Market Overview

Coronavirus High In California

Coronavirus High In California

Vertical integration is helping boost business for an online cannabis shopping and delivery company as the coronavirus pandemic simultaneously upends supply chains and fuels a boom in marijuana sales.

Driven Deliveries, Inc. (OTCMKTS:DVRD), the country's first publicly-traded cannabis e-retailer and logistics company, has acquired three cannabis businesses in the past year while building out its own in-house technology and e-commerce capabilities.

And while Driven didn't see the pandemic coming, "we're lucky we made the investments," Christian Schenk, Driven Deliveries' CEO, told FreightWaves. "Having control of that supply chain is what is allowing us to operate."

Uniformly across industry sectors, the pandemic is exposing strengths and weakness in the supply chain. It is also boosting the fortunes of companies identified as "essential" during an unprecedented viral outbreak, and crushing those that are not.

Designated a critical service because of its medicinal properties, marijuana is one of the winning categories. Within that space, delivery in particular shines, as millions of Amercians following government-ordered stay-at-home mandates turn to the internet for all of their shopping.

Mixed messaging from California regulators about brick-and-mortar cannabis retailers during the outbreak has also fueled online purchasing.

The numbers tell the story. Over the past few weeks, Driven has experienced a greater than 100% increase in sales, according to Schenk, with an 89% increase in new customer sign-ups. (Edibles and beverages, favored by those who are new to weed, are doing especially brisk business.)

The company now claims 220,000 registered customers, forecast this year to generate 500,000-plus orders from the company's 60 brands, said Schenk, a Canadian entrepreneur and investor who came from the telematics space.

Revenue forecast for 2020 is $22 million to $24 million but that was before the coronavirus surge, Schenk noted.

Like other public cannabis businesses in the U.S., Driven can't trade on Wall Street exchanges because marijuana is prohibited by the federal government. Instead, Driven trades on "over-the-counter markets," (OTC), a group of securities trading systems in which participants can buy and sell stocks like an exchange.

Buying spree

Languishing public policy hasn't impeded Driven's growth by acquisition. In March, it bought online cannabis retailer Budee, giving Driven access to a custom logistics platform that combines on-demand 90-minute delivery and overnight next-day delivery.  The Budee purchase followed the acquisition of the online retailers Mountain High Recreation and Ganjarunner last summer.

"Where we're going is about additional ownership of the supply chain," said Schenk, explaining the company's growth strategy. "We're taking control of our upstream logistics."

Marijuana differs from other consumer products in the heaviness of its compliance and tax burden, as each segment of the cannabis industry is governed by different laws and "lots of bureaucracy," he explained.

Aiming to streamline cumbersome and expensive processes, Driven is slowly assuming ownership of technology, from e-commerce through inventory management, as well as distribution licensing in key markets. An in-house track-and-trace solution traces product "literally from seed to delivery to consumers' homes," according to Schrenk.

Next on the agenda is developing the company's own brands, in which Driven will act as the cultivator and manufacturer.

Loading up on weed

Bringing multiple operations in-house has helped insulate the business from some — but not all — of the impacts of the coronavirus pandemic.

Unlike retailers and some manufacturers, cannabis distributors and contract manufacturers have not been designated as essential businesses. "So different parts of the supply chain are broken," said Schrenk, adding that some of its brands will likely run out of product in the next few weeks.

The outbreak may also slow a planned expansion into Michigan and Illinois, he said.

Other aspects of the business are moving full speed ahead. Mirroring the labor challenges confronting other online retailers during the pandemic, Driven is facing a worker shortage as consumer demand skyrockets. The company has hired 60 people in the past couple of weeks, all of whom are W2 employees, not contract workers, as per state law, which mandates that every person touching or working in conjunction with cannabis be an employee.

New safety protocols have been put in place, adding to precautions that are par for the course in an industry long associated with the criminal element.

In that context, cannabis as an essential business takes on a double meaning. Many states that legalized marijuana, California included, saw a glut of production, forcing the excess onto the black market. Labeling cannabis as essential helps push back a market accustomed to flourishing underground.

"If the legal stuff becomes unavailable, the black market will thrive," Schenk said.

Will the coronavirus outbreak add a new layer of legitimacy to pot consumption? Since the outbreak started, according to Schenk, the typical 5-10 p.m. sales spike has disappeared, only to show up a bit earlier in the day.

"We see now that it is socially acceptable to be consuming at 10 a.m. on a Tuesday," he observed.


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