Cannabis and ecommerce have historically been a mismatch. But ever since the mid-2010s legalization wave in the U.S., cannabis retail has thrived. According to a Retail Dive report, Colorado’s licensed retailers in 2016 notched nearly a billion dollars in sales one year after legalizing recreational marijuana.
The same report states that the global cannabis market, has reached $150 billion, and by 2025 legal cannabis will encompass 77% of the market, or $166 billion.
Thanks to rapid change in the legal status of weed, cannabis retail is taking off, from neighborhood dispensaries to high-end luxury stores like Barneys and Neiman Marcus selling CBD-infused products. Cannabis is now legal and regulated in Canada and to some degree in 33 U.S. states (with 10 of those allowing adult recreational use in addition to medical use), and Mexico’s Supreme Court last year declared its recreational marijuana interdiction unconstitutional, according to Retail Dive.
It’s clear that cannabis retail is here to stay. If your ecommerce business sells products in wellness, beauty, and other hot categories for CBD, you’ve probably had an expansion to cannabis products in mind for a while. No matter the path you take to enter the cannabis ecommerce race, it’s important to understand the market—especially the rapidly evolving legal landscape, payment system requirements, possible friction points in your customer experience, and other factors that can impact your success.
The legal landscape
During almost every election cycle in the U.S., marijuana legalization bills pop up on ballots. The wins to legalize cannabis have come quickly over the last few years, including laws that separated the legal status of CBD from THC. According to Pymnts.com, CBD (also known as cannabidiol), unlike its chemical cousin THC, is not known to be psychoactive. Instead, CBD is known for its reported pain-reducing properties and stress-relieving abilities.
Changes in the latest edition of the Farm Bill legalized hemp. CBD is found in both hemp plants and marijuana plants—and while extracting and selling CBD from marijuana plants remains very much illegal in most states, extracting CBD from hemp plants is not.
So while CBD products are legal and psychoactive cannabis is allowed in over half of U.S. states, federal law still terms cannabis as illegal. This creates problems for ecommerce retailers selling to customers in states where the substances are not legal. You may need to set up your storefronts to serve customers only within your home state, for starters. Check with local laws and consult an attorney for specifics about the legality of your online cannabis products.
Payment systems in a formerly cash-only industry
The marijuana business has been cash-only until very recently. As quickly as the industry has changed over the last few years, progress moves at a glacial pace in other aspects. Especially in payments.
A report from KALW Public Radio in San Francisco tells the story of Doug Dracup, owner of a high-end glass pipe company called Hitman Glass. Like any responsible small business owner, Dracup plays by California’s new rules for licensed cannabis businesses. But pot is still illegal under federal law, and banks are often federally regulated.
“I’ve been shut out of so many banks, just for selling pipes,” Dracup says.
So pot entrepreneurs deal in cash. Without a bank account, it’s hard to manage a payroll, get a mortgage, a loan or a credit card.
The global cannabis market has reached $150 billion and by 2025 legal cannabis will encompass 77% of the market, or $166 billion.
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Some dispensaries have started taking credit card payments in their shops, and some online cannabis businesses can accept cashless payments. Caliva, a San Jose-based dispensary, has a wholesale partner portal to connect with businesses that want to sell their products. Cannabis delivery services vary in the payment methods they accept. Still, the industry is mostly chained to archaic ways of doing business.
Help may be on the way. According to a March 2019 report in the Denver Post, U.S. Rep. Ed Perlmutter, D-Colo., has introduced legislation allowing marijuana businesses to use banks.
Because marijuana remains illegal under federal law, financial institutions risk criminal prosecution if they hold the profits of marijuana sales. That forces cannabis companies to operate primarily with cash, making them vulnerable to robberies and more prone to white-collar crimes.
The bill has 106 bipartisan co-sponsors and marks Perlmutter’s best chance at trying to make the cannabis industry safer for everyone. Congressional sponsors chose to back this bill based on the realization that banking creates paper trails and improves public safety.
Give customers the green light with a friction-free shopping experience
So you did your homework: you’ve confirmed that your cannabis ecommerce business is legal and above board in every way. You’ve stocked your items and set up payment systems for your customers. You also need to provide the best possible customer experience to avoid lost sales and cart abandonment according to the Baymard Institute.
Many online cannabis businesses require extra steps at checkout to ensure the legality of each transaction: creating a login for the website, confirming age and identity by providing a copy of photo ID, phone verification for delivery orders, etc. Some businesses that offer pickup and delivery services are cash only or cash on delivery, which eliminates the one-step ecommerce experience shoppers have come to expect.
You can also turn to up-and-coming cannabis ecommerce platforms to establish your online presence. Shopify Canada partnered with Tweed and CanniMed, two of the world’s largest licensed cannabis producers, to sell cannabis online and easily integrate with other solutions to stay compliant with strict government regulations. CanIDeal launched a platform to help U.S.-based cannabis retailers sell online in November 2018. Per their news release, CanIDeal states that while they only can sell THC products in Oregon, any and all non-THC and 0.3 CBD products can now be listed for sale in every state that allows legal recreational and medical marijuana use.
SMB ecommerce owners know Shopify well, and now they have another option to help them break into the lucrative cannabis ecommerce market. These two solutions are only a small part of the growing demand for cannabis ecommerce platforms, so keep an eye on this part of the industry if you’re looking to expand your market.
Cannabis can be your next great category—if you do your homework. Choose the right products for your business, follow all the laws, and set up a great electronic storefront — just like you would to succeed in any industry.
photo by iStock
Cannabis ecommerce merchants may have a hard time finding the right payment processor to work with their online store. Signifyd can help you accept more orders with automated order review and protect your business from losing revenue due from declining bad orders from fear of fraud. Contact us to chat about how to set up Signifyd in your ecommerce store.