Cannabis commerce is nearly unstoppable. The Sacramento Bee predicts that over the next five years, cannabis retail sales could increase by $4.7 billion in California alone, accounting for nearly a quarter of the predicted $20 billion in additional sales nationwide.
But where retailers see green cash and consumers see green leaves, there’s a still a few snags along the way. As the industry expands into new states, regulations and restrictions are still a roadblock for many cannabis entrepreneurs. We wrote about cannabis ecommerce last spring as an overview of the industry with some tips on how to get started in the field. Our early 2020 follow-up looks at the new frontiers for cannabis retail: growth into new states and markets, legislative paths to legalization and new technologies available for business owners.
- Marijuana industry experts estimate that the U.S. medical and recreational marijuana market is currently valued at $8.3 billion, and project that it will surge to $25 billion by 2025.
- 18 U.S. states are considering some form of legalization — which means legal cannabis commerce is getting closer to a reality across the nation.
- Cannabis entrepreneurs have more resources than ever to grow their businesses, even in the face of federal restrictions.
Support for cannabis grows across state borders
Illinois is the biggest story in cannabis legalization this year. The state began legal cannabis sales on Jan. 1, but with certain restrictions: sales differ from city to city and even among different neighborhoods in Chicago, and non-residents in Illinois face reduced buying allowances. Keep an eye on how Illinois handles their burgeoning cannabis commerce industry as a model for other states’ expansions.
There’s more to see from the states where cannabis isn’t yet legal. This year could be the most impactful ever for marijuana policy reform in the U.S. Eighteen states are considering some form of legislation to legalize recreational or medical cannabis use for adults, through state laws or ballot initiatives. Here are a few other states to watch:
- New Mexico Gov. Michelle Lujan Grisham supports legalization. The state House of Representatives has passed a legalization bill before and the state Senate president has demonstrated an open mind to the concept. It all comes down to a session vote of course, but the stage appears to be set for New Mexico to tax and regulate cannabis — opening the door for legitimate cannabis commerce.
- Pennsylvania Gov. Tom Wolf recently came out in support of regulating marijuana like alcohol. Legal cannabis faces opposition from Republicans, who control both houses of the state Legislature. But with gubernatorial support and oncoming legislation in other states, it’s impossible to count Pennsylvania out of potential cannabis commerce development.
- Arizona is in a similar spot as Pennsylvania: 49% of voters supported adult-use legalization in 2016 (with another ballot measure coming in November 2020.) Neighboring states like California and Nevada already sell legal cannabis to adult consumers. If New Mexico also joins the cannabis commerce wave, it could put enough pressure on Arizona to regulate marijuana like alcohol and open up economic opportunities around cannabis.
- Mississippi has a well-organized group called Mississippians for Compassionate Care working on getting medical cannabis on the 2020 state ballot. The group submitted enough signatures to qualify the initiative for the ballot. The next step is to get the measure verified by the state. Medicinal use for adults is typically the first step to legalizing recreational use and retail sales, so it’s important to watch how a pro-cannabis initiative in the deep south, conservative states like Mississippi will perform.
State legislature and voting measures will create opportunities for cannabis commerce like establishing legitimate businesses and creating jobs. But cannabis businesses still face a major hurdle: safe and secure banking options to manage their cash flow and assets. We covered this in our previous post on cannabis ecommerce, but a lot has changed since last spring, when optimism for a federal banking bill for cannabis businesses was at an all-time high.
Trouble at the federal level
Earlier this month, Senate Banking Committee Chairman Mike Crapo said he does not support the Secure and Fair Enforcement (SAFE) Banking Act. The SAFE Banking Act is a landmark bill that would create protections for financial institutions that provide services to cannabis-related businesses, like preventing banks and credit unions from facing federal charges for serving cannabis dispensaries, growers and firms that handle the substance so long as they comply with state laws.
It’s a rough turn for the act that had near-unprecedented bipartisan support: The U.S. House of Representatives passed the bill in October by a vote of 321-103 with support from nearly all Democrats and a substantial group of 91 Republicans. Cannabis remains illegal under federal law, but 33 states have legalized medicinal or recreational use of the drug and another 14 allow residents to use non-intoxicating cannabidiol (CBD) products, leaving just three states without any legally approved cannabis use.
