The hemp industry is rapidly growing, but it’s no secret that it suffers from a major legitimacy problem. When manufacturers choose to certify their products and processes under a third-party agency, such as the USDA, it is a way for those companies to gain credibility with new customers.
The USDA’s organic certification program is a great way to increase transparency and trust with both ingredients and processes used within the hemp industry. Organic certification is a rigorous audit program to review both manufacturing facility design and production process plans with the ultimate goal of increasing supply chain sustainability.
Investing in organic certification is a smart business decision – especially in today’s competitive CBD market. A recent Bloomberg report has shown that COVID-19 has actually accelerated organic food sales in the US due to increased demand for health-conscious foods and drinks. “Sales of organic food and drinks surged 25% during the 17-week period ended June 27,” according to Nielsen Data.
Organic certification is one way to differentiate between the thousands of seemingly identical CBD products being sold in the marketplace today. From a consumer perspective, organic certification provides both supply chain transparency and increases confidence with brands and products they already love. It also provides a form of quality assurance to skeptical consumers, especially those who avidly read product labels prior to making a purchasing decision. Members of this “label reader” demographic will consistently choose organic products for the quality and transparency it provides with pure and natural ingredients.
Not only does certification support ethical practices, it’s also good for business. According to the USDA, “Food labeling can be confusing and misleading, which is why certified organic is an important choice for consumers. Consumers are willing to pay a premium for food that carries the USDA organic seal, or that contains organic ingredients.”
Organic farming and production processes significantly contribute to increasing sustainability within the CBD industry. In general, organic farming is a growing practice for farmers across the US. According to the Pew Research Center, “There were more than 14,000 certified organic farms in the United States in 2016, according to the latest available data from the U.S. Department of Agriculture’s National Agricultural Statistics Service. This represents a 56% increase from 2011, the earliest comparable year.” The USDA has found that organic production practices can improve water quality, conserve energy, increase biodiversity and contribute to soil health. In terms of organic farming, soil ecology and water quality are both protected by farmers committing to working within regulated guidelines.
Organic certification ensures transparency and trust with a consumer-friendly approach to ingredient products. This comes on the heels of research showing that the CBD market lacks credibility. Organic CBD should be the next step all brands should take to ensure they’re adapting to changing consumer preferences.
The cannabis industry, like many others, felt the effects of the stay-at-home orders issued in March in response to the COVID-19 healthcare crisis. While medical cannabis companies were considered “essential” in most states, many recreational dispensaries had to close their doors, or pivot to a curbside pickup operations model. According to the State of the Cannabis Industry 2020 report, following a two-week spike in mid-March, as consumers stockpiled product ahead of stay-at-home mandates, sales took a temporary downturn.
The industry rebounded in a big way, however. The report notes that, since April 20, cannabis sales have steadily increased, and are, in fact, up approximately 40% from 2019. But while medical and recreational dispensaries are now open to the public and thriving, it’s far from business as usual.
Like any other retail store, cannabusinesses must follow local- and state-issued health and safety mandates designed to prevent the spread of COVID-19. Complying with these new requirements can be difficult for business owners and management teams on a normal business day – never mind in today’s climate, where demand for cannabis products continues to soar.
Turning to Technology
With more health regulations to follow than ever before and stores experiencing a consistent increase in daily foot traffic, it’s no longer realistic to expect managers to manually monitor every employee and customer to make sure guidelines are met. For example, it’s difficult to manage social distancing within the store – but there are commonly lines outside of cannabusinesses, where social distancing and mask-wearing precautions also need to be followed. Wouldn’t you rather have managers spend their time on customer service and initiatives that will deliver business value, rather than spending time making sure people are following safety protocols?
Technology can help mitigate these new health compliance challenges – and you may even already have the solution deployed: Internet Protocol (IP) security cameras. Often implemented by businesses as a security tool, IP cameras are now also an effective way to ensure employees and customers are following health and safety protocols.
Most IP cameras are equipped with artificial intelligence (AI) that can analyze information in real-time and make split-second response decisions. In the context of health compliance, they can be trained over time to recognize when requirements are not being followed and immediately alert the appropriate managers. This means managers only need to address violations, rather than observing everyone all the time, and they can resolve compliance gaps as they’re happening. In other words, AI takes on the compliance burden for you. And, as an added bonus, many AI-enabled surveillance systems give managers the ability to pull up live video feeds from their smartphone, so they can conduct compliance checks remotely, at any time. This is especially helpful to managers covering multiple stores (suddenly, they can be in more than one place at a time!).
Here are three specific ways IP security cameras can help dispensaries and other cannabusinesses ensure compliance with COVID-19-prompted health guidelines:
Social distance monitoring
Six-feet social distancing rules are now the norm across the U.S., and IP security cameras are able to measure the space around employees and customers to detect when the six-foot rule is violated. For example, some systems place a ring around each person, and the ring’s color changes when people come within six feet of each other. This capability can be helpful when trying to do things such as supervise the line to get into your store, manage your checkout queue, or monitor the distance between customers browsing in store aisles.You can use IP security cameras to create a healthier and safer work environment
Occupancy management
In many states, organizations must follow orders that restrict occupancy to 50% capacity. Rather than having an employee at your front door tallying the number of people going into and out of your store, IP security cameras can do the counting for you. With this capability, you can control foot traffic and keep the number of shoppers within defined occupancy requirements – without having to allocate personnel to do the task manually.
Face mask detection
AI-enabled IP security cameras can also help businesses comply with mandatory face mask orders. The technology can be trained to detect employees and customers who aren’t wearing face masks or other required personal protective equipment, and then alert appropriate management personnel.
A Dual Purpose – Security and Compliance
IP security cameras now have a dual purpose. Beyond simply helping organizations protect their premises from crime, they now also empower them to ensure compliance with health and safety requirements. You can leverage the technology to remediate compliance issues in real-time and demonstrate to public officials that your business remains in compliance with all health mandates. Most importantly, you can use IP security cameras to create a healthier and safer work environment – and, in these uncertain times, this is a certainty you can count on.
