By: Steve Gormley
Opening:
COVID-19 has both exacerbated and exposed cracks in many regional cannabis markets that are suffering the same woes as other small entrepreneurial enterprises. Many small to mid-size cannabis companies are facing a moment in which large tech, marketplace, and delivery platforms are making competitive bids toward increased market domination at a faster clip than ever because of pandemic troubles.
Large tech, marketplace, and delivery platforms don’t need to buy out a cannabis business to be fundamentally disruptive to its ability to succeed — even engaging in services with domineering tech “partners” can prove to be detrimental. When the cannabis market is dominated by the anti-competitive services of fewer conglomerates, your business, customers, and regional economy all lose. Read on to learn about avoiding the pitfalls of big tech partnerships at this delicate post-lockdown moment.
Small Cannabusinesses Should Dodge Tech Disruptors
Cannabis sales soared in 2020 as medical and adult-use dispensaries were deemed essential businesses in many states. In a race to adapt to pandemic restrictions, many small and midsized operators hopped on board with tech services such as delivery and e-commerce platforms they would have scrutinized closer in other circumstances. 2021 rolled around, the pace of purchasing slowed as lockdowns eased, and vulnerable cannabusinesses are now at risk of being swallowed up by the very businesses they sought help from in their haste to set up pandemic operations.
Third-party tech platforms that offer “all-in-one” solutions are often functionally transparent efforts to monopolize the cannabis market by stepping in front of consumer interactions and scooping up coveted customer data. Take Dutchie, which provides a point of sale (POS), e-commerce and payment processing platform: In 2021, United States cannabis sales hit $37.4 billion, of which Dutchie self-reports processing $14 billion. This growing behemoth steps entirely in front of consumer interactions at each point of the purchasing process to own the relationship and data produced from it, leaving retailers with a digital storefront that looks indiscernible from others and no ownership of their own valuable data.
It’s imperative to side-step disruptive all-in-one tech platform providers by building out services in-house like delivery if the numbers make sense, and ensure if you do form a partnership, it’s truly mutually beneficial. When choosing a partner, look for those that allow you to maintain ownership of consumer data, and if possible always host your own e-commerce website to avoid giving data to third-party platforms like Dutchie or Eaze.
Cutting Consumer Interactions Crumbles Your Brand Representation
Speaking of the consumer, they lose out when the brand they wish to connect with (yours) suddenly becomes inaccessible behind a wall of a third-party tech platform. It’s an especially unwise move at a time when consumers are willing to in fact spend more to help local businesses stay afloat. Entrusting interaction services to tech platforms can leave consumers with fewer purchasing options and make brands miss the opportunity to build relationships or create long-term loyalty among their customer base.
Hosting your website on a third-party marketplace can lead to a poorer customer brand experience because individual retailers have little control over it. You’re paying a service to step in front of your client interaction and — intentionally or not — misrepresent your brand according to their best interests. As mentioned above, you will also lose access to customer data, meaning it’s nearly impossible to pivot accurately to new or shifting preferences and opportunities when you’re unable to even download a list of your customers to run a marketing campaign. If your business is unable to curate choice and trust among customers, both parties suffer and drag the progression of the wider regional market down with them.
The Economy Suffers without Innovation and Entrepreneurship
The economic identity of the U.S. was built on principles that encourage the pursuit of entrepreneurship and the rise of interesting, innovative businesses. The traditional model of amassing wealth in America — to own something worthwhile and sell it — is becoming increasingly difficult within the cannabis space. For many operators, the opportunity to create singular cultivars, breakthrough edible applications, or niche branding is undercut by the platforms they seek to sell these innovative products on. Handing a proprietary product to a third-party tech platform to sell on your behalf is as good as giving it away: they will own the sales and customer data surrounding your product and, if they see it’s successful, can begin copycatting your work on a bigger, cheaper scale than you can manage.
Tech “neo-conglomerates” are antithetical to the pursuit of competitive innovation, making it hard for new enterprises to compete and gobbling up new startups and entrepreneurial, small tech companies. Not only this, but they’re also damaging to local communities by negatively impacting economic opportunities. Fewer locally owned businesses mean fewer jobs are being kept within the region and less sales, income and property tax are flowing into the municipality’s coffers, creating a domino effect on reduced funding for local roads, school systems and other publicly paid-for maintenance and building projects.
Creating regional supply chains of smaller producers instills stronger, longer-lasting systems as well as sparks local demand. Yet another economic lesson from the COVID-19 pandemic was the exposure of major supply chain issues. Any cannabis operator with longevity in mind would be remiss not to consider reducing expense and minimizing future risk by investing in more circular, regional economic models that offer stability and affordability. Without collaborative innovation and the building of local channels, we stand to make the same mistakes again.
Closing:
At a time when the pandemic has stalled growth in the middle class and pushed up poverty sharply, it is imperative as cannabis business owners to prioritize community growth and shock our regional markets out of stagflation territory. This means dodging cannabis tech disruptors your business and community will pay for in replicate and instead choosing to participate in as circular and regional an economic model as possible. This will result in more choices and jobs for consumers, funding for your community, and of course, a greater likelihood of your business becoming an institution of its own. By taking time to learn the foibles the pandemic and its strangled supply chain has to teach us, we can build a more equanimous, enterprising, and resilient cannabis industry.
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