Editor’s note: This story originally ran on Modern Shipper on April 20, 2021.
The stories behind how April 20 became known as “weed day” around the world are as varied as the cannabis products now available. According to Time magazine, the most credible story is that a group of teenagers in 1971 used to meet at 4:20 p.m. after school to smoke pot – 420 became their code word for the meetup.
Today, smoking in a lot behind the school is not necessary in many states, with 16 states and Washington, D.C., making marijuana legal for adults over the age of 21. A total of 36 states have medical marijuana laws on the books and three more states – New Mexico, Virginia and South Dakota – have passed legalization laws that have yet to go into effect.
As cannabis has become legal, a natural evolution is occurring for consumers – they increasingly are looking online for products. During the initial onset of the COVID-19 pandemic, recreational marijuana sales jumped 159% in California in March 2020, 100% in Washington state and 46% in Colorado, according to data from Statista. For the full year, cannabis sales reached $20 billion, increasing 50% year-over-year, according to Politico, and could reach $30 billion in sales by 2025. Much of that increase is taking place through e-commerce, with online ordering and fulfillment platform dutchie seeing a 700% surge in online orders between March and August 2020 alone.
“Our quintessential existence is to make life easier for retailers,” Jon Bond, director of strategic partnerships at dutchie, told Modern Shipper.
Cannabis refers to all products derived from the plant Cannabis sativa, according to the National Center for Complementary and Integrative Health. In all, the cannabis plant contains about 540 substances: CBD oil is one of those, as is marijuana, which is the part of the plant that contains tetrahydrocannabinol (THC).
Even as cannabis sales soared, though, other issues have cropped up. The biggest issues facing the industry involve the inability of cannabis companies to access traditional banks and the varying laws and regulations in each state that prevent economies of scale and require local control of sales and delivery. Dutchie’s platform helps address some of these issues, allowing local dispensaries to utilize its technology to create an online marketplace and then leverage dutchie partner Onfleet to handle the logistics of last-mile delivery of orders.
Bond said dutchie’s platform accommodates state-level restrictions, such as limits on the number of ounces a person can buy in a single day. It also asks the customer upfront if the order will be a pickup at the local dispensary or a delivery item.
“We have tons of data that supports why [asking that upfront] is going to add up to a higher [customer] conversion rate,” Bond said.
An online sale isn’t complete, however, until the product successfully reaches the end customer. Dutchie integrates with Onfleet’s system, which ensures the routing and delivery of the products. That includes proof of delivery, tracking and collection of regulatory data such as age verification.
“We are able to capture all the necessary information Onfleet needs to make that delivery,” Bond said. “There is a seamless integration that allows the cannabis retailer … to function in a much more seamless way. We’ll do the heavy lifting, meaning the e-commerce and sale and whether that is a legal order, then when it gets to Onfleet, they know that it is a compliant order.”
Onfleet co-founder and CEO Khaled Naim said the firm saw the potential for cannabis delivery early and has been involved in the space for about seven years. During that time, the company has perfected its logistics platform and has gained extensive experience in cannabis delivery.
“In most states, the delivery person must be an employee [of the dispensary], but in some states like Massachusetts, you can work with third parties,” Naim said. “There are restrictions all around, so we’re quite familiar with the complexities that come with cannabis deliveries.”
Delivery drivers must verify the age of the recipient and all deliveries must have time stamps and include track-and-trace requirements on a manifest. For Onfleet, a cannabis delivery is not much different from any other delivery.
“We’re tracking locations and we’re collecting time stamps anyway, so we’re doing it for all of our customers,” Naim said.
Drivers collect the necessary information through the Onfleet mobile app. It includes a scanner so customer identification can be recorded to verify they are a legal recipient. The Onfleet platform and app provide routing suggestions and delivery windows for customers. It also sends text messages to customers notifying them of delivery location and estimated time of arrival.
The delivery is a key part of the growing online cannabis market.
Pandemic changed buying habits
Bond said that dutchie was working with about 600 dispensaries prior to the pandemic but saw an explosion in customers coming online as more people sought contactless shopping experiences. As of March of this year, dutchie is now working with over 2,500 dispensaries.
“That first week [of March 2020], we did about $10 million on the platform in sales. That very next week, when we shut down and cannabis was deemed an essential item, that tripled,” Bond said. “Retailers that were not traditionally reliant on technology needed technology. The cannabis industry has been set on a trajectory that is not going to be [slowed].”
Bond said that retailers traditionally see lines in dispensaries, so the onset of online ordering is an opportunity for those that want cannabis products but don’t want the long waits or prefer the convenience of at-home delivery.
“If you are sitting there and cruising an online menu, it’s a better experience,” he said.
Dutchie built its technology from the ground up but did so in a way that is simplified for dispensaries to navigate the e-commerce experience.
To further improve the customer experience, dutchie acquired LeafLogix and Greenbits, bringing point-of-sale and e-commerce capabilities into its platform. The deals were result of the finalization of a $200 million Series C round of funding.
“With point of sale and e-commerce systems playing a central role in the tech stack, we believe it’s important to enable retailers to choose the technology that best suits their operation,” the company wrote in a blog post announcing the acquisition.
Both Bond and Naim noted the banking restrictions that continue to hold back cannabis sales. Because cannabis is federally restricted, federally insured banks are unable to transact business involving cannabis sales. According to the Financial Crimes Enforcement Network, only 695 banks and credit unions were able to service marijuana-related business as of June 2020.
“There are a ton of ACH or cashless ATM-type companies that are able to set it up where [the transaction] happens outside of a bank. In this instance, the customer is able to give consent to the retailer to remote access their bank account through a third party, and those ‘cash funds’ are deposited in the dispensary company account- and the retailer is able to provide cash back to the customer for the difference over order amount, and then that money becomes bankable the retailer,” Bond said. “The challenge if you are one of these cashless ATMs is having to find creative ways to take payments.”
Analytics firm New Frontier Data said that 70% of cannabis businesses have no relationship with a financial institution and use cash for all transactions.
There is legislation in Congress that would revise the laws and allow cannabis-related transactions at federally insured banking institutions.