As states grapple with flagging tax revenues and soaring unemployment as a result of the pandemic, governors and state legislators are facing a quandary. Either cut back on programs that voters like, or increase taxes to keep them funded. According to a recent assessment by iUNU, many legislatures will look to the booming business of legal cannabis as a revenue source.
“For those states that have only made incremental steps towards legalization within their jurisdiction… there’s going to be pressure to initiate, whether it’s through medical marijuana programs or the expansion into recreational,” says Martin Glass, a partner at Jenner & Block who specializes in mergers & acquisitions and securities transactions.
Martin Glass, a partner at Jenner & Block
In recent months, the average per-store retail sale of cannabis increased in legalized states – a telling change given the current state of the economy. Other facts – a loyal consumer base, proven health benefits and strong external investment – all point to a dependable industry. Mr. Glass saw this as a sign that cannabis is more stable than most believe: “The industry has proven to be quite resilient… it has absorbed the COVID-19 shock very well.”
Not only is cannabis a dependable industry, it’s also an expanding one. In 2019, global revenue rose to $15 billion, a 48% increase from the prior year. By 2020, economists expect that number to reach $20 billion. Kristin Baldwin, executive director of the Cannabis Alliance, added some perspective: “Right now, we’re at about 240,000 people employed according to the latest numbers I have. Maybe even 250,000. In King County, which is the largest county in Washington and where Seattle is, we had a 22% increase in sales in March alone.”
In the United States, the revenue from annual sales increased by nearly 40% from 2018 to 2019, rising 3.3 billion over the course of the year. This growth is expected to continue at a similar rate in the coming years, forecasted to hit $29.7 billion in revenue by 2025. These growth statistics are impressive and especially attractive as state legislatures and governors search for options to balance their budgets.
Kristin Baldwin, executive director of the Cannabis Alliance
The industry also is logging similarly impressive growth on the employment side. The cannabis industry was recently dubbed “the fastest growing job market in the country” by CNBC, leaping an estimated 110% from 2017 to 2019 and hitting six figures in real numbers during that three-year period. The industry turned in those impressive numbers while constrained to 33 states (11, if evaluated from a recreational standpoint), leaving plenty of room for growth.
Baldwin agreed. “I think employment will grow along with the sales just because you are going to need budtenders, delivery drivers, and farmers,” says Baldwin. “For example, in California, Oregon, and Washington – highly regulated systems – there’s still going to be a significant amount of growth because there’s a significant amount of demand.”
Heading into budget negotiations in 2021, states are facing huge revenue gaps. Right now, those dismissing cannabis are, as Glass says, “leaving a lot of money on the table” by failing to take advantage of a major economic resource. Not only does the industry produce tax revenue to expedite states’ recoveries, as legalization expands, the cannabis industry has the ability to provide thousands of jobs.
Still dubious? Baldwin shared this fascinating piece of information: “It’s a generational shift that’s occurring as we speak. The fastest growing consumer group in cannabis right now is women over the age of 40.”
At the outset of 2020, the cannabis industry appeared poised for a series of incremental changes: a number of states were considering decriminalization and legalization measures, and support was growing for federal legislation allowing cannabis businesses access to banks and financial services. Then the COVID-19 pandemic hit, which disrupted state legislative sessions (and legislative priorities), obstructed signature gathering for ballot initiatives, and reshuffled federal priorities. However, despite all of these changes, the cannabis industry has seen significant developments across the country. Beyond of course the many challenges and losses brought by the pandemic and its aftermath, in some ways, it may prove a boon for the industry.
Legalization and Decriminalization
Currently around a dozen states have legalized cannabis for recreational use, while just under two dozen states allow use of medicinal cannabis. With support for legalization measures steadily growing in most states, a number of major states seemed poised to pass legislation legalizing recreational cannabis, including large potential markets in the Northeast such as New York, New Jersey, Connecticut and Pennsylvania. And in many other states, advocacy groups were well underway gathering signatures to qualify legalization measures for the November 2020 ballot. When the pandemic hit, however, state legislatures largely suspended their normal operations, and signature gatherers were stymied by stay-at-home orders and social distancing requirements.
Despite these major obstacles, legalization and decriminalization legislation has continued to move forward in a number of states, and still others will have legalization referenda on the ballot for November’s election. Perhaps more important than these initiatives themselves are the diverse states that are moving toward loosening of restrictions around cannabis: rather than being limited to a handful of especially liberal states, cannabis advocates are seeing tangible progress is every geographic area, among states whose political leanings span the spectrum.
Whether through the legislature or directly by the ballot, it seems likely some states will legalize adult use this year
While the Northeast corridor had planned to undertake legalization efforts in a coordinated fashion this year, those results were put on hold given the seriousness of initial COVID-19 outbreaks in the greater New York area. However, the New Jersey General Assembly nevertheless passed decriminalization legislation, though the matter has not yet cleared the New Jersey Senate, and the appetite for full-scale legalization remains strong there, with a ballot initiative going directly to voters in advance of the New Jersey Legislature considering the issue. The Commonwealth of Virginia enacted decriminalization legislation also, and a legislative caucus in Virginia has pledged to introduce recreational legalization legislation this summer when Virginia convenes a special legislative session. Voters in Mississippi and South Dakota will be able to vote on ballot initiatives to legalize recreational cannabis, and similar ballot initiatives are underway or likely in Arizona and Nebraska. Advocates in Arkansas and Oklahoma had also hoped to bring initiatives to the ballot, but have encountered practical and legal obstacles to gathering the required signatures in time for this year’s election.
These myriad initiatives reflect a strong shift toward legalization of recreational cannabis across the country, and the ability to continue gathering signatures and momentum despite stay-at-home orders and social distancing underscores the growing popularity of the movement. Whether through the legislature or directly by the ballot, it seems all but certain that the number of states permitting recreational cannabis will grow significantly this year.
