partnering with (Amuse) to create this digital store … that had our products in there.”

Wilenkin said Old Pal’s new website ordering function went live in late June, and he believes it will likely increase sales by giving consumers more options that are brand-specific.

‘Everyone is doing it’

One of those trying to ride the trend is Roie Edery, a co-founder of Eaze, which has morphed into one of the largest marijuana delivery companies in California since its inception in 2014.

No longer with Eaze, Edery has launched his own direct-to-consumer platform and delivery service for marijuana brands called Ginger.

One of the selling points he’s relying on is that brands will be the sole owners of all consumer data obtained through online transactions.

“It’s a purpose-built e-commerce solution … to integrate into their website and essentially monetize the traffic coming to their website,” Edery explained.

Though Ginger launched only in June, the company is already performing deliveries for three brands and has another seven that are being brought onto the platform.

Edery said no company executive has turned him down outright. That’s an indicator, he said, that direct-to-consumer (D2C) sales are up and coming.

“It’s truly an open field right now. Out of the top 100 brands in California, only about 5% are doing D2C, and the other 95% are thinking hard about it,” Edery said.

“I’ve pitched close to 30-40 brands in the past month, and nobody has said, ‘Yeah, no, not interested.’ Everyone is like, ‘Hey, great timing, we just started thinking about this.’

“This is a massive wave.”

Wilenkin and Morrison agreed there are an increasing number of delivery companies and software providers actively pitching brands on the same concept.

And with all the benefits for brands, it’s hard to see this trend disappearing anytime soon.

“I think everyone’s doing it,” Morrison said. “It’s the natural evolution of every single industry.”

Blowback from retailers?

Some retailers are unhappy about the direct-to-consumer development, however, and say they feel cheated.

Chelsea Sutula, the owner of Sespe Creek Collective in Ojai, said she found out about Kiva’s direct-to-consumer sales from one of her customers, who complained she was paying more for Kiva products at storefronts versus Kiva’s website.

“I’ve been discovering these things by surprise,” Sutula said.

That didn’t make her happy, particularly because Sutula’s business relationship with Kiva goes back to 2011, she said.

Sutula said the prices advertised on Kiva’s website don’t include the sales and excise taxes, which makes it appear that Kiva’s direct-to-consumer prices are significantly different from what she’s able to charge.

In addition, Sutula said, she discovered that Kiva was offering volume discounts to customers who ordered in bulk, which is a tactic she can’t compete with.

“It’s just a price that makes us look like chumps,” Sutula said, adding that she hadn’t heard from anyone at Kiva about the change.

“It is kind of an unappreciated tactic for me. I’m a small retailer.”

As a result, she’s reconsidering her relationship with the brand, since the California market is saturated with edibles makers just like Kiva.

“We’re going to take a hard look, on a SKU-by-SKU basis … and keep the ones at the top that are really selling, instead of giving the brand the full product line,” Sutula said.

“I can definitely see us paring down some SKUs and taking away their presence in the store.”

John Schroyer can be reached at john.schroyer@mjbizdaily.com.