Delivery Services Consider Cannabis Delivery As Legalized Markets Continue to Open
The delivery wars could be headed to cannabis dispensaries next.
With Cannabis industries across the states raking in a combined $17 billion in sales last year, delivery services like DoorDash, UberEast, and Grubhub are considering moving into cannabis delivery to share a slice of the proverbial pie.
A more focused player in the cannabis delivery scene, Eaze, which is a Snoop Dogg-backed and California-based cannabis delivery service, has running bags of green to doorsteps since 2014. The company reported new customer signups topping 70% in 2020, calculating that orders for weed to-your-door were placed every 8 seconds in the company’s area of operation. There are still very few operators offering this niche service in California, where cannabis has been recreationally legal since 2016.
That said, the reason so few businesses operate in this market providing such a service is likely due to copious amounts of red tape. For example, state laws may not provide for it explicitly in their language, employment laws can pose obstacles, constraints on exchange processes between driver and customer exist, and employment laws for drivers as part of a dispensary may be required, too. In short, it’s a quagmire for operators. California bars deliveries by scooter or any other “open” vehicle, while Massachusetts requires cameras to be in place.
Even with these impediments in place, executives like Uber CEO Dara Khosrowshahi have made the suggestion that ride providers may find it lucrative to break into new markets, like cannabis delivery. In a recent “Tech Check” interview with CNBC, Khosrowshahi said, “When the road is clear for cannabis when federal laws come into play, we’re absolutely going to take a look at it.”
The topic has already confronted Uber with its recent acquisition of Drizly, an alcohol delivery service, with a sister company, Lantern, that focuses on ferrying cannabis to consumers. Lantern was the first app to offer a service of its kind. Once the merger is finalized, Lantern will become an independent entity once again, whereby company president Meredith Mahoney asserted in an email to CNBC, “We’re excited that the march toward federal legalization is accelerating, and that big delivery players like Uber are taking notice.”
One glaring speed bump in the road of Uber’s trifecta of delivery services resides in the language currently outlined in the California cannabis code. This prohibits the delivery of cannabis with food or with alcohol. Until that fact can be addressed and potentially be rewritten, it’s unlikely Uber will continue with its acquisition trajectory.
While the above outlines corporate hang-ups in terms of getting down to business and putting cannabis in the hands of consumers where they reside, there is the question of security.
Cannabis is largely a cash business due to the federal government’s views on legality. There are many a mattress stuffed with cash in the US with owners eagerly anticipating the day they can walk into a local bank branch and make those deposits. In fact, at least according to the American Bankers Association, handling funds connected to any cannabis business could be considered money laundering. This issue was recently spotlighted when Eaze’s ex-CEO left the company and pled guilty to conspiracy to commit bank fraud. In short, he attempted to mislead banks into processing over $100 million worth of cannabis payments to the company.
In 2020 alone the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) reported 684 banks and credit unions were actively engaged in providing services to cannabis businesses. The number of suspicious activity cases identified by the FinCEN totaled more than 170,000 in the same period.
One attempt to clear a path for more legitimate banking for cannabis businesses emerged in 2019 with the Secure and Fair Enforcement (SAFE) Banking Act. The legislation was passed in the house both in 2019, where it died in committee and again in 2021, where it has currently been referred to Committees of Jurisdiction.
Until the legislation is passed in the Senate, cannabis businesses are still left holding the bag, so to speak. Being predominately cash-reliant, these businesses are left in a precarious position. The risk becomes greater for delivery employees who would handle both cash and product without the ability to hide behind the safety of retail dispensary doors and security. These individuals often find themselves in unfamiliar places, serving up cannabis to anonymous patrons on the other end of an app. As legalized cannabis continues to proliferate, executives will need to be invested in minimizing cash handling and keeping delivery employees safe in the face of a customer base that wants the same door-to-door delivery they come to expect.