COVID-19 Business Closures
As the COVID-19 pandemic took hold in the early months of 2020, most states instituted various forms of stay-at-home orders that required the closure of nonessential businesses. While these policies had—and continue to have—serious impacts on businesses of every type, cannabis companies have largely seen strong economic growth notwithstanding.
One of the most important developments in this space came in the context of state and local governments designating certain businesses as “essential” for purposes of business closure orders. In nearly every state to consider the issue—Massachusetts being the main outlier—state and local governments recognized cannabis companies as essential, which allowed them to operate during the shutdown.
The “essential” designation largely carried between both recreational and medicinal cannabis jurisdictions. And this matters because of what it means for the industry. State and local governments clearly realize the important medicinal role that cannabis plays for patients dependent on it for treatment, and the overlapping customer bases of mixed dispensaries further contributed to keeping cannabis companies open during the pandemic. Even in states where certain dispensaries operate solely in a recreational capacity, those jurisdictions recognized the importance of allowing access to a safe recreational substance, like alcohol, during prolonged stay-at-home orders.
Similarly, likely as a result of those same stay-at-home orders, cannabis companies largely saw significant increases in sales revenue. More customers visited retail establishments, and those customers often purchased more product per visit. This resulted in better-than-expected sales revenue for cannabis companies, and also produced increased tax revenues for state and local governments.
The cannabis industry saw more than just increased sales, however. In the process of issuing emergency rules for the cannabis industry during quarantine, a number of state and local jurisdictions either began to allow cannabis deliveries or expanded its availability, a shift in policy that may stick around well after the pandemic subsides.
One final impact of the pandemic may also help push legalization initiatives forward in the coming years: decreased tax revenue and major budget gaps. Due both to a decrease in economic activity like shopping and dining, as well as the unexpected health care costs associated with responding to the COVID-19 crisis, state and local budgets are expected to see significant shortcomings for years to come. In response, state and local governments are starting to see cannabis as a significant and viable source of tax revenue. For example, various cities in California that had previously been reluctant to permit recreational cannabis are beginning to welcome cannabis companies in hopes of making up for lost tax revenue. Similarly, in New Mexico, where legalization has remained a heated topic of discussion, Gov. Lujan Grisham has explicitly expressed her regret that the state failed to legalize cannabis, recognizing that tax revenues from the industry could have reached upwards of $100 million. Other state and local governments are coming to similar realizations, which should help propel expanded access to legal cannabis in coming years.
Federal Changes
Major changes in the cannabis industry in 2020 have not been limited to the states. In the midst of changes and crises across the country, the federal government has been making meaningful progress in two major respects, COVID-19 notwithstanding.
SAFE Banking Act language included in COVID-19 relief package legislation
First, cannabis companies are edging closer to having full access to banks, bank accounts and related financial services. The SAFE Banking Act, championed by Rep. Perlmutter, has made it through the House of Representatives and is currently in the Senate Committee on Banking, Housing, and Urban Affairs. However, as Congress continues to toil away at future COVID-19 relief legislation, political signals from Washington, D.C., suggest there is a reasonable likelihood that the protections of the SAFE Banking Act will be included, in some form, in the next round of major COVID-19 legislation out of Congress. The enactment of these banking provisions will provide substantial relief to cannabis companies who have largely been excluded from opening bank accounts and utilizing the services major banks provide. Additionally, allowing access to banks and their services should further facilitate the rapid growth in the cannabis economy we are witnessing elsewhere, and this movement could further legitimize the industry as part of a broader push for federal legalization.
Second, after a four-year delay, the DEA has finally proposed draft rules to expand the DEA’s limited cannabis research program. For decades, all cannabis research to date has relied on limited supplies of cannabis grown at the University of Mississippi. Now the DEA is finally following through on its promise to further develop, refine and expand its research program by allowing additional suppliers and market participants to play a role in cannabis research. While the rules proposed are not without detractors and critiques—and the rules themselves have not been finalized—this marks an important step forward to a better understanding of the effects of THC on consumers, not only because more research is needed to understand a substance consumed by millions annually, but also because the limited supply of cannabis on which researchers currently rely has been shown to differ substantially in appearance, consistency and chemical composition from cannabis that is commercially available in states across the country. With an expanded research regime comes the hope that scientists will be able to develop new and innovative cannabis-derived medications, while also furthering our understanding of how THC affects health and the body.
At every level of government, the year in cannabis so far has proven to be far more eventful than many predicted. And the COVID-19 crisis has not slowed progress. There appears to be continued momentum to further mature how cannabis is treated at every level of government, which signals that significant changes are on the horizon. Industry observers will be closely focused on how the rest of the year proceeds, especially with a presidential election on the horizon.
Editor’s Note: This article was revised to clarify that New Jersey has not yet decriminalized marijuana. A decriminalization bill passed the New Jersey General Assembly, but the New Jersey Senate has not acted as of this writing.
For a long time, cannabis marketing didn’t exist. Then suddenly, it did. Fast forward a few years, and this nascent vertical within the modern marketing sphere remains a unique tangle of federal restrictions, state regulations, platform-specific policies and gray-area confusion, complicated by the sudden classification of businesses within it as “essential.”
So, how do today’s cannabis business owners create a marketing strategy that works in 2020? Below, we take a look at how cannabis marketing has evolved over the last few months before diving into one example of a Seattle-area cannabis retailer that’s risen to the challenge, evolving their marketing strategy quickly and successfully to capture an influx of new customers during COVID-19.
Welcome to the Cannabis Industry’s New Normal
The fact that COVID-19 has fully dominated marketing news, along with every other form of coverage, since its inception goes to show just how much it’s changed things. Multinational corporations have paused their entire ad spends; contracts have been backed out of; multi-year marketing plans have been torn up and rewritten, sometimes more than once. Those who were hoping to get back to their previous initiatives within a month or two have seen the error of their ways—and we’re still (though it doesn’t feel like it) less than half a year in.
