Cannabis delivery sales are a growing share of the overall cannabis market, a trend that the COVID-19 pandemic had accelerated during 2020.
While marijuana delivery remains prevalent, it will likely prosper in the long term to meet the needs of home-bound users and those who appreciate the convenience and safety of the business.
Delivery ticket sizes tend to be 2x higher than in-store dispensary orders. It's unquestionably a significant revenue opportunity for retailers looking to mobilize this kind of business.
So, how can you open a marijuana delivery service? Do you already offer cannabis delivery and need to find out how to improve your bottom line?
Here are five things every cannabis retailer should consider when it comes to delivery.
Financial: Always Develop Your Model
Whether you’re planning to run a delivery business within your cannabis dispensary or an entirely new company altogether, every business owner must always consider start-up costs.
Creating a financial model for marijuana delivery will be essential to your success. Here are some answers to a few key questions you might find yourself asking.
How Much Capital is Required?
Depending on the size and scope of your operations, the amount of capital you’ll need can range from $150,000 to over $2 million. Costs depend entirely on a variety of factors related to policy, property, and market.
For example, doing marijuana delivery in urbanized California versus a smaller municipality in another state will differ significantly in labor and property rates. These are just a few variables that will influence your model.
Another portion is whether you need to license the business or focus more on launching it as part of a dispensary currently in operation.
Starting a new marijuana delivery service requires a hefty upfront investment in licensing, property, compliance, and potentially consulting fees.
Meanwhile, adding the business to your existing retail operation involves investing in delivery-specific staff, technology, and planning.
What is The Profit Margin for a Dispensary in 2021?
Dispensary profit margins also depend entirely on the location and size of your operation.
Take a look at these figures:
- Dispensaries can earn up to $974 in profit per square foot of space (GPS.Global)
- The average annual revenue for dispensaries is around $3-million. (Statista)
- Medical dispensary profitability ranges between $500,000 – $3,000,000 (Fortunaly)
What To Include in Your Financial Plan
There are many items you should include in your marijuana delivery financial plan. Your model must be clear and logical to strategize and procure the funds you need to start.
So, what do you need to include exactly? We’re glad you asked!
First off, start by outlining your revenue and expenses by month. These provide the basis for how much your business is earning and how much it incurs.
Then, outline your use of funds. You can use a table and pie graph showing stakeholders where you intend to invest money in the forthcoming year.
Remember, if you can back up any investments with previous performance or data— it will make the difference to whoever is viewing the plan.
Next would be a source of funds – or who will offer to fund your marijuana business. Please take a look at our cannabis business plan guide to learn more about the BITS strategy and maybe find a template for your plan.
This item is for specifically denoting what kinds of funding sources you’ll have in your venture.
You’ll also want to include profit, loss, and balance projections. These provide estimates of financials that will indicate whether your business is succeeding, failing, or breaking even.
Start Your Cannabis Retail License
If a cannabis or medical marijuana delivery is a venture you’re just starting to undertake, you’ll need to obtain a retail license. Here are all the steps you should consider.
Defining Your Strategy
A solid cannabis business plan demonstrates to regulators that you can run a marijuana delivery service. Ensure this document covers all the bases to increase your likelihood of approval!
Here are a few items you absolutely must have:
- Business Introduction & Executive Summary.
- Regional Market Overview
- Marketing Strategy
- Product & Sales Strategy
- Operations Plan
- Security & Insurance Plan
- Organizational Charts
- Implementation & Investments Plan.
- Financial Models
Opening A Non-Storefront Business? You Decide!
Did you know that you don't have to open a physical location for marijuana delivery? The BCC in California offers a non-storefront application too.
This type of non-storefront cannabis license does have some provisions to keep in mind. For example, non-storefront open marijuana dispensaries can only operate from 6:00 AM – 10:00 PM.
Contracted employees must always be in charge of all cannabis delivered . You cannot use a third-party courier or contractor to deliver your orders.
It's also important to note that as of January 2020, delivery orders must ship in child-proof and tamper-resistant containers.
As compliance will always remain a priority in the cannabis industry, check that you have the proper packaging to carry this operation out.
Lastly, you must ensure that all delivery vehicles include a GPS device. Again, this is to ensure compliance and traceability, even after the order has left your facility.
Leasing Property for Delivering Marijuana
Although renting property marijuana retail is technically illegal under federal law, specifically the Crack House Statute, it’s possible to find landlords willing to rent their building to your organization.
That said, there are plenty of stipulations that you and the landlord should align on before signing a contract and setting up your cannabis delivery service.
First and foremost, establishing a legible process for rent transfer is of excruciating importance to both the landlord and the retailers. Most banks operate on a federal level, which means they technically shouldn’t work with marijuana retail businesses (MRB).
Having a straightforward rent payment process eases some of the pressure on the landlord to report cash earnings into their account. Consider options for marijuana banking so that the rent transfers process is as compliantly as possible.