The divisive issue still lives on in other congressional bills. Last summer U.S. Senators Dianne Feinstein, Chuck Grassley and Brian Schatz introduced the Cannabidiol and Marijuana Research Expansion Act (S. 2032), a bill to encourage scientific and medical research on marijuana and its compounds including CBD. The bill has support from senators from both parties and the American Medical Association for its focus on breaking down barriers that make medical marijuana research difficult and stifle the development of new treatments. “Our combined bill streamlines the research process and paves the way for marijuana-derived medications that are FDA-approved to keep consumers safe,” said Feinstein.
It’s clear that the congressional fight for cannabis is far from over. In the meantime, cannabis entrepreneurs must continue to grow their businesses on their own. Fortunately there are more resources than ever to help these merchants keep pace in retail and ecommerce growth.
Cannabis remains illegal under federal law, but 33 states have legalized medicinal or recreational use & another 14 allow residents to use non-intoxicating CBD product.
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Cannabis merchants can get ahead with tech
Technology has reshaped retail in ways nobody saw coming. The cannabis retail industry can benefit from the ways technology is changing too.
An Ecommerce Times report cited cannabis industry experts on the challenges marijuana entrepreneurs face in operating their businesses. Due to the illegal nature of many products they sell, they’re cut off from using many everyday ecommerce tools like email marketing, payment gateways, website development and paid advertising.
“Many companies like Mailchimp, Paypal, Stripe, Wix, Shopify and many others are choosing to abide by the (federal) law,” Chelsey Moter, CEO of marketing firm Cannack, told the E-Commerce Times.
“Google considers marijuana and CBD to be restricted topics in Adwords campaigns,” Carlo Barajas, founder and digital marketing consultant at Surface SEO, told the publication.
But there’s always a workaround. For every problem cannabis merchants face in establishing and growing their businesses, there’s a growing number of resources designed to address the specific needs of this audience:
- CRM/marketing automation: “Hubspot is a very cannabis-friendly CRM which can integrate with other platforms and save all client data even if one platform shuts you down,” Moter said in the Ecommerce Times piece..
- Wholesale marketplaces: Dama Financial, a financial services provider that collaborates with banks to provide services to the legal cannabis industry, collaborated with Helix TCS to create a business-to-business ecommerce platform for the marijuana sector. Launched in fall 2019, the platform enables cannabis businesses to legally procure inventory with Dama Financial facilitating compliance financial transactions between B2B vendors and merchants.
- Direct-to-consumer sales: SpeedWeed D2C is a platform that allows consumers to order cannabis directly from their favorite brand. Their goal is to streamline the supply chain and bring legal products to consumers to reduce costs and improve access.
- Marketplaces as search engines: 54% of product searches now take place on Amazon. Marketplaces are replacing Google for product searches. iheartjane.com understands this. The Santa Cruz, Calif. based business serves 250 retailers in 10 states with a cannabis ecommerce platform for retailers that modifies a dispensary’s existing website to take orders and connect it to their point of sale system. “We want to help cannabis sellers go from ‘brick and mortar’ to ‘click and mortar,’” said founder Soc Rosenfeld. “We believe our search function doubles the average amount people spend because they can find things they need or might want to try.”
Aside from specific topics in technology for cannabis commerce, it’s important for merchants to understand the general importance of digital innovation for their businesses. Jane Technologies Head of Sales Brian Geddes writes on the six key questions every cannabis merchant should ask to nurture success in Green Entrepreneur. He starts with, “Is your interface mobile optimized?” — and answers that at least 75% of cannabis shopping traffic comes from smartphones. He makes it clear: Cannabis ecommerce platforms must be built with mobile in mind.
Technology has been the savior of many other industries. The cannabis industry faces significant hurdles for growth and legitimacy, but merchants in this space can take the big leap forward by embracing all the digital tools they can find.
A model for growth
In a recent conversation with PYMNTS, Leaf Trade Chief Revenue Officer Michael Piermont discussed why marijuana businesses should embrace digitization from the start. He noted that industry-agnostic B2B ecommerce platforms are not always equipped to manage the marijuana market’s compliance requirements, nor are they flexible enough to adjust to new rules as they emerge.
Perhaps this is a model for any emerging industry or vertical. Especially for products and services that are not yet well regulated or understood. Existing tools may not cover every need, so the retail space needs forward-thinking innovators who understand how to combine the hot trends for retail success — things like omnichannel and customer experience — with practical solutions that address real-world issues like regulations and legal issues.
Cannabis is a unique retail industry because its growth has powered through all the hurdles and roadblocks in its way to become a must-have for a growing number of shoppers. CBD products are coming to grocery stores, drugstores and even Dollar General. The unstoppable cannabis green wave is here. The best solution is to embrace the latest changes in the retail revolution.