The biggest change brought on by COVID has been a shift en masse to all things digital. Whereas before most companies met in person, they now meet over Zoom. Thousand-person conferences have become webinars and virtual networking events, while brand activations are now free trial promo codes. Along the way, traditional marketing methods have increasingly been replaced by their digital counterparts. Today, marketers need to meet consumers where they are, and where they are is at home and online.
In most industries, this shift to digital has been happening for many years already. Digital marketing and advertising methods are highly measurable, instantly adjustable and capable of reaching target audiences more directly and efficiently than traditional media. Even before the pandemic hit, cannabis was already playing marketing catchup: For example, while most industries have been using billboards since closer to their inception in the 1830s, the first cannabis billboards post-legalization only cropped up in 2014.
The shift to digital advertising in the cannabis industry has long been stalled by Facebook and Google, both of which reject all cannabis ads and even most CBD ads regardless of the location and legality of the products. Therefore, cannabis brands have evolved their own unique non-digital marketing playbooks. In addition to the prevalence of print ads, physical billboards, sponsored events and in-person pop-ups, many cannabis brands have come to rely heavily on a tactic unique to the industry: budtender education. In the meantime, most cannabis marketers haven’t been leveraging their digital options in full (or, frequently, at all).
Due in large part to COVID-19, the need for this to change has come into sharp relief. In addition to decreased reach for print publications and out-of-home ad space with fewer people spending time in public, events are no longer feasible, and customers are no longer having leisurely chats with their budtenders as they weigh the benefits and drawbacks of different products for sale. Most cannabis stores are minimizing their in-store visitors as well as offering online ordering, curbside pickup services or cannabis delivery. In April Margaret Jackson, a journalist at Marijuana Business Daily, reported on this trend:
“Many marijuana brands have relied on in-store pop-ups and educating budtenders about their products to reach consumers. But as cannabis customers increasingly order products online for delivery or pickup—and with the expectation that these habits will persist after the coronavirus pandemic is under control—marijuana brands should consider more direct ways to reach their audience to ensure sales stay strong, according to industry officials.”
Marketing Isn’t the Budtender’s Job
We don’t know how long COVID-19 may continue unchecked, but as Jackson notes, these shifts in behavior are likely to outlive the circumstances that first necessitated them. Since online shopping, pickup and delivery have quickly become standard in 2020 cannabis sales, a huge marketing gap has been left between consumers—including an influx of new ones—and the brands they’d probably be buying if those brands had been marketing to them before the pandemic.
“I’ve been saying for a long time that the brands we work with need to start marketing themselves directly to consumers,” says Anna Shreeve, managing partner at The Bakeréé. “It’s not the budtender’s job to do that legwork.”
The Bakeréé operates two retail locations in Seattle, one on the north end of the city and the other on the south. Since opening their first store, the team has focused on sourcing products of the highest possible quality at every price point, as well as emphasizing a wide variety of high-CBD options. Shreeve says the store has worked hard over the years to build a knowledgeable clientele that comes in specifically to find new and interesting products. Still, she notes that many customers go directly to the budtenders for suggestions.
Steve Schechterle, director of marketing at Washington’s Fairwinds, which sells both cannabis and CBD products, recently noted the company’s focus on budtender outreach and training in a webinar hosted by the Cannabis Marketing Association. “It’s where we’ve seen the biggest payoff by far,” said Schechterle. “Since we first noticed this, we’ve created an entire program around training Fairwinds-certified budtenders.”
Fairwinds isn’t alone: Many companies come in to meet dispensary employees, offer swag, answer questionsand show off their newest products. That way, when a customer comes in looking for a recommendation, those products are top of mind. For now, that option is largely gone, and Fairwinds (along with a few other early adopters of digital advertising in the industry) has begun advertising online to drive increased consumer demand and avoid having to rely primarily on budtenders in the long term.
Pivoting a Dispensary to Digital Ads
In the past, The Bakeréé—like many retailers in adult-use states—leaned heavily on event-based marketing, including New Years parties, in-store artist showcases, festival sponsorships and more. While they have used digital advertising for their own business, ad campaigns have primarily supported in-person events, such as through ticket sales for the New Years parties. This year, Shreeve had planned to go big on marketing for 4/20, putting together her own concert lineup that included up-and-coming hip-hop names from across the US. She was about to start promoting that concert with digital ads when the pandemic hit.
This ad for The Bakeréé appeared in The New York Times.
By early April, it had become clear that the 4/20 concert was not happening. Shreeve had already lost $20,000 in deposits on artists and the venue, which reduced the budget available for alternate marketing ideas. She decided to run a digital advertising campaign with a single display ad: The goal was to promote online ordering for curbside pickup.
While display ads are not generally known for their conversion rates, they’re a common place to start advertising cannabis due to their price point (impressions generally cost fractions of a cent) and ease of creation. Display ads can be run using programmatic ad tech, the current standard in digital advertising, which accounts for 70% of ads bought and sold in 2020. In most other industries, search and social ads through Google and Facebook are the go-to methods for digital advertising, but since both are closed to cannabis brands, programmatic is the best way for cannabis businesses to advertise digitally.
Starting with one display ad concept, and then adding a second, The Bakeréé ran their ads on a wide variety of mainstream websites, using demographic and geographic targeting to reach potential customers within a specific radius of each store. They also advertised to customers living near the closest competing dispensaries. The ads themselves focused primarily on promoting the ease of curbside pickup as well as offering a 10% discount on all online orders. Sales began to rise almost immediately.
Though April’s increase may have been due in part to 4/20’s impact on sales and a widespread stock-up mindset in the first month of the pandemic, The Bakeréé saw back-to-back-to-back months of YOY revenue growth at both their locations in April, May and June. From display ads on desktop they added mobile to the campaign, and in June added two 30-second video ads to build on the momentum generated by display.
