Should You Worry about Uber Moving into Cannabis?Exploring the challenges of cannabis delivery and pickup services.
Pioneering rideshare and food delivery company Uber recently announced they would start taking cannabis orders in Canada through their UberEats service. There's one trick though - it's only for pick-up orders. Consumers would still need to go to one of the 50 Tokyo Smoke dispensaries in Ontario to actually get their order, and that may be a strategic error, depending on Uber’s business goals for the initiative. Right now, it’s a small experiment more than a major business move.
As one of the early fleet and delivery management companies helping local and national businesses manage their delivery business, Onfleet sees a few unique things about the cannabis industry that may make this a bigger challenge than expected.
On the one hand, the entry of a major global public company into the industry is a very positive endorsement and adds a great deal of legitimacy. On the other hand, without actual delivery, Uber adds little value to the dispensary's business and brand awareness. There's the chance that customers will associate the service more with Uber than the dispensary over the long term.
One of the challenges is that while Uber isn't the same company as it was under original CEO Travis Kalanick, the company has never been known for discretion. Uber operates as a big, splashy, mass-scale brand, and this news certainly was a great PR stunt. Although cannabis sales and acceptance are rising with legalization, consumers still deal with stigma, especially with newer demographic groups, such as working professionals and parents who may not smoke flower but have enthusiastically discovered the benefits of edibles or topical products.
A valid business move or an experimental project?
Uber's value proposition is really its driver network, so it's up in the air whether they'll see success with this model. Uber has done a tremendous job building a very flexible network of ad hoc drivers that they can influence with time-sensitive bonuses or inducements. But even in Canada, with national legalization, all dispensary drivers need to have a CannSell certificate, so you can’t easily just switch on a new cohort of willing drivers. Cannabis is a highly-regulated industry, and drivers need to know the laws and their products to deliver the best customer experience.
Uber CEO Dara Khosrowshahi has said that the company would love to expand into the US cannabis market once there is federal legislation. But with the decentralized nature of the business, Uber would likely have to acquire dispensary licenses in each of the 36 states that have legalized medical or recreational cannabis.
Comparing these nuances to a company that provides software to actually power a delivery process by dispensary employees, Uber's emphasis on pick-up is a drastically different approach. That said, part of the business objective may be to gather more data on how often certain customers purchase cannabis, when are the most popular times of the week and the year, and if there's any linkage between cannabis orders and UberEats orders.
The Challenges of Cannabis Delivery
In terms of the delivery process itself, Uber would face multiple regulatory challenges to meet state restrictions and requirements. Onfleet recently published a three-part blog series discussing how delivery of off-site cannabis products has provided a big lift for cannabis companies in areas where brick and mortar dispensaries aren’t legal.
One of these companies is Amuse, a California-based cannabis delivery company founded in 2020. As of this year, Amuse plans to double its staff of 250 and expand outside of the Bay Area, San Jose, and Los Angeles areas by the end of 2021. Similarly, other California-based companies like Herbarium and Sweet Flowers have also seen noticeable growth in company size and manufacturing and distribution processes. With the increase of relaxed rules in states like California, combined with the acceleration of digital platforms, cannabis delivery services have skyrocketed.
The Logic Behind Uber's Choice of Pick-up
So the question stands - Is this going to be a big move to take over a nascent market? Uber might not necessarily be looking to dominate. Consider that Elon Musk stated that part of his goal with Tesla Motors was to pull other automakers into the electric car market, and Uber may be looking to help drive overall market growth by making cannabis more accessible.
Or they could be looking to learn more about the industry and sales to give them a step up if they acquire one of the major delivery companies, similar to what Uber did with Drizly. Also, considering that digitizing the process of cannabis delivery requires standardized software with critical features like route management, auto-dispatch, identification checks, and increased deliveries per hour, Uber may not feel that their app could handle the complexities of this market.
Ultimately, the objective for the cannabis industry is to help grow the market and expand acceptance for cannabis as a medicinal and recreational substance. I think Uber will help bring more legitimacy to the industry, but I also believe that newer customers will prefer a boutique experience that they can get from a local dispensary rather than the mass market approach of an Uber. While there is hope for larger companies like Uber to expand their reach into cannabis, the process is a lot slower than people would expect. Ultimately, while it is an exciting time for a larger company to enter the industry, we can only hope Uber's business move goes past a marketing strategy and transitions into a critical step in validating and advancing last-mile delivery.
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About the company: Onfleet's software provides advanced route optimization, dispatching, real-time driver tracking, proof of delivery, analytics, and customer communications. Onfleet was ranked #124 on the Inc 5000 list of America’s fastest-growing companies in 2019 and #13 in San Francisco Business Times’ Fast100 list of the Bay Area’s 100 fastest-growing companies.