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‘Regulations don’t allow us to copy Amazon’: Cannabis brands chart new strategies for e-commerce growth

The budding online cannabis business is facing unique hurdles as it tries to grow.

Marijuana is now legal in certain U.S. states: 33 for medical use and 10 for recreational use. There are medical marijuana and recreational shops; according to a report from last year, there are nearly 9,400 active licenses for marijuana businesses in the U.S. Online marketplaces like Eaze, GreenRush, Meadow, Grassp and I Heart Jane are striving to reach e-commerce customers, sometimes working with physical stores to facilitate pre-ordering and payment through a limited number of tools available.

But in their early stages, e-commerce marketplaces in the cannabis industry can’t look to established players like eBay or Amazon as guides for selling online. They have to tailor the platforms to the geographies of the customers and navigate around two key challenges: laws that prohibit transporting products across state lines and payment methods that fall outside the boundaries of traditional banking. Even as more states legalize marijuana for recreational or medical use, the new legislation doesn’t set up e-commerce sites for success, as some of those states haven’t approved marijuana delivery.

They’re obstacles all too familiar to Socrates Rosenfeld, CEO of Jane Technologies, the company that runs I Heart Jane, an online marketplace for marijuana products that has relationships with 527 physical stores across the U.S.

“Regulations don’t allow us to copy Amazon,” he said. “We couldn’t set up distribution across the country and mail products directly to the consumer [in all U.S. markets.]”

Instead, Rosenfeld said he focused on creating a platform that can replicate as much of the physical store experience online by creating a system to integrate store inventory with sellers’ online storefronts on I Heart Jane. Customers can only view the product details if it’s available in their area. Where delivery is allowed, I Heart Jane partners with companies that manage last-mile logistics to get products from local stores to consumers. Even if e-commerce is not powering delivery for all purchases, Rosenfeld said buy online, pickup in-store is a useful tactic in reducing customer wait times at the checkout counters, and it’s a service that lets sellers reach more customers quickly and efficiently.

“We call it the ‘Jane Lane,'” he said. “In some places in California, if you go to a dispensary on a Friday evening on a payday,  you will wait hours to get to the counter.”

But even when legality and compliance with financial regulations aren’t issues, as is the case in Canada, marketplace operators must also navigate rules around the distribution of the controlled substance. Darren Gill, vp of strategic operations at Vancouver-based Namaste Technologies, which runs the medical marijuana e-commerce platform Canmart, said age verification starts online through a facial recognition tool to confirm the identity of the customer. When the marijuana products are delivered, the customer’s identity and proof of age must also be confirmed.

“With Amazon, you order everything to your house. We can’t just drop [the product] outside the house — that’s the whole point of the legalization framework,” he said. “Now, we’ve got an obligation where we’re handing the package to someone that’s over 19 at the delivery address.”

Still, the online market for cannabis has promising potential, and marketplaces are getting more robust. Baker, a Shopify-like platform, facilitates technology add-on tools like online ordering, customer loyalty, messaging, and analytics for online marijuana sellers, that help them establish direct relationships with customers. Joel Milton, svp of business and corporate development at Tilt Holdings, which owns Baker, said like Amazon or eBay, marketplaces are a way for merchants to acquire customers. Rosenfeld said merchants operating on I Heart Jane have access to site traffic and purchase behavior through I Heart Jane’s platform, and the company also provides monthly reports that compare seller sales reports to trending product behavior in state-level or national-level geographies. Sellers can, in turn, use this data to refine product selection.

I Heart Jane generates revenue through a flat $1 fee it charges per transaction. Payments, however, are an ongoing challenge for marijuana retailers, since major U.S. banks won’t work with cannabis retailers. As a result, cash is still an important payment vehicle in retail settings, along with a small number of companies offering payment services in states where marijuana sales are legal. I Heart Jane accepts CanPay, an online payment vehicle that has been operating for two years which uses an app to link to a customer’s checking account (like Venmo) and can also be accepted at the point of sale. Alternative payment vehicles that serve the marijuana industry are a growth area for the financial services industry. For example, earlier this month, Chicago-based CannaTrac launched a mobile app that powers a prepaid card for cannabis products that functions like a Starbucks Rewards card.

Industry observers say because of the tricky legal framework around cannabis, many businesses still operate on a cash-only basis, which presents a barrier for online businesses to scale.

“Because the sale of marijuana remains illegal at the federal level, many businesses have historically chosen to operate with cash rather than bank accounts out of fear of compliance failings,” said Anne Shannon Baxter, a policy analyst at public policy consultancy Access Partnership.

According to Dustin Eide, CanPay CEO, many marijuana businesses (he didn’t specify whether they were online or physical stores) still find ways to use traditional banking services.

“Much of the industry is banked typically through some method obfuscating the nature of the activity,” he said.

But skirting the rules isn’t always tempting. Rosenfeld said the I Heart Jane Platform is designed to facilitate legal marijuana purchasing and payments activity. He emphasized that while the marketplace puts frameworks in place to ensure sellers and buyers transact in a compliant way, it’s impossible to police everyone.

“We have to trust that we build our technology in a smart way to not allow for any kind of shady behavior,” he said.

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