(This story is part of the cover package in the September issue of MJBizMagazine.)
The future of cannabis retail is technologically exciting—think ubiquitous online ordering and sophisticated consumer analysis—and fraught with potential challenges, including federal regulation and competition from corporate behemoths such as Amazon.
That’s the assessment of Rick Maturo, associate director of cannabis client services at Nielsen, the national consumer-analytics company based in Chicago, and Bethany Gomez, managing director of the Brightfield Group, a cannabis-focused consumer-research firm.
New technology could amplify business opportunities for cannabis retail. And in order to prepare for mainstream competition, today’s cannabis players must be technologically savvy.
Here are five things today’s marijuana retailers should know about tomorrow.
1. ONLINE ORDERING
Ordering cannabis online has been possible for several years, but now it’s becoming universal. Most retailers have their menus online, meaning even in-person consumers can educate themselves about the products ahead of store visits.
“In terms of technology, there’s been a big shift away from requiring people to touch things or interact as much face to face,” Gomez said.
“We see a lot more dispensary-level innovation just in terms of ‘click and collect’ or … purchase through the apps,” she said.
As part of that trend, Gomez says cannabis retail stores are employing more vending machines and kiosks. The technology has evolved to monitor seed-to-sale tracking while dispensing products, she said.
Mike Bibbey, vice president of marketing at Philadelphia-based multistate operator Ethos, said the company uses kiosks with iPads or Microsoft Surface tablets in some of its stores.
“The software is a simple internet browser that displays the menu software (from Bend, Oregon-based Dutchie),” he said. “We have plans to develop our own software in the future, but we are using off-the-shelf products today.”
Consumers Old and New
Maturo agrees the marijuana industry’s retail future will be more digital. He noted, however, that there will be a difference between how veteran consumers engage with stores online compared to newer consumers.
“People who have more familiarity with the cannabis category are more likely to use online ordering (or) delivery services than people who are new or canna-curious,” Maturo said. “For more experienced users, it’s really more about, ‘I know what I want, I know what I’m looking for.’ … It’s all about efficiency.”
The cannabis industry could reach a point where repeat customers set up recurring deliveries of their favorite products—much like a monthly CSA (community-supported agriculture) subscription—provided state and local laws evolve with technology.
Less frequent consumers, however, are more apt to visit a retailer to answer the questions that menus cannot.
“There are still folks who like the idea of going into a dispensary and having someone they can ask those questions of and be able to see and feel the products,” Maturo said. “The end goal is … eventually, they’re going to become a more knowledgeable and more active consumer (and) don’t necessarily feel the need to go into the store.”
2. CONSUMER ANALYTICS
A growing number of software platforms are aiming to help retailers take the guesswork out of understanding their consumers.
Retailers can text or email promotions based on individual consumers’ past buying habits—and more personal recommendations could become the norm within a few years.
“They’re offering curated selections, curated promotions, to specific users based on their past behaviors,” Maturo said, adding that he sees these developments with a cannabis retailer he visits in Illinois.
“I’m seeing a lot more promotions that are specific to the types of products I want. And I’m getting hit with messaging that is directing me toward new products that are similar to other products that I’ve purchased,” Maturo explained. “We’re seeing that development scale pretty fast in the cannabis industry—I’d say it’s arguably much faster than what we’ve seen in traditional industry.”
He predicted that in the next four to five years, brick-and-mortar stores will be able to target consumers who make physical visits to their stores with individualized promotions and messaging. For example, a consumer could scan an ID at the front door, triggering in-store menus to feature products and promotions that the shopper is most likely to want.
This is more feasible at a store with light foot traffic, Maturo noted.
“The whole store could change when a certain customer walks in, depending on their preferences,” Maturo said, explaining that wall colors, music and menu boards could all change to cater to an individual shopper. “You make it very idiosyncratic with the customers who are inside the store at any given time.”
Gomez agrees that consumers want to have solid product recommendations and a smooth retail transaction.
Technologies that streamline the product-exploration process are helpful, she said, but some systems that live on an iPad can provide that level of education as well, without the need for bells and whistles.
3. NAMES OF NECESSITY
As cannabis expands from its core demographic to a “more universal” audience, some consumers won’t have time to review menus as experienced buyers do or question budtenders like newcomers. For them, products named after the desired effects will simplify ordering, making “it a little bit easier for the end consumer,” Maturo said.
