The Wild West: The rise of cannabis retail in California
On 1 January, the day the new law took effect, people lined up outside the 90 or so licensed dispensaries throughout the state to purchase cannabis products using nothing more than a photo ID and cash.
“We had customers from all walks of life – everyone from a 21-year-old college student to an elderly retiree looking for pain relief,” said Zachary Lazarus, managing director of A Green Alternative, a licensed dispensary in San Diego.
The sale of medical marijuana has been legal in California since 2004, but under the new law, adults aged 21 and older can possess up to an ounce of marijuana or eight grams of concentrated cannabis in public – no doctor’s note required. The new law also includes provisions to tax the sale and cultivation of marijuana and regulate the marketing of cannabis products.
This has ushered in a new era of cannabis retailing. As the business comes out of the shadows, dispensaries are investing in sophisticated store design, merchandising and customer service to attract more shoppers. Some locations could even be mistaken for trendy cafes.
“They’re all trying to set themselves apart in one way or another. They’re all competing to make their place a lot more desirable to visit,” Dallin Young, executive director of the California-based Association of Cannabis Professionals (ACP), tells IRW.
According to Young, this stems from the fact that dispensaries are not allowed to operate in commercial zones. By law, they must be located in industrial zones, which typically are not the most visually appealing areas.
Besides needing to comply with numerous regulations, cannabis businesses are also restricted by the discrepancy between state and federal laws, which makes it possible to sell cannabis in California, while the sale of any form of cannabis is still illegal in the eyes of the federal government.
Any aspect of the business that crosses state lines, such as supply chain and advertising, or involves a federal institution, such as federally-insured banks and the postal service, is vulnerable to prosecution. As a result, dispensaries are unable to perform certain tasks that many retailers would consider fundamental, such as shipping online orders to customers, advertising on Facebook and accepting card payments.
Cannabis businesses are working around these barriers, such as using couriers to hand deliver online orders. And with legal marijuana sales predicted to reach $US7 billion in California alone, generating an estimated $US1 billion in annual tax revenue for the state, experts are confident legislators will eventually find a solution.
A budding business
In the meantime, the opportunity is enormous for early movers, as only 25 per cent of municipalities in California currently permit the sale of recreational cannabis within their borders and retailers need local approval before they can apply for a state licence. San Diego was one of the first cities to approve recreational sales, giving dispensaries like A Green Alternative a jump on the competition.
Before the new law took effect, A Green Alternative was selling between two and four pounds of cannabis every day. In January, sales tripled due to the influx of new customers. One thing that hasn’t change is its customer service.
“We decided a long time ago that we wouldn’t rush people through…it is a hands-on customer service experience,” Lazarus says. “Quite frankly, many people have never done it before or haven’t done it for some time.”
And with more than 300 products to choose from at A Green Alternative, including varieties like ‘Skunky Jack’ and ‘Sunset Sherbet’, as well as brownies, lollipops and other edibles, many customers are seeking recommendations and advice.
According to ACP’s Young, two distinct customer service models have emerged in the industry, and they’re beginning to influence store layout and design. In the first model, customers receive one-on-one support from ‘budtenders’, who guide them through the purchasing process. The second model is geared towards customers who already know a lot about the products and don’t need much help.
“This experience is more user-created. It’s more like a typical retail location like Target,” Young says, noting that these stores tend to use lighting to make unattended product look as appealing as possible, in the way a jewellery store attracts customers.
While the majority of cannabis retailers in California are still individual operators, small chains are beginning to crop up across the handful of states that have similar marijuana laws in the US.
For instance, Los Angeles-based MedMen operates nine retail outlets in California and New York and is in the process of opening five more, including in Nevada. It recently outlined a plan to list on the Toronto Stock Exchange through a reverse takeover.
And MedMen is just one of the ‘big guys’ that are coming for the cannabis industry, the same way Blockbuster took over the video rental market from small businesses in the 1990s, according to Tom Adams, editor-in-chief of market research for Arcview Group.
“It’s just starting to happen, but it’s really going to gain momentum with California [legalising cannabis],” Adams tells IRW.
“We’re already seeing a lot of stores for sale now, as the first generation is looking to cash out before the big guys crush them.”