Overall, The Bakeréé has seen a 13-fold return on ad spend, driving $153,000 in revenue from digital ads in the campaign’s first 90 days. The display ads have generated widespread use of the online ordering system, increased basket size to an average of $95.47, and grown online ordering revenue by 389%.
In the second half of the year, Shreeve says she hopes to expand the campaign to include connected TV and digital audio ads, particularly to support the launch of a new website with updated online ordering capabilities in Q3. And she still hopes to see more of the cannabis brands sold by The Bakeréé start advertising on their own, too: To that end, Shreeve is considering working with vendors to run co-branded advertisements that may help them adopt their own digital marketing initiatives sooner and drive more sales for everyone involved.
Before jumping into what cannabis businesses can do amid this pandemic, it is crucial to explore the specifics behind how the virus impacted the industry as a whole. From a surface level, it seems obvious what happened: dispensaries had to implement social distancing protocols, require both customers and employees to wear masks and limited the number of customers that can be present on the point-of-sale floor room. But COVID-19 did not merely make shopping experiences a tab bit inconvenient.
Cannabis producers, and especially those involved in manufacturing cannabis goods, experienced an apparent disruption in their production schedules. If the metals and plastics were sourced from Wuhan, Shenzhen or any other dense industrial area in China, supplies suddenly stopped coming, and producers were left with limited production options. Businesses did not consider the value of having various vendors and instead put all their stock in one source. A disruption in production inherently impacts dispensaries.
COVID-19 impacted more than just supply chains, however. For instance, investors are now less likely than before the pandemic to invest in early-stage cannabis companies. Competition for capital now far outweighs the supply for cannabis companies, and we have seen (and will continue to see) a drop in company valuations. Indeed, COVID-19 is affecting more than just currently existing operators but those yet struggling to create cannabis businesses of their own.
Vendors & Supplies
A broad survey conducted by the Institute for Supply Management (ISM) between February 22, 2020 and March 5, 2020 found that 75% of U.S. companies had experienced supply chain disruption as a result of the COVID-19 outbreak. An estimated 90-95% of all components utilized in cannabis vaporizer pens were sourced from manufacturers in Shenzhen, China. In contrast, very few companies used domestic manufacturers. While this is just one example, it is equally important to note that cannabis-specific equipment and supply shortages were not the only factors that disrupted cannabis businesses. Shortages of personal protective equipment (PPE) presented challenges for cannabis dispensaries, producers and manufacturers that continued to operate during the “shelter in place” orders.
Operators must establish a resilient supply chain. Do not simply limit your options to one specific region, as this can be a costly mistake. Operators must cultivate an in-depth understanding of their supply chain beyond critical suppliers and their stress points; they need to develop and follow a systematic supply process that takes potential disruptions and stress points into account. When vetting potential vendors, always ask detailed questions that elicit evidence-backed responses. Ask vendors where they source their materials from, whether they have any history of experiencing disruptions in their supply chain and what kind of setbacks they have suffered as a result of COVID-19.
Investing in Your Core Business
In light of COVID-19, operators must invest in solutions that increase efficiency and improve the customer’s experience. This entails ensuring your customer safely enters and leaves your dispensary with a product they are satisfied with—the essence of any retail operation. Your operation should focus on enhancing customer flow as opposed to encouraging aimless roaming. Having an open-space, Apple store style dispensaries might have been a popular option before, but times have changed, and dispensaries must adapt.
Guided purchases offer not just more efficient transactions, but also serve to ensure that your waiting room isn’t backed up with an endless stream of unmanageable customers. Depending on your locally-mandated COVID-19 protocols, your dispensary will likely not be permitted to hold a high number of customers in the store, nor should it during this pandemic. Each customer service representative must be active as opposed to passive, directly asking customers what they are interested in, offering product or strain choices when customers seem unsure and answering questions as thoroughly as possible to avoid confusion and inherently delays. Be sure to emphasize the value of guided purchases to your employees and how they can promote the safety of both themselves and their customers.
Maintaining Urgency
The uncertainty of COVID-19 and its impact on the general economy has left many individuals “clocked out.” Simply put, many people feel that they should wait until things go back to normal before making any critical decisions. As essential businesses, cannabis operators cannot afford to make this same mistake. Now is not the time to sit back, reflect and wait for the vaccine. Instead, operators must work to precisely assess how COVID-19 impacted their business and execute a clear plan of action to address foreseeable problems.
Execution is far more important than perfection; you’ll need to make changes on a dime and avoid spending excessive hours obsessing over debating specific actions rather than taking them. It is far more essential to get tasks done versus ensuring they are perfect. If something is not working in your business, it must be readdressed or removed entirely from the protocol. It is far better to make necessary changes now amid the pandemic as opposed to reactively waiting and seeing what may come next following it.
Stay nimble by cutting out any factors that may be slowing down your company’s efficiency. Is your point-of-sale system causing issues? Can you use a better payment processing tool? Are any employees underperforming? Are there any internal policies that may be hindering your employees’ ability to work as optimally as possible? These are some of the many factors that must be considered to ensure your business stays agile and adaptable. Determine what is working against you and execute a plan of action to address. Do not wait and do not take shortcuts around regulations.
Understanding the Shift in Purchasing Behavior
Regardless of whether or not a vaccine for COVID-19 is completed anytime soon, operators must know that there is no “returning to normal.” People’s habits and behaviors have changed due to this virus, whereas slow browsing of items might have been preferable for some individuals before COVID-19; this is likely not the case today. Furthermore, research groups like Accenture have found that most customers expect their shopping habits to change permanently.
Source: Accenture COVID-19 Consumer Research, conducted April 2–6. Proportion of consumers that agree or significantly agree.
