Legal Cannabis Delivery Companies Thrive Amid Pandemic By Co-Opting Illicit Dealers’ Business Model

Every Sunday, EZ’s Dispensary sends its weekly menu of bud via text message, offering strains like AK-47 and Girl Scout Cookies, to thousands of people in New York City. Customers respond with their order—quarter, half, full ounce—and their address. Pretty soon, a dealer in a rental car pulls up to complete the sale.

All of this is illegal, but weed delivery is part of the city’s fabric—some New Yorkers can get cannabis delivered to their door faster than a pizza. Naturally, as states have legalized marijuana sales, legal delivery services have followed, from Snoop Dogg-funded Eaze to Lantern, which is owned by alcohol delivery and e-commerce platform Drizly. And thanks to the pandemic, delivery services are booming and companies are hiring and raising venture capital to keep up with the surge in demand.

Khaled Naim, the CEO and co-founder of Onfleet, a San Francisco-based delivery management software company, raised a $14 million Series A in October to scale the business and keep up with the pandemic-inspired growth.

“Cannabis delivery has exploded this year,” says Naim. “We used to manage thousands of cannabis deliveries, now its tens of thousands.”

High-End High: Sava is targeting the higher-end, less price conscious consumer with its scheduled delivery service. Basket size grew from $162 per average customer pre-pandemic to over $170.

 COURTESY SAVA

Onfleet has doubled its revenue in 2020, Naim says, in large part thanks to an influx in clients in the marijuana and alcohol industries. Since the beginning of the pandemic, cannabis and alcohol deliveries are up 300%.

The company’s software powers all types of deliveries, from groceries to restaurants to pharmaceuticals for companies like Kroger, Sweetgreen and Capsule, yet alcohol and cannabis clients make up a significant chunk of its revenue.

“Alcohol and cannabis are the leading drivers of our growth during the pandemic,” says Naim. “People need their vices, arguably now more than ever.”

For Sava, a high-end cannabis delivery platform that serves 70 cities around San Francisco, the pandemic drove a 60% sales surge since the first shelter-in-place orders were mandated in March.

“The growth was overnight. It was fantastic,” says Sava founder and CEO Andrea Brooks. “The spike in growth has stayed with us and this December is huge.”

Customers are also spending more. The average basket size jumped from $160 pre-pandemic to north of $170.

As for covid-19 product trends? “Edibles rule the day,” says Brooks.

Sava, which Brooks founded in 2015, is backed by $2.2 million from investors including Peter Thiel’s Founders Fund and cannabis-focused firm Arc View Ventures. Brooks says the company will raise another round at the top of the year to help expand throughout Californian and to other states. She originally planned the next round closer to 2022, but covid-19 has accelerated everything. “It’s time to step on the gas,” she says.

Cannabis, Delivered: Emjay promises an hour-and-a-half delivery time throughout Los Angeles and boasts a hearty selection of 780 products.

 EMJAY

Roy Bingham, the co-founder of cannabis retail sales tracking platform BDSA, says that delivery and curbside pickup sales jumped to 40% of all U.S. marijuana sales in the spring, compared to 20% of all sales pre-pandemic. Delivery sales dropped a little over the last 10 months but is holding steady at 30% of all sales.

California-based cannabis delivery company Eaze has hired 735 delivery drivers since March to keep up with demand. Eaze, which serves San Francisco, Los Angeles, Sacramento, San Diego and other counties in California, has seen an average order volume increase by 18% since the pandemic started. The platform has also seen a 30% jump in new customers.

Proving that all boats rise with this high tide, alcohol delivery and e-commerce platform Drizly has also seen a dramatic surge in alcohol sales.

Through November, Drizly’s sales volume is up 350% year over year and the platform has attracted more new consumers in 2020 than the last seven years combined.

After weathering the covid-19-related spike in demand last spring, Drizly raised a $50 million Series C funding round, led by New York-based Avenir, to expand its platform. Most of the money will be spent on scaling Drizly to more cities, but some of the capital will go to help grow Lantern, a wholly owned subsidiary that’s delivering cannabis in Michigan and Massachusetts.

Cory Rellas, who worked at a hedge fund before co-founding Drizly with his cousin and a friend in 2013, says they first thought the growth was due to customers hoarding alcohol and cannabis, but the increase has sustained over the last 10 months. Rellas also thinks the growth will stick after the pandemic is over.

“I expect delivery to be a standard part of behavior, even after the vaccine,” says Rellas. “Delivery is becoming a commodity; it’s now what consumers expect.”

Tracy, a New York transplant who’s been living in Los Angeles for five years and asked for her last name not to be used, says she used to go to the dispensary to pick up weed but she’s strictly bought cannabis through state-legal delivery apps like Eaze and Emjay since the pandemic started.

Coming from Harlem, where she used to get cannabis delivered to her apartment, albeit illegally, she appreciates the irony of venture capital-backed companies co-opting a business model created by illicit entrepreneurs.

“There used to be whimsy to it. Weed is a business now, which sucks for the small dealers,” says Tracy. “But, working with legal companies is more reliable. You don’t have to wait four hours for a guy to come. Now you wait an hour, max, or two hours during rush hour in LA.”

The irony is not lost on Chris Vaughn, the CEO of Pacific Consolidated Holdings, which owns cannabis delivery platform Emjay and alcohol delivery company Saucey. He says growth and customer adoption rates on the cannabis side of the business is faster than on the alcohol side for a simple reason.

“Alcohol delivery didn’t exist a few years ago and customers have been buying in stores for 87 years,” says Vaughn. “In cannabis, delivery is how people have shopped forever. The dispensary is the new, unusual shopping behavior.”

He adds: “Delivery is how people buy weed.”