Automated fans and cultivation lights are pictured operating above cannabis plants at RiNo Supply's cultivation facility near Lafayette on Thursday, Dec. 13, 2018. (Andy Colwell, Special to The Colorado Sun)

Are hundreds of Colorado businesses endorsing their own elimination? 

Denver, Aurora, and Boulder have been considering allowing licensed businesses to deliver limited amounts of cannabis to adults over 21 at private residences with a variety of safeguards. Aurora’s city council voted Dec. 7 to give preliminary approval to cannabis delivery with a final vote coming soon.

But these policy changes, strongly endorsed by cannabis businesses and trade groups, may unintentionally strip cannabis businesses of protection from disruptive technological and economic forces convulsing the rest of the retail industry.

The growing vacancies in downtown corridors and suburban malls alike before the pandemic are a testament to how profoundly e-commerce platforms like Amazon have disrupted the retail industry. 

Brian Keegan

Through months of pandemic restrictions, mall and big businesses have invested significant resources in online shopping, curbside pickup, and home delivery in a scramble to survive. The profound changes in consumer behavior and massive business investments prioritizing safety, cost, and convenience are unlikely to revert to a pre-pandemic status quo.

The regulations governing Colorado’s retail cannabis market have unintentionally insulated it from these competitive pressures disrupting the rest of the retail industry. The seven-year-old delivery moratorium meant that an adult consumer who wants to purchase cannabis legally must physically go to a retail location to make a transaction. 

This is a subsidy for retail businesses that do not have to worry about competing against online delivery services and has cushioned the cannabis industry through profound changes in costs, compliance, and consumer preferences over the past seven years.

Cannabis retailers depend on high-frequency consumers far more than tourists or intermittent consumers. According to a 2019 report for Colorado’s Marijuana Enforcement Division, more than 75% of total product demand came from customers who consume more than 21 days per month. 

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All types of consumers end up paying higher prices as businesses pass through property, labor, and compliance costs of running retail storefronts. But high-frequency consumers are more likely to prioritize price and convenience over retail experience: They do not need to have a long conversation with an expert budtender in a chic store; most just need to complete a transaction similar to their previous transaction. These consumers are most likely to substitute current retailers for low-cost alternatives enabled by retail delivery.

Just as Amazon out-competed most retail stores for price- and convenience-sensitive

consumers, “ghost kitchens’‘ fulfilling online food delivery orders for DoorDash, Postmates, and UberEats have undercut traditional retail restaurants saddled with expensive leases and large front-of-house payrolls. 

A “ghost dispensary” maintaining a nominal storefront for regulatory purposes but prioritizing retail delivery could locate in less-expensive areas, hire fewer employees, stock more products, and pass these savings and conveniences on to consumers — particularly must-win high-frequency consumers. 

If a ghost dispensary offered the same products at a 10% discount over retail, that’s a potential shift of thousands of dollars in annual revenue per high-frequency consumer. 

Cannabis retailers who believe that customer loyalty, in-store experience, or exclusive products can beat out the price and convenience concerns of their most important customers should evaluate how those strategies played out for retail behemoths like JCPenney and GNC now being stripped for parts in bankruptcy proceedings. 

Opting in to retail delivery is not guaranteed to hollow out the current cannabis retailers, but it adds considerable uncertainty. Current retailers may leave their expensive high-traffic locations, a boon to critics who link retail storefronts with glamorization and underage abuse, but it will also accelerate the scourges of empty retail corridors and lost property tax revenue. 

Ghost dispensaries could lower the costs of starting a business and address social equity concerns, but also could gentrify out non-cannabis businesses and pressure local officials to keep up with inspections and enforcement that inevitably will be won by politically well-connected, well-financed, and white incumbents. 

Delivery fees captured by cities could bring in desperately-needed revenue but also invite overreach, pricing out profitability and encouraging a dangerous gray market. 

Lower prices would help all consumers but also contribute to “survival

of the fittest” dynamics that predictably end with consolidation, adversarial regulation, and eroding product choice, innovation, and safety.

Colorado’s retail cannabis industry has navigated an extraordinarily challenging landscape involving competition, compliance, and coronavirus since its launch in 2014. However, the delivery moratorium has insulated the retail cannabis market from the economic and technological pressures faced by every other retailer. 

In the rush to spend its hard-won political capital by lobbying for its products to be treated the same as other industries, Colorado’s retail cannabis industry may be opening itself up to the same forces that have disrupted much more mature and stable retail sectors. 

While opting into retail delivery is likely to benefit consumers through lower prices and greater convenience, cannabis retailers will likely regret inviting the e-commerce foxes that ravaged the rest of the retail industry into their well-protected henhouse.

Brian Keegan is a computational social scientist researching cannabis informatics, an assistant professor at the University of Colorado Boulder’s Department of Information Science and Center for Research and Education Addressing Cannabis and Health, and a member of the City of Boulder’s Cannabis Licensing and Advisory Board.

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Brian Keegan

Special to The Colorado Sun Email: Twitter: @bkeegan