Can We Create A Cannabis Marketplace With A Conscience?

By Socrates Rosenfeld, CEO and Co-Founder, Jane Technologies

Marketplace technologies, the services that create a two-sided network connecting supply-side sellers with demand-side consumers, are often praised for their ability to provide curation and convenience for consumers while helping sellers extend their digital footprint to reach more people. 

But at what cost?

We’ve started to realize that often these marketplaces have a downside. Popular ride-sharing companies provide unparalleled convenience for consumers, but routinely underpay their drivers and refuse to provide benefits. Food delivery services have boosted take-out business, but their commission fees eat into a restaurant’s bottom line. A majority of independent retailers see large popular online marketplaces as a major threat to their survival, and only a small percentage of sellers have a successful experience. Certain marketplaces have even gone as far as to take its third-party seller’s data to copy products and rig search results in favor of its own sales.

As it matures, the cannabis industry continues to be in a unique place and has the opportunity to become a trailblazer by proving that online marketplaces and sellers can achieve more equitable partnerships that benefit all parties. The cannabis industry is serving as an incubator for what the future of omnichannel retail will look like. It is coming of age in a digital world, with no outdated analog systems to replace. In addition, the COVID-19 pandemic and social distancing practices have pushed more businesses online through e-commerce platforms. It’s clear that technology will be a major influencer in how the cannabis industry is shaped.

Emerging cannabis marketplaces - along with the retailers, brands, and consumers that do business with them - must be careful not to repeat the mistakes that create a “zero-sum" game where technology competes with retailers and brands. Instead, I believe we have the opportunity to reimagine a marketplace model that supports all stakeholders.

What could that look like?

Seller Fees Are Fair

Ever-increasing service fees are slowly draining small businesses. Take restaurant apps. What used to be a 5% per order fee for restaurants in the early 2000s rose to 15% in 2010 and stands closer to 30% today. In fact, during the pandemic when delivery orders surged, city legislators tried to ease the burden on restaurants, with New York City, Los Angeles, and others temporarily capping fees at 15% per order. But even that was largely unsustainable when one considers that many fast casual and full-service restaurants operate on a 6% profit margin. That means that some eateries end up losing money on every delivery order that is placed.

Ride-sharing apps have similarly been criticized for their large take rate from drivers. A ride-sharing platform can charge a standard 25% fee, plus a booking fee and a safe ride fee, which can vary by city. Factoring in those incremental fees, the platform can claim upwards of 35% of the total fare. These service fees have a detrimental effect, with some small businesses and gig workers feeling as though they are being exploited.

The takeaway: We can provide a successful service without being exploitative. We can create marketplaces with transparent and equitable fees. Service providers can charge a commission-free flat monthly rate. Food delivery platforms like OLO and Chownow have developed innovative business models that generate healthy revenue without gouging margins from sellers.

Data Is Shared

The best way to improve the customer relationship, and thus sales, is to enable sellers to better understand them. What do my customers buy? What time of day do they shop? 

Although marketplaces claim they’re on a mission to grow and empower local economies, some fail to share back the valuable data that they collect which can help brands and retailers strengthen relationships with their customers. That’s because these companies have a vested interest in using that data to power their own marketing machines. This is a flawed model that creates competition amongst the business and platform for the same customers. Most marketplaces don't share data with sellers for fear of those sellers creating their own campaigns off the platform. This creates a zero-sum game that hinders supply and limits demand.

The takeaway: Online marketplaces need to provide information to their sellers. Technology tools should be just that: an instrument that helps carry out a specific function. One of the functions of an online marketplace is to help sellers reach new customers by helping them learn from their current customer base. Companies should be able to trust that their technology provider is looking out for their best interest instead of withholding critical information.

Customers Aren’t Poached

The waters get even murkier when marketplaces start to use seller data to develop their own private labels and create products that place them in direct competition with the sellers that de­pend on them. For instance, an online marketplace that launched a private-label business in 2009 now operates over 45 private-label brands, equating to hundreds of thousands of products on its platform.

It’s hardly only one online marketplace exploiting its position to create a dual-platform model. Drawing upon its wealth of transaction data to determine what restaurants can work well in a given location, food delivery marketplaces have opened up several ghost kitchens and even physical food halls that undercut the sales of similar local restaurants it is meant to serve.

There’s no doubt that these marketplaces are profiting from loopholes in traditional economic regulations that policymakers have yet to address in the digital age. In the meantime, sellers are having to compete with the technology companies that they originally trusted to help them.

The takeaway: Manipulating both sides of the economy for one’s own benefit or advantage is ultimately unfair and distorts normal market dynamics. If a fair and balanced ecosystem can be built, then everyone wins. Tech companies, specifically marketplaces, should commit to not owning or operating any products that compete with third-party sellers — it’s an unbalanced, win-lose model.

Next-Gen Marketplaces

We can do better. We can build a new marketplace model that creates value for all by solving business problems with both innovation and equity. Right now is the moment to set a precedent for an entire generation of cannabis consumers and sellers. Let’s make sure to get this right, especially if we want this more ethical marketplace model to be embraced by as many other industries as possible. As the cannabis industry gets ready to gather at its largest conference this week, MJBizCon, I encourage all stakeholders to envision a fair, equitable industry that will benefit all.