In the study mentioned above, shopping more consciously is one of the two top priorities for customers during this pandemic. According to Accenture, “[c]onsumers are more mindful of what they’re buying. They are striving to limit food waste, shop more cost consciously and buy more sustainable options. Brands will need to make this a key part of their offer (e.g., by exploring new business models).” Furthermore, customers are now more likely to shop locally; this is why community engagement would be especially important to ensure you develop transparency and trust between your brand and your customers. Understanding this shift in purchasing behavior will remain one of the more crucial tasks of any cannabis operator.
Expanding Sales Avenues
More and more customers are now relying on online and curbside purchases than ever before. Dispensaries must look to their current sales avenues and determine where key focuses should be made. Use your sales data to determine where customers are making their purchases the most, be it through third-party delivery services such as Eaze, standard home delivery, online ordering or curbside pickup. Focus on identifying friction and streamlining the user experience on all customer-facing platforms and services. Equally, consider which platform your customers are using the most to make purchases; are they making more online purchases, or do most still prefer direct shopping at the store? Remember that having more products doesn’t necessarily mean more revenue. You must also identify which products are performing well and which have low margins.
These considerations can help strengthen your highest performing platform while working to fix any more inferior performing platforms. As stated before, stay nimble; if something is not working out, cut it out from your business model, and move forward. Do not be afraid to cut poor-performing platforms to hone your focus on the successful ones. Since post-COVID-19 shopping behavior is likely to stay permanent, these changes may still be applicable following a slowdown or cessation of the virus.
Delighting Your Customers
Virus or not, customer satisfaction remains one of the most crucially defining points for the future of your business. Your customers must be safe and must be happy with their purchase. To ensure this outcome, you need to maintain adequate safety policies while equally promoting streamlined purchases. Although a limited number of individuals may be annoyed with over-the-top safety precautions, most customers will enjoy the heightened security that comes alongside these types of measures.
Contactless service, such as having customers scan their identification upon entry or encouraging more credit card versus cash transactions, can increase customer satisfaction, as they will feel a stronger sense of security when shopping at your dispensary. Focus on streamlining curbside pickup. Things such as requiring vehicle descriptions (e.g., license plate numbers, color, make) for curbside pickup purchases can go a long way in helping employees quickly identify customers.
Equally, be sure there is hand sanitizer available near the entrance of your dispensary. This adds a further sense of security for your shoppers. Delivery should be consistent; delays and setbacks must be minimal to win the confidence of your customers. Take the extra steps to ensure your dispensary is clean and products hygienic. All these factors work to increase customer satisfaction while maintaining their safety, and more importantly, impact the level of trust your customers have in association with your brand.
Scaling Operations Taking Advantage of Limited Competition in Emerging Markets
As stated before, several individuals—including existing and emerging cannabis businesses—are clocked out following COVID-19. This mindset is not only detrimental for operations but can also impact how you scale your business. New markets are coming online and will continue to do so as regulators are increasingly incentivized to replenish government coffers. Riverside County in California, for instance, is now allowing for capless licenses for all cannabis business types. However, what remains the key focus for regulators is expanding the number of delivery and distribution operators. In Massachusetts, delivery endorsements for dispensaries are available without a set deadline to social equity applicants and do not have a defined cap. In Illinois, the cap for transporters was equally removed, and each applicant who scores above 75% will receive a license.
These types of licenses are now more valuable than ever before for two reasons. The first reason is that regulators are keener to award delivery and transporter licenses than other types. Secondly, customers now prefer home delivery over shopping in stores due to COVID-19. With more people clocked out during these times, you have far more opportunities and far fewer competitors during application processes. Use this time to truly develop a strategy for expansion, as the chance might not come so quickly again.
Conclusion
As a final point, be sure to expand your online presence during this time. Although you may not have the capacity to reflect your company’s personality and value through quick in-store transactions, you can use social media to encourage product reviews, social interactions, and recommendations. Invest in marketing through social media platforms. Platforms such as TikTok have helped form communities of like-minded individuals. Use platforms such as that to highlight your company’s personality and values, avoid being “salesy” and focus more on being funny, entertaining and just alive. Character adds value to your business.
People want to laugh, to feel safe and they want to live. Create social interactions and immersion and always prioritize being honest and transparent with your customers. This final point stands as equally as important as the rest of the considerations highlighted throughout this article. Stay nimble, stay active and stay alert! Do not view the chaos behind this pandemic as a pit, and instead see it as a ladder. Track down opportunities, do not be afraid of change, and, more importantly, do not wait for an answer to COVID-19, be the answer.
The cannabis industry is fraught with hypocrisy. Cannabis is good medicine as has been established by the numerous patients we have seen who are now off of their opioids, benzos and sleep agents due to the addition of medical cannabis products to their regimen. We see patients using cannabis when nothing else has worked and they tell us about their decreased suffering on a daily basis and thank us profusely for staying open during the COVID-19 shutdown, due to our designation as an essential business in Maryland.
Gina Dubbé (left) and Dr. Leslie Apgar (right), co-founders of Greenhouse Wellness, a medical cannabis dispensary in Maryland
The fact that this essential business has seen an increase in business due to the anxiety surrounding Covid-19 is an indication that our society will be dealing with the ramifications of anxiety, PTSD and depression for a long time to come as we deal with the fallout from the pandemic. Our forced shutdown of the workforce has resulted in the opportunity to look deeply at our basic assumptions and policies. Policing and incarceration for what is now a medically-necessary component to society is the crime. We believe that we have the opportunity to rectify the errors of our past and release those still imprisoned for cannabis possession, use, etc.
Further, as evidenced by our country’s recovery from the great depression, the legalization of alcohol certainly helped to bolster the economy. The US has the same opportunity with the cannabis industry. Tax revenue from the legalization of cannabis nationwide is sure to add a much-needed economic boost to help us recover from the disaster of this pandemic.
Our country has had an unfortunate historical relationship with a plant that has the potential to ease suffering safely and bring about some much-needed economic stimulation. It’s high time we fix the mistakes of our past and create a kinder and more inclusive future.
