Why Direct-to-Consumer Delivery Will Benefit Both Brands and Dispensaries In The Retail Boom

by Tim Conder, President of Blackbird, an HERBL company

Since the onset of the pandemic, on-demand delivery has become a pillar of the retail experience—especially when it comes to food and household essentials. Shifting consumer habits during COVID have led to projections that the market for last-mile delivery in North America will grow by $59.81 billion over the next four years alone. As cannabis becomes an increasingly mainstream product across the U.S., consumers expect the same seamless, direct-to-consumer shopping experience from the burgeoning industry. 

The pandemic has accelerated the industry’s transition to e-commerce, yet brands and retailers are beginning to realize that they must be equipped to offer even more modern services to literally meet their customers where they are. This direct-to-consumer (DTC) delivery is the next frontier of cannabis retail, and it is imperative for brands and dispensaries to work together in order to create a retail ecosystem that is both accessible and sophisticated to today’s consumer.

Taking cues from California

As the largest cannabis market in the world, California will become the nexus for DTC cannabis retail and innovations in the next few years. In 2020, the California cannabis market topped $3.5 billion and is expected to reach $5 billion by 2022. California’s licensing structure, which allows non-storefront retail businesses, has carved out a unique market opportunity for DTC delivery platforms to reach new cannabis audiences. 

Currently, 35% of the state’s 850 retail licences are held by non-storefront businesses, but this figure will likely increase over the next few years if residents are unable to access local brick-and-mortar dispensaries. Despite the state’s robust adult-use program, roughly two-thirds of counties still prohibit dispensaries from operating, which makes DTC delivery a critical service in these dispensary deserts. Expanding delivery to areas with limited or no access to regulated cannabis products would allow the state to collect more tax revenue and showcase the industry’s economic benefits to wary municipal leaders. The proliferation of DTC delivery can also stymie the reach of unregulated operators, which supply as much as 80% of the cannabis sold in California. 

As the industry faces record levels of consumer demand, California retail businesses must deploy forward-thinking solutions to ensure that local consumers can seamlessly access safe and reliable products regardless of county lines. While non-storefront licenses only make up roughly 35% of the state’s retail licenses, this emerging sector can have a significant long-term impact on driving brand affinity and even brick-and-mortar foot traffic if leveraged correctly.

How can brands and dispensaries play to each other’s strengths?

The recent attention around DTC may leave many dispensaries wondering if delivery will cannibalize sales from brick and mortar stores, but that is not necessarily the case. To use a more mainstream example, analysts reported that Nike and Foot Locker sales both increased even after Nike ramped up its direct-to-consumer offerings. Nike’s decision to focus on DTC could have hurt Foot Locker’s primarily brick and mortar business, yet it actually drove more consumers to Foot Locker stores because it boosted overall brand awareness and opened up new points of purchase for consumers. DTC and brick-and-mortar offerings can be mutually beneficial, providing new avenues for customers to shop and creating innovative ways to differentiate brands in a saturated market. This concept can easily apply to cannabis as more brands mature and consumers develop stronger brand loyalty in the coming years. 

The key to truly maximizing these new points of purchase is to create complementary retail experiences. There are many core competencies that brick-and-mortar retailers and delivery platforms can focus on in the future to create this symbiotic relationship. A key advantage brick-and-mortar stores have is their ability to meet customers face to face and build personal relationships from direct interactions. DTC retailers, on the other hand, benefit from velocity, as online conversion is a faster route than in-store shopping. Different consumers prefer different experiences; and neither sales channel needs to suffer from the success of the other. In fact, both parties can claim a meaningful stake in this retail boom if they find ways to synergize together. 

Dispensaries can draw inspiration from recent partnerships and activations seen in mainstream retailers. As more cannabis consumers lean into DTC delivery for everyday essentials, we could see a rise in experiential brick-and-mortar dispensaries, which encourage consumers to stay longer in the store, deepen their understanding of the cannabis plant and learn about their favorite brands’ values. Brands aiming to target particular audiences can also launch exclusive dispensary partnerships or popups in coveted markets and allow DTC platforms to sponsor these partnerships or deliver exclusive products to certain zip codes. Finally, brands, retailers and delivery companies can utilize a hybrid model where brick-and-mortar dispensaries act as pickup hubs for partner brands and DTC platforms. In this scenario, DTC platforms can even direct consumers to their closest dispensary if a particular item is out of stock on the delivery site and make product recommendations at the store based on their previous purchases. In the future, brick-and-mortar and DTC retailers can work together to lift each other up in the cannabis space by capitalizing on their respective strengths. 

DTC retail and the national cannabis market

Expanded consumer access via DTC retail will impact the national cannabis market, especially when federal legalization and interstate commerce finally comes online. Cannabis has a long shelf life and does not need to be consumed within a short time of purchase, making it the perfect product for delivery. Regulated cannabis in the U.S. is a $21 billion market in 2021 and the total market size (regulated and unregulated) is $100 billion. Therefore, it is safe to assume that the DTC market is worth $80 billion of the total addressable market. Given the growing influence of the convenience economy, cannabis operators, including both retailers and brands, should be looking to increase access faster across the country—and DTC models are the fastest way to get their products to market. 

DTC delivery will undoubtedly become an indispensable part of the next retail boom. It is essential that brands, dispensaries and delivery platforms work together to ensure that consumers and all members of the retail community play a meaningful role in the next iteration of this industry and create truly modern experiences for mainstream consumers.