Make sure to set a contingency rental agreement with the landlord that affords you the property after obtaining your license.
You'll need to have a property lined up for your licensing application, which is why this making such an agreement is helpful to avoid a hefty rental fee that won’t provide any return.
Furthermore, before signing onto any property, make sure the place has the correct provisions for zoning and inspections. The legal cannabis industry is all about compliance, including when it comes to property.
State & Local Approval for Your Delivery Service
When you’re applying for your license, you must submit your application both for state and local approval. The Bureau of Cannabis Control in California outlines the approval process for local jurisdictions and a few critical timelines you should pay monitor.
If you have a compliance application, representatives have ten days to respond to their approval request when the BCC contacts the municipality covering your dispensary. Fortunately for you, if they don't, the BCC presumes a valid authorization.
However, if you apply without it, local representatives have 60 days to respond until presumed authorization. Furthermore, let's say they respond after that timeline and deny the application.
The onus would fall onto your business, and you'll receive a penalty and no longer receive the authorization within your municipality. As you can tell, compliance at all levels in the cannabis retail industry is critical.
Local municipalities all have their ordinances for cannabis dispensaries and delivery to follow. We can read the website for the Los Angeles County provisions to understand this example in greater detail.
A few items that might vary on the local level include:
- Operational & facility requirements
- Facility provisions based on license type
- Quality assurance
- City-specific ordinances
Hiring Staff: In-Store Versus Delivery
Investing in delivery couriers might be a safer bet than hiring budtenders. Our data shows the difference in average ticket sizes between the worst-performing budtender to the average was 31%, and that number shrinks to 23% for delivery.
The overall spread from lowest to highest is 44%, compared to 64% for budtenders. The spread from the average performing drivers to the highest performing drivers is 16% versus 23% for budtenders.
It does not necessarily mean that some drivers are "better" or "worse." Their performance does not hold as significant an influence over ticket sizes compared to budtenders'. If anything, this suggests that budtenders in-store affect ticket sizes a lot more.
Establish Key Fulfillment Strategies
Fulfillment always plays an integral role in the success of any marijuana dispensary delivery program. Look at these ideas for how you can use data to inform this strategy.
Measuring MMJ Delivery Times
There is a relationship between orders per hour and time to deliver. Across our whole sample, the average driver does 2.5 orders per hour (13 orders in a 10-hour shift).
Thus, this spread is between 1.5 and 3.6 orders per hour. Longer times are couriers that do fewer orders per hour, and therefore, it would mean that longer times can result in less revenue.
However, our data also shows higher average ticket sizes for longer delivery times.
Examining delivery driver times is one way to reward excellent service and understand the average time clients wait for their order.
Some businesses reward couriers for delivering orders quickly, while others set weed delivery benchmarks as part of their compensation structure.
Measuring driver times is also helpful for customer service representatives, for they can know how long people should expect to wait before their delivery.
Benchmarking these averages can help them field potential complaints and proactively handle any issues that may arise during marijuana delivery the right way,
Target Markets via Geolocation
Given that ticket sizes can remain relatively unaffected by Zip Code, retailers can strategize communications around those in proximity and begin to inspire loyalty amongst immediate delivery customers.
Loyal cannabis consumers generally order more frequently and at a higher ticket. Therefore, creating a loyal marijuana delivery clientele could result in more significant revenue for your business.
Targeting promotions and communications by Zip Code enables cannabis delivery businesses to retain customers nearby while potentially expanding delivery market share into areas with longer drive time.
The primary goal with these targeted communications would be to encourage order frequency, which, compounded with the tendency to order higher ticket sizes, could produce sizeable returns.
Building Your Delivery Tech Stack
When you're getting ready to launch your marijuana delivery service, you’ll want to organize a technology stack that enables you to monitor and optimize key processes. There are quite a few software solutions out there.
Here’s a list of cannabis delivery software to consider for your business.
Sirius is a business insights compass for cannabis retailers to understand key processes for marijuana delivery such as driver times, sales performance, and customer location. The dashboards enable better decision-making over delivery sales, marketing, and fulfillment strategies.
Webjoint is a cannabis delivery software provider that offers an application for online ordering, driver dispatch, tracking, inventory management, and tax completion. The platform combines vital components of e-commerce, inventory, and compliance management.
Onfleet is a delivery software that specializes in driver dispatch and fulfillment optimization. Automated dispatch functions and searchable, real-time inventory and fulfillment metrics allow retailers to analyze data and improve the delivery process.
Jungleworks offers both a Customer App and a Delivery App that retailers can use in their delivery services. The Customer App helps retailers make a site for online website ordering and payment processing, and the Delivery App covers route optimization and order fulfillment status. They also offer a mobile app.
Take Cannabis Delivery to The Next Level
Are you ready to supercharge your marijuana delivery service beyond the standard?
That's where Happy Cabbage can help.
If you're looking to empower your marijuana delivery business today, contact us to demo of our latest solution, Sirius.