Two tech startups changing weed retail
The cannabiz’s unique circumstances demand creative thinking. And it’s becoming increasingly clear that some of the things that work in cannabis could change the way things get done in the mainstream economy.
Sophisticated indoor agriculture, as it gets less expensive, has attracted attention from farm companies looking to disrupt the food chain. The same thing is happening in retail as the lack of access to marketing channels, among other complications, force brands and stores to experiment. As a new industry, it’s also less set in its ways than mainstream retailers.
The startups SparkPlug and Lucid Green, both of which have traction in California, show how cannabis could push mainstream retail in some interesting directions.
SF-based SparkPlug, which facilitates incentive payments to budtenders, didn’t initially focus on cannabis. Co-founders Andrew Duffy and Jake Levin met as Harvard undergraduates where they were fascinated by behavioral economics, especially questions about how employees respond to different forms of compensation.
- After graduation, Duffy was in the research department at the huge hedge fund Bridgewater, where he studied labor market behavior.
SparkPlug distills the founder’s thinking into a concept deeply ingrained in the cannabiz: Retail salespeople have enormous influence over what consumers buy, and that influence often goes unappreciated. SparkPlug set out to improve retail performance by incentivizing salespeople with cash payments.
The company, which has raised $3.5M from traditional tech VCs, has customers in outdoor gear, beauty and make up, restaurants and other “considered sales” categories. But the founders quickly realized that cannabis, where brands have relatively few ways to reach consumers and many of the products are similar, represented a near ideal use case.
Budtenders’ influence on purchase decisions is widely understood within the industry. Brands constantly court budtenders and seek to “educate” them. But budtenders’ influence can be hard to measure and leverage.
And it seems lots of stores don’t try. Budtenders don’t get paid very well and and they turnover rapidly. SparkPlug harnesses budtenders’ clout with consumers by paying them cash, which should, in turn, make them more willing to stay at their jobs.
The company launched in 2019 with an app that integrates with Point of Sales (PoS) systems to create sales leaderboards for stores. It engaged employees, even without money on the table. SparkPlug added the incentive payments in 2020, with the onset of the pandemic catalyzing their growth.
- SparkPlug has quietly reached about 1,000 dispensaries nationwide, including about 50 in California.
Here’s how it works: Dispensaries can install the platform free. They can then create incentive programs or allow brands to create their own.
- The fee cannabis brands pay depends on the state market and can reach $4,000/month.
- Dispensaries only pay a (substantially lower) monthly fee if they’re creating their own incentive programs.
- Compared with slotting fees, where brands pay for shelf space, Duffy says SparkPlug creates a less adversarial relationship since both stores and brands are selling more.
It seems to work very well. According to a case study provided by the company, an infused-product brand conducting a trial at five California shops: By offering budtenders bonus payments in the mid two-figures, the brand sold 39% more than the previous month. (Read the case study.)
Vinny Di Nino, head of sales and marketing for brand CLSICS, which has a wide range of THC products, said the brand started out offering budtenders $1 per item sold and sales went up “immediately.”
- “Our results have been very solid,” he said. “The best part about it has been the sales have maintained.”
2. Lucid Green
Everything in weed is more complicated.
Lucid Green‘s QR code platform aims to simplify two aspects of the industry that don’t usually talk to each other: supply chain efficiency and customer loyalty.
- The Brooklyn-based startup, which has landed many top California brands as clients, closed on a $10M Series B in April led by Gron Ventures and Gotham Green Partners.
First, the supply chain component: Seed to sale tracking systems often can require time consuming, labor intensive tasks that invite human error and inventory snafus.
- In California, for example, every individual item needs to receive a sticker with a tracking number called a UID code. LucidGreen CEO Larry Levy says dispensaries can spend upwards of $10,000/month paying employees to apply the stickers.
- Retailers also have to manually type product names into their PoS systems.
Lucid Green’s enables brands to print QR code labels that can be scanned through the rest of the supply chain, eliminating the need for tasks that otherwise have to be done manually.
- Levy said 125 California brands have signed up representing about 110M units sold annually, though most are still in the onboarding process.
- Lucid Green gets two cents for each labeled unit: (110M units = $2.2M)
After the purchase, a Lucid Green app enables customers to connect directly with brands through the same QR code.
- It enables brands to bypass retailers who can have their own agenda.
- The app, which enables brands to create loyalty programs and send push notifications, has been downloaded by 85,000 California customers Levy said.
- Lucid Green also has revenue streams connected to brand outreach.
In different states, the Lucid QR code can be adapted to different requirements. New York recently announced that all products must have a QR code connecting to testing information. “That was music to our ears,” Levy said.
Compared to what currently exists in the mainstream economy, Levy has said the platform is most similar to what’s available for pharmaceuticals. It’s easy to imagine other applications though Levy didn’t stress the point. “If we become the de facto standard in this industry life will be good,” he said.