Garden Remedies, a small chain of medical and recreational dispensaries in Massachusetts, carries two in-house vape brands—one eponymous, the other called Seven East—that have names such as Calm, Clarity, Energy, Focus and Serenity.
Jeff Herold, co-CEO of Garden Remedies, said that the company’s customers were instrumental in naming the products. “We wanted to increase communication about what our various products do to make consumption more accessible and positive for all users, whether established or new,” he said.
4. FEDERAL LEGALIZATION
National marijuana legalization will trigger momentous changes and challenges for cannabis. In retail, Maturo believes federal legalization will drop the final barriers keeping mainstream chains from entering the industry.
The retailers best positioned for that are convenience stores such as 7-Eleven and chain drugstores such as CVS. Drugstores are accustomed to dealing with highly regulated products, and convenience stores check more IDs per day than any other retailer, which is an advantage from a legality standpoint, Maturo said.
“There is also a lot of overlap between convenience store shoppers and cannabis users,” he added.
In fact, convenience stores were among the first to start offering CBD products such as beverages, topicals and tinctures, though Maturo said the coronavirus pandemic pushed many CBD users to shop online, creating a dip in convenience store sales.
Enter the Mainstream Retailers
Mass retailers also could enter the industry, providing competition as well as new distribution channels, Maturo said.
“That’s not necessarily bad news for the MSOs,” he cautioned, referring to multistate operators. “Just like Coke and Pepsi are the predominant soda brands sold by every CPG retailer in the country, some MSOs will probably have the opportunity to get into some of those major retailers.
“I don’t think that’s going to happen anytime in the next three or four years, because these things always take time. But when that becomes a reality, it’s going to shake up the retail landscape that we see today,” he said.
Gomez was less bullish on the idea that cannabis will be sold at mainstream retail. Even with federal legalization, she said it would be a long time before marijuana is available through national chain stores such as Walmart.
Cannabis retailers, however, shouldn’t sit on their hands.
“There’s a great deal of opportunity to make this experience a lot more exciting for consumers,” Gomez said.
“If you look back about four or five years ago, the average dispensary was a very drab and depressing experience. Women historically have hated shopping at dispensaries, which has caused a lot of lost revenue from female consumers,” she said. “Now, cannabis dispensaries have become a lot more upscale. … A lot of MSOs have worked really hard to make these stores very approachable for a wider range of consumers.”
Federal legalization could usher a new player into the industry—one that could have an even bigger impact on existing marijuana retailers than convenience stores and other mainstream retailers.
On June 1, online sales and distribution giant Amazon addressed the cannabis question for the first time. “Our public policy team will be actively supporting The Marijuana Opportunity Reinvestment and Expungement Act of 2021 (MORE Act),” Dave Clark, Amazon’s CEO of worldwide consumer, wrote on the company’s blog. “We hope that other employers will join us, and that policymakers will act swiftly to pass this law.”
The statement drew immediate attention from the cannabis industry, with many theorizing it was the Seattle-based company’s first step toward launching marijuana sales.
Delivery Giant Sees ‘Writing on the Wall’
“The big elephant in the room for a lot of retailers out there today is Amazon,” Maturo said, adding that the online retailer is lobbying the federal government to take a more definitive stance on marijuana.
With all of Amazon’s distribution networks, the retailer is in “a pretty good position to deliver directly to consumers,” he said, adding that the company could easily act as a fulfillment center for multistate operators.
“Companies that are prioritizing delivery really need to be watching what Amazon is doing,” Maturo said. Because as much as Amazon appears to be in the early stages of backing marijuana legislation, the company likely “sees this as an opportunity for them to get in and potentially kick over that part of the business.”
But Gomez believes cannabis consumers’ buying habits could make it harder for Amazon to take over the space. E-commerce typically requires consumers to wait days for deliveries, for example, whereas cannabis delivery companies often provide same-day service.
“Cannabis consumers don’t shop that way,” Gomez said, pointing to Canada’s e-commerce medical marijuana model, which she called “not really all that popular with Canadian consumers.”
Additionally, the government’s desire to tightly track marijuana commerce is likely to be a hurdle for companies with Amazon’s ambitions.
“Every state requires seed-to-sale tracking,” Gomez said. “They require cannabis to only be sold through those legal channels, those licensed dispensaries, and there’s not a lot of incentive to allow … more channels, which can be much more difficult to control and track and regulate.”