Back in late 2016, the Oregon Liquor Control Commission (OLCC) legalized delivery for cannabis products. Since then, dispensaries could offer a delivery option for their customers to purchase cannabis products without leaving the comfort of their home. Up until quite recently, that market was dominated by a handful of dispensaries who also conduct business at their physical location, offering delivery as an option while conducting most sales in-person.
Enter Pot Mates. Founded in 2018 by Hammond Potter, the company embarked on the long regulatory road towards licensing and beginning operations. On April 20, 2020, Pot Mates opened for business, starting their engines to take on the fledgling cannabis delivery market in Portland.
Pot Mates is a tech startup through and through. The founders are former Apple employees. Hakon Khajavei, the chief marketing officer at Pot Mates, founded Blackline Collective, a business and marketing consultancy, which is where he joined the Pot Mates team. The other co-founder of Pot Mates and chief technology officer, Jason Hinson, joined after serving in the US Navy as an electronics technician maintaining satellite communications networks.
With the sheer amount of regulations for cannabis businesses, coupled with the new delivery-based business model, Pot Mates had to focus on technology and automation from the get-go.
Not Just an Online Dispensary
For the cannabis companies already offering delivery in the Portland metro area, their websites seem to mimic the in-person dispensary experience. They offer dozens of products for each category, like concentrates, edibles and flower, making a customer pour through options, all at different price points, which can get confusing for the average consumer.
The Pot Mates logo
Pot Mates does things a little differently. “Our start up process was thinking through how do we make this the best experience possible, how do we get rid of the unnecessary junk and how do we do things that only an online dispensary can do,” says Khajavei. They have flat pricing across the board. In each category, almost every product is priced the same, moving away from the common tiered-pricing model. This, Khajavei says, removes the decision barriers customers often face. Instead of choosing the right price point, they can choose the delivery mechanism and effect they desire uninhibited by a difference in cost.
It all comes back to focusing on the simplest way for someone to buy cannabis. “Shopping online is just very different,” says Khajavei. “Our process focuses on the customer journey and limits the number of products we offer. We have a mood system, where we tag our products from reviews to typify moods that you experience with different products.” All of that requires a lot of back-end technology built into their website.
The Long Regulatory Road
Technology has been a strong suit for Pot Mates since they opened their doors, and well before that too. Making the decision to be an online-only delivery cannabis company pushed them to pursue a very unique business model, but regulations dictate a lot of the same requirements that one might see in dispensaries.
Hakon Khajavei, Chief Marketing Officer
The same rules apply to them when Pot Mates submitted their license application. You need to have a signed lease, extreme security measures, detailed business plans, integrated seed-to-sale traceability software (Metrc in Oregon) and much more. “During the months leading up to getting our license, we were able to iron out a lot of the regulatory details ahead of time,” says Khajavei. A lot of that was about security and tracking their products, which is why technology plays such a huge role in their ongoing regulatory compliance efforts. “We built in a lot of automation in our system for regulatory compliance,” says Khajavei. “Because of our technology, we are a lot faster.”
In the end, their licensing process through the state of Oregon as well as the city of Portland took about nine months. Once they had the license, they could finally get down to business and begin the process of building their website, their POS system, their inventory and reaching out to partners, producers, distributors and growers.
For any cannabis company, there are a number of regulations unique to their business. “We need to report every product movement in house through Metrc,” says Khajavei. “Every time something is repackaged it needs to be reported. We focus so much on our technology and automation because these regulations force us to do so.” But delivery companies are required to report even more. Pot Mates needs to report every single movement a product makes until it reaches the customer. Before the delivery can leave the shop, it is reported to Metrc with an intended route, using turn-by-turn directions. It complicates things when you make two or more deliveries in one trip. Reporting a daisy chain of deliveries a vehicle makes with turn-by-turn directions to regulatory authorities can get very tedious.
As far as regulations go for delivery parameters, they can legally deliver anywhere inside Portland city limits. “It is our job to figure that out, not the customer’s job; so we don’t have any distance limits, as long as it is residential,” Khajavei says. “We programmed customized technology that allows us to handle really small orders.” Without a minimum order policy or a distance limit, Pot Mates can reach a much bigger group of consumers.
Launching in the Midst of a Global Pandemic
Chief Technology Officer, Jason Hinson
Luckily, the Pot Mates team received their license just in time. About two weeks after they submitted their application, Oregon put a moratorium on any new dispensaries.
They went forward with their launch on April 20 this year, despite the coronavirus pandemic impacting just about every business in the world, including their marketing efforts tremendously. With cannabis deemed essential by the state, they could operate business as usual, just with some extra precautions. What’s good for PotMates is that they don’t need to worry about keeping social distancing policies for customers or curbside pickup, given the lack of storefront.
They still need to keep their team safe though. The Pot Mates team began 3D printing washable and reusable face masks, getting more gloves for delivery drivers, cleaning their warehouse thoroughly, cleaning vehicles and making sure employees maintained distancing. Pot Mates is even 3D printing enough masks and donating them to local organizations that need access to masks. “As a cannabis company, we always have to handle things with gloves here and take necessary safety precautions anyway, so our response is more about how we can help than what we need to change.”
Advertising Cannabis in a Pandemic is No Easy Task
“The marketing aspect is where covid-19 really hurt us,” says Khajavei. “There are so many regulations for cannabis companies advertising already. Unlike other products, we can’t just put up advertisements anywhere. We have to follow very specific rules.” So, in addition to the normal marketing woes in the cannabis industry, the team then had to deal with a pandemic.
Pot Mates had to scrap their entire marketing strategy for 2020 and redo it. “We wanted to begin with a lot of face-to-face marketing at events, but that didn’t quite work out so well.” Without any concerts, industry events or large gatherings of any kind, Pot Mates had to pivot to digital marketing entirely. They started building their SEO, growing their following on social media, producing content in the form of blogs and education around cannabis and the local laws.
