By John Schroyer
A new medical marijuana business trend has sprung up in northern California: “farm-to-table” delivery.
At least three startup companies – Potbox, Flow Kana and Loud Cannabis – are specializing in helping wholesale MMJ cultivators sell directly to patients.
Scores of delivery services exist in the state, some operated by dispensaries and others by small-scale home growers. Several companies have also cropped up in recent times to facilitate the delivery of cannabis from dispensaries to patients’ homes.
But these new services offer wholesale cultivators the chance to bypass dispensaries completely, giving them a pipeline straight to the end user. This allows them to utilize low-cost marketing, access technological platforms they likely otherwise wouldn’t have the resources to pay for, and offer patients a wider choice of premium cannabis.
“If you look at the food space, a lot of companies that are doing really, really well are the ones that are focused on cutting out the middle men and developing relationships directly with the farmers,” said Austin Heap, CEO of Potbox. “And in any industry, the middle men aren’t exactly adding a ton of value. And I think consumers want to be closer to the source, be it organic food or organic cannabis.”
Potbox, which just launched this month, offers a subscription delivery service. Customers pay $149.95 a month for a box (pictured) containing four grams each of two pre-selected strains and two hand-rolled joints of premium quality cannabis.
Loud Cannabis and Flow Kana, meanwhile, let patients to pick and choose which strains – and how much – they want from different farmers and order via mobile apps and online.
“There’s a real spirit of small farming in California, and (farmers are) really excited about it, because this gives them a direct connection to their patients. And it really enables them to market their product,” said Josh Artman, CEO of The Green Exchange, which runs Loud Cannabis.
Michael Steinmetz, the CEO of Flow Kana, declined to be interviewed for this article, but his company is probably the oldest of the three. According to the San Francisco Gate, the company launched in February. Loud Cannabis launched in March, and Potbox is just a few days old.
All of the companies are based in northern California and primarily serve the local market, but they all are looking to expand – and soon.
Flow Kana’s website says the company focuses on the San Francisco metropolitan area and is “quickly expanding to other parts of the state and even beyond state lines.” Potbox is already beta testing in the Los Angeles market, while Loud Cannabis said it is looking to expand as well.
California – the largest medical marijuana state in the country – is a ripe market for such services given the lack of regulations on the MMJ industry. It’s also the only state where these services are possible, said Jay Czarkowski of the consultancy Canna Advisors.
“An app such as (Loud Cannabis) may have relevance in California, only because in California there are no rules, no regulations, no licensing requirements,” Czarkowski said. “It’s the Wild West. And that’s the only place. That would be completely illegal in every other state.”
But it may be possible to continue such a business model and simply tweak it, said Zeta Ceti, a cannabis consultant based in Oakland, California. The catch: The delivery services would have to work in conjunction with dispensaries or recreational shops instead of directly with farmers, although they could still specialize in high-quality or organic cannabis.
“Some states do allow delivery services, but the farm-to-table model depends on the sourcing and how the regulatory structure is set up in the state,” Ceti said. “If a dispensary is allowed to have a delivery option for their patients, then you could replicate this model vicariously through the dispensary.”
Another possible obstacle for the farm-to-table business model is that the California Legislature may very well pass statewide regulations next year. Depending on how they are structured, the regulations could require farmers to only sell to dispensaries. That would necessitate a significant reworking of the business models Potbox, Flow Kana and Loud Cannabis have developed.
A potential ballot measure to legalize recreational marijuana next year could have the same logistical impact if it sets up a regulatory system that prohibits farmers from selling directly to customers.
“That’s definitely something to be seen, and that’s a risk that any of these groups that are taking,” Ceti said.
In addition, it remains to be seen how big the market for farm to table cannabis is, simply because it’s more expensive. Ceti said the average MMJ gram at dispensaries in California is around $17, and Artman said he’s seen prices from higher end growers range from $20 a gram to $40 a gram through Loud Cannabis.
“Depending on what type of provider you choose in our app, you’re going to get different pricing,” Artman said.
The tradeoff that these businesses are counting on is that their customers will be willing to pay more for quality and organically grown marijuana.
“Dispensaries are just going to have to up their game. Everybody wants high-quality products that are clean,” Artman said.
But dispensaries probably aren’t going to lose out on any serious business because of this new trend, Ceti said. The market is simply too big in California for three such companies to make a real dent in their profit margins.
Besides, Loud Cannabis is even working with dispensaries as well, allowing them to sign up and market their products on their app.
Still, the new services represent another evolution of the cannabis business.
“Technology is becoming more and more a part of this industry, from the top down, all the way from cultivation to delivery,” Ceti said. “I think it’s a good thing.”
UPDATE: Due to an error in a press release from Potbox, an earlier version of this story stated that its service included a quarter-ounce each of two premium strains and two joints for $149.99 a month. Potbox corrected the error in a followup press release on Friday; it offers four grams each of two premium strains and two joints for $149.95 a month.
John Schroyer can be reached at [email protected]