How the Cannabis Industry Thrives on Innovation
If you're not part of it, you might not realize cannabis is one of the most innovative spaces right now.
Imagine a massive, $27 billion (and growing) industry that can’t use everyday, traditional consumer infrastructure. There’s no Amazon, PayPal, Doordash, Target, Bank of America or Visa, but millions of businesses and people are still participating in it.
What do you do? How do you solve for the lack of industry infrastructure?
You start from scratch. Cannabis is a complete green field. The industry is busy building from the ground up.
That’s because the cannabis industry is, and has been, in the process of transitioning from a black market — and a gray market — into a highly regulated, highly transparent industry. This presents several challenges, specifically when it comes to the lack of existing infrastructure and the high level of compliance required to ensure all players stay within the bounds of state-regulated markets, avoiding areas that might implicate federal law and guidance.
In fact, U.S. states started using software called seed-to-sale tracking, which requires a significant amount of data reporting and integrations between technologies. This didn’t even exist a decade ago. Seed-to-sale tracking is exactly what it sounds like: Companies must track a plant from seed all the way through its growth to its modification into a specific product (like edible, pre-rolled joint, tincture, vape cartridge, oil extract, etc.) to the retailer to its final purchase by a consumer.
But because cannabis is still federally illegal, most traditional software and technology providers won’t participate in the cannabis industry — from payments to point-of-sale to online shopping carts. That means pretty much everything in the cannabis industry, including all of the tech, is purpose-built from scratch. No one is starting with scale. They’re all starting with a brand-new product that they release to market and then build their customer base.
Not only is everyone building from scratch but the actual state markets are starting from zero. Since there’s no interstate commerce, every state market is its own island, which means all of these different states and players can try different things. Some will come online later and learn from what other states have done. But they’re truly trying their own thing and seeing if it works. And then the rest of the industry can say, “Yes, that was functional,” or “No, that was a total disaster, and here’s a better way to do it.”
More broadly speaking, the blank slate also lets the industry take what works from other spaces and build it better — more user-friendly, mobile, cloud-based. It makes it possible to tap into the latest tech advancements instead of relying on older infrastructure created in the 1990s and 1980s – or older – which is what traditional retail often runs on. The best product gets to win, which isn’t always the case in other industries.
To survive in this space, though, you have to build quickly, and you have to iterate quickly. You have to make sure that you are providing a stable product that meets the specific needs of the cannabis industry.
The massive opportunity for innovators that a greenfield presents — like the state-regulated cannabis industry ‚ requires people to step outside of their lane to tackle problems and gain a foothold. To succeed in the market, innovators often are required to have a mastery knowledge in their business offering, as well as a creative mind to be able to navigate the unique market with agility.
Take payments, for example. There are a number of cannabis payments companies led by lawyers, bankers and technologists — but payments is nuanced, and understanding it requires time in the industry and interaction with a variety of payment methods. It’s already hard to operate in this type of industry, but it’s a lot harder when you don’t have that foundational, institutional knowledge to build upon.
Similarly, to operate compliantly and transparently requires a lot of innovation because you can’t just put something together, launch it and hope you’re compliant. You have to go and get buy-in from organizations that tend to be, in a traditional sense, conservative and intentional about how they move forward — and not typically on the leading edge of innovation.
On the flip side, that’s also brought more innovation out of some of these traditional institutions. Take financial services — bankers have to be really creative to comply with their regulators’ requirements. That can be a lot for organizations that don’t typically have much flexibility or innovation at their core.
With payments, which is my background, card brands and financial institutions have had limited success with getting innovative mobile-only solutions off the ground. But cannabis was all cash — no cards — so it was possible to create a payment solution that was mobile-only, and consumers are happy to adopt it.
I think we’ll see a lot of this innovation bleed out of the cannabis industry into other settings. As technology and business processes mature, they’ll start to move into traditional retail. It might start with some of the platforms that analyze and identify potential risk and fraud. We might see payment platforms with enough adoption expand beyond the cannabis industry with lower cost and better service for merchants and consumers.
For all the things that people tend to think about the cannabis industry, cannabis is full of innovators and people trying to do what we’ve all grown accustomed to in a better way. Be on the lookout for those better ways to come into our traditional everyday experiences before long!