On an Upward Trajectory
Obviously, the short-term problem for a new cannabis company is reaching people, especially during the COVID-19 crisis. “We have a good trajectory though, we know we are growing our business, but we still have a ways to go,” says Khajavei. It doesn’t help that social media companies have nonsensical policies regarding cannabis. Their Facebook page was recently removed too.
Founder & CEO of Pot Mates, Hammond Potter
But the bigger issue here is kind of surprising when you first hear it: “It’s not even a matter of customer preference, a lot of people just have no idea that delivery is even legal.”
It’s pretty evident that cannabis delivery has not really gone mainstream yet. “We’ve told people about our business in the past and a common answer we get is, ‘Oh my gosh, I didn’t even know we could get cannabis delivered.’” It’s never crossed their mind that they can get cannabis delivered to their home. It’s an awareness problem. It’s a marketing problem. But it’s a good problem to have and the solution lies in outreach. Through educational content they post on social media and in their blog, Khajavei wants to spread the word: “Hey, this is a real thing, you can get cannabis delivered.”
As the market develops and as consumers begin to key in on cannabis delivery, there’s nowhere to go but up. Especially in the age of Amazon and COVID-19 where consumers can get literally anything they can dream of delivered to their front door.
Moving forward, Pot Mates has plans to expand as soon as they can. Right now, they’re limited to Portland city limits, but there’s a massive population just outside of Portland in towns like Beaverton, Tigard and Tualatin. “We are so close to these population centers but can’t deliver to them now because of the rules. We want to work with OLCC about this and hopefully change the rules to allow us to deliver outside of the city limits,” says Khajavei. In the long term, they plan to expand out of state, with Washington on their north border being first on the docket.
To the average person, one would think launching a delivery cannabis business in the midst of a global pandemic would be a walk in the park, but Pot Mates proved it’s no easy task. As the market develops and the health crisis continues, it seems the Oregon market will react positively to the nascent delivery market, but first they need to know it is even an option.
The Brand Marketing Byte showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.
Here is a data-led, shallow dive on GrowHealthy:
GrowHealthy – Basking in Sunshine
Although Florida may only have a medical market and a relatively restrictive regulatory framework, a handful of companies are leading the pack in dominating the new market. Even though the medical cannabis market is fairly young and the state has not adopted adult use yet, the market’s growth trajectory is very encouraging.
GrowHealthy (GH) is one of those companies capitalizing on market growth with a number of expansion plans. They already have 16 dispensaries open for business throughout Florida and have plans to add to that considerably.
In the past few months, GH has taken a number of steps to enhance their web presence. Perhaps as a reaction to the COVID-19 crisis, GH, along with many other companies in the cannabis space, have started aggressively improving their websites.
With the pandemic wreaking havoc on the national economy, cannabis companies are not immune. However, in the early days of the health crisis, Florida deemed the medical cannabis market ‘essential.’ That proved to be a boon for cannabis companies in the state like GH, who pivoted to curbside pickup and delivery quickly.
In order to capitalize on curbside pickup and delivery, a strong web presence is very important. GH saw a solid rise in web traffic in the past few months, thanks in part to their continuing expansion of brick-and-mortar dispensaries. Adding to their boost in web traffic, GH saw increased strength in their backlinks profile, indicating further increases in future web traffic.
In May, GH shot up to the 20th hottest brand in the United States, up from the 38th slot in April, according to the Pioneer Index. We can attribute this jump to the brand’s performance in web-related activities. The trend continued into the first week of June, as GH’s web activities were the 2nd best nationwide, with the company becoming the 4th hottest brand in the Pioneer Index.
Communication is key for efficient interaction between cultivation and business functions at any cannabis operator. So, what are the top four things cultivation directors should be discussing with their operations manager right now, as we face an uncertain Summer 2020 and unique COVID-related challenges (product demand uncertainty, reduced workforce, and immediate response to problems and issues):
Labor requirements
Operators should be discussing “Who, and what, do I need to operate this facility and how do I make operations more streamlined without diminishing quality, consistency, and yield?”
Efficient operations should focus on labor workflow and circulation and document a clear understanding of how employees will move through the spaces while doing their jobs.
Having a “less labor” philosophy and understanding—a ‘first in and first out’ mentality—drives down cost of production.
By limiting employees’ need to cross paths and segregating processes (e.g. harvest, distro, packaging) in a facility, you can maintain biosecurity and limit the risks of cross-contamination
When working with fewer staff members, everyone should be trained to:
A greenhouse facility that urban-gro helped bring to operation.
Operate all necessary equipment
Perform keys tasks like nutrient deliver or preventative maintenance
Supply chain
What sort of products do I use to cultivate, process, distribute and how will potential shortages affect my use/cost related to these?
Consider products and supplies that you can order in bulk
Examine and update your chemical regime to focus on products that are cheaper to freight ship, and located within the US or even your state
Mitigate the risk of availability by using products that are have no shelf-life or expiration issues, and those where the supply chain has not yet had disruptions
Automation and technology
What’s the availability to allow for remote monitoring and controls?
Cultivators can take some of the load off the reduced staff by automating critical tasks
Remote monitoring solutions will also allow for faster notification of crop issues
Integrating preventative maintenance tasks like equipment schedules and maintenance can increase efficiency
Yield expectations
Ensure that conversations on yield expectations are as transparent as possible and set realistic and achievable goals
Build business models based on the correct numbers that take into account productions numbers on ‘high yield’ genetics versus lower-yielding plants (yield versus price)
Ensure you have a detailed plan that combines both plant density and production goals
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The USDA’s organic certification program is a great way to increase transparency and trust with both ingredients and processes used within the hemp industry. Organic certification is a rigorous audit program to review both manufacturing facility design and production process plans with the ultimate goal of increasing supply chain sustainability.
Not only does certification support ethical practices, it’s also good for business. According to the USDA, “Food labeling can be confusing and misleading, which is why certified organic is an important choice for consumers. Consumers are willing to pay a premium for food that carries the USDA organic seal, or that contains organic ingredients.”
