While COVID-19 might have pushed the need for cannabis delivery to the forefront, delivery service offerings are now an essential business tool for astute dispensary owners.
Whether it be food, cannabis, or retail goods, convenience is king for today’s tech-savvy consumers. To stay ahead in a dynamic marketplace fueled by on-demand delivery providers like GrubHub, Instacart, and DoorDash, online ordering and delivery offer new, creative ways to differentiate your cannabis brand. Beyond quality products and catchy branding, smooth digital ordering and professional delivery are additional ways to capture customers in today’s highly competitive market.
While a cannabis delivery service is a great way to stay abreast of digital-first shoppers and expand your revenue streams, these complex business ventures have many hidden risks. As such, it’s important to understand exactly how risks impact the profitability of cannabis delivery services.
Risk Management = Cost Management
Make no mistake: risk management in cannabis delivery is directly tied to cost management. Failing to address risks such as regulatory non-compliance, security breaches, or delivery errors can result in steep fines, lost inventory, and damage to your reputation. With the average cost of compliance infractions ranging from $10,000 – $100,000, these risks are hard to ignore.
What Types of Risks Do Dispensaries Face with Delivery Options?
While risks like cash handling and compliance infractions might be obvious, other less tangible elements such as customer satisfaction must also be accounted for when developing a cannabis delivery business plan.
Overhead Costs
Cannabis delivery requires substantial investments in labor, training, vehicles, security, insurance, and technology. From hiring new team members to implementing driver safety training and maintaining reliable vehicles, every aspect of a new delivery operation adds expenses. Additionally, delivery management software, GPS tracking and integration all play critical roles in ensuring smooth, compliant, and customer-friendly operations – all of which come at a price.
Regulatory Compliance
Since cannabis deliveries occur outside the heavily controlled walls of dispensaries, they face a slew of new and unique regulations unseen in traditional retail settings. Once on the road, there are countless ways drivers can break the rules or get in trouble – whether it be their fault or not. A common mistake delivery drivers make is a failure to adhere to transport manifest requirements – thus incurring a hefty fine.
Cash Only Businesses
Since nearly 70% of cannabis businesses still rely solely on cash to conduct business, cash-carrying greatly increases the risks of cannabis delivery. Carrying large amounts of cash puts both your drivers and business at risk while complicating logistics. Tracking cash transactions during the day and reconciling them at night is cumbersome, and any stolen or missing cash is often difficult—or impossible—to recover.
Damaged & Lost Product
Since delivering cannabis to a person’s home requires more product handling than seen at retail stores, it greatly increases the risk of damaged or lost products. Keeping tabs on multiple orders can be complicated and cumbersome, especially for newbie drivers. While cargo insurance is available in most states to help you recoup lost or damaged products, it still doesn’t help explain lost or confused orders to regulatory agencies.
Customer Satisfaction
Running a successful cannabis delivery service requires different skill sets than operating a normal dispensary. Heading into the field unprepared can lead to problems like delayed deliveries, damaged products, and order errors, all of which can harm your business’s reputation. Dissatisfied customers may leave negative reviews on sites like Google, Yelp, Leafly and Weedmaps, further impacting other business areas.
Auto Accidents
If your delivery driver is involved in an accident, it can create a host of challenges for your business. While business auto insurance may cover vehicle repairs and damage to another person’s property, accidents often lead to costly premium increases. Similarly, if your driver is injured and unable to work, workers’ compensation insurance rates may also rise due to the associated medical bills and lost wages.
How Can My Dispensary Mitigate Risks with Cannabis Delivery?
There are certain steps you can take to maximize the opportunities that come with adding a delivery service, while also mitigating the risks. Outsourcing through a third party is one way to do just this.
SOPs & Employee Training
Standard Operating Procedures (SOPs) and employee training are essential tools for reducing risk with your team members.
SOPs establish clear, repeatable protocols for important jobs like product handling, inventory tracking, cash-carrying, and safe driving. A well-crafted cannabis SOP is essential for the long-term success of any cannabis business. Due to increased efficiency, properly trained employees almost always earn more on average than those without adequate training.
While SOPs establish clear protocols, it takes employee training to bring these protocols to life. Especially when it comes to cannabis delivery, training equips staff with the skills to navigate high-risk scenarios, such as maintaining accurate delivery records, managing product integrity, and handling theft attempts.
Have the Right Insurance
Having the right insurance is vital for mitigating risks in cannabis delivery. Policies tailored to the industry protect against a variety of claims, including theft, product loss, and liability. Coverage for drivers, vehicles, and inventory ensures financial stability and meets regulatory requirements. Since every state cannabis market is different, be sure to study what insurance policies are available in your region before diving into a business plan.
Partner with a Third-Party Delivery Service
Another great option for mitigating risks with cannabis deliveries is to partner with a 3rd party service to handle the delivery side of your dispensary business. A delivery partner will have the right technology to pair with your POS and seed-to-sale software, while also providing licensed, compliant drivers.
Many dispensaries lack the financial resources and expertise to launch a delivery service while managing the associated risks effectively. By partnering with a third-party service, you can offer cannabis delivery to your customers and boost your store’s revenue—without the high overhead costs of employee training, logistics, and insurance. Additionally, the responsibility and risk of handling products once they leave your store shift to a third-party partner that specializes in cannabis delivery.
Conclusion
It’s often said that all intelligent business decisions require a certain amount of risk-taking. While accepting risk with new opportunities is part of the picture, the best business people also take every possible measure to mitigate risk. When it comes to cannabis delivery, there are many unique factors at play regarding compliance, security, and safety unseen in standard dispensary business models.
With the U.S. cannabis industry expected to gross $40 billion in 2024, it’s tough to ignore the amazing opportunities hidden in plain sight. Yet, finding success in today’s industry requires creativity – such as differentiating your brand with top-notch online ordering and delivery options. In any case, pleasing today’s sophisticated cannabis customers while also staying profitable is a difficult balancing act – even for the experts.
Claudia Post is a transportation subject matter expert. Her background includes logistics chain chain of custody, warehousin, and distribution. Claudia has been in the cannabis industry for 13 years and in logistics for 20+ years. Her marketing agency, MOST CONSULTING GROUP and delivery service SCARLET EXPRESS services clients across the US and Canada. For questions or just to chat, please email her cpost@scarletex.com or 215.298.1555.