How coronavirus forced the cash-centric cannabis industry to change
The coronavirus pandemic has changed the way many industries conduct business — and that's especially true of the legal cannabis industry, which was already struggling in the U.S. to find the best way to handle noncash payments.
When the coronavirus lockdown struck the U.S., it had an inconsistent effect on legal cannabis dispensaries. Many states considered cannabis sellers essential, particularly if they sold for medicinal purposes, but store owners still had to contend with transforming a cash-heavy operation for a population that was suddenly very cash-averse due to concerns about spreading disease.
Hypur, a bank technology provider to the cannabis industry, frequently conducts market research to understand changing consumer attitudes toward buying cannabis, and the biggest finding in its most recent survey is on the payment experience. About 45% of respondents in Hypur’s May survey reported changing their payment preference from cash to electronic payments for cannabis purchases.
The survey also highlighted that about one-third (35%) of adults feel that carrying or handling cash makes them uncomfortable, as they believe that cash can easily transmit infectious diseases — a big, new wrinkle for an industry that most major card brands shun due to the inconsistencies in state and federal legalization.
“COVID-19 sped up the inevitable change in the shopping experience for the cannabis business,” said Tyler Beuerlein, chief revenue officer at Hypur. “I think it has brought the industry forward several years, and it was inevitable. Retailers knew that they had to get in line with consumer demands and expectations for a modern payment and shopping experience."
The card brands' aversion to cannabis payments is about compliance, rather than a moral or risk-based stance. When Canada legalized cannabis nationwide in 2018, the major card brands were ready from the first day to handle payments.
“The branded card networks have stated that they won’t touch cannabis payments until it’s legal at the federal level. With consumers now reluctant to use cash, a move to a shopping experience of order ahead, pay electronically and get delivery, just like Grubhub, was bound to happen. It’s just that COVID-19 made it happen sooner,” Beuerlein said.
The cannabis industry, which has been legalized in over 30 states for medicinal purposes and in over 10 states for recreational use, has been experiencing rapid growth and is expected to reach over $24 billion in revenues in 2025, up from an estimated $13 billion in 2019.
The current disruption caused by the virus is being met by two different types of cannabis sellers. First, the existing owners of brick-and-mortar dispensaries are being forced to figure out how to keep revenues flowing so that they can pay their staff and monthly rent. The second group includes newly licensed businesses that were just starting to get their operations going when the crisis hit. This group has significant investment capital behind them and needs to start generating returns on their coveted licenses, with little time to wait for the traditional buying experience to return.
Enter the food delivery model that has made companies such as Grubhub, Uber Eats and DoorDash so popular, even before the pandemic hit, and now even more so as lockdown restrictions are slowly being lifted.
However, the challenge for the cannabis industry is very different than for other businesses that have had to shift to delivery and pickup models such as restaurants, since there is a high degree of regulation and compliance involved. It’s also something that many in the cannabis industry have been working to address, evidenced by examples such as CanPay, a closed-loop debit payment system, and online cannabis ordering company Jane, which began a partnership in December.
Hypur has also integrated with Jane, as well as Dutchie for the pre-order and delivery of cannabis, in addition to in-dispensary POS system providers MJ Platform and Odoo.
“Merchants have been very responsive to the new landscape and shifting consumer preferences," said Beuerlein. "Our integration gives merchants and consumers a mainstream delivery and payment experience in a highly regulated industry. Consumers are used to ordering from Grubhub for food and now are expecting the same from cannabis suppliers.”
While the internet may have changed consumers’ expectations on issues such as speed and availability, it’s the coronavirus crisis that has changed shopping behavior and demands being placed on retailers to deliver.