Uber officially entered the cannabis industry this week with a small pilot program in Canada. Ontario customers can order potted products for pickup, but not delivery, at 50 dispensaries through the Uber Eats app.
While the tech giant’s first step in cannabis is small, the step is significant as Uber is one of the largest mainstream companies to enter the industry. An important way to look at Uber’s decision is not what it looks like today, but what could be Uber’s role in the cannabis industry, especially in the United States.
Khaled Naim, CEO and co-founder of Onfleet, a San Francisco-based delivery management software company that works with restaurants, drugstores and cannabis dispensaries, says Uber’s entry into the Canadian market cannabis is half research and half publicity stunt to help the company plant its flag in the industry.
” It’s an experience. They’ll probably learn a lot over the next few months and they’ll be rehearsing, âsays Naim. “I think what they end up doing in the United States will be quite different.”
Dara Khosrowshahi, CEO of Uber, said during a interview with CNBC in April that the company is awaiting federal legalization to enter the US market. Cannabis is still illegal under federal law, although 36 states have legalized marijuana for medical purposes, adult use, or both.
âWhen the way is clear for cannabis, when federal laws kick in, we’re definitely going to take a look,â Khosrowshahi said in April.
Naim sees Uber’s move as a way for the company to determine its best strategy for the cannabis industry in a small, legal federal market before moving to the United States. Canada legalized marijuana nationwide in 2018 and its market will reach around $ 4 billion in annual sales by the end of this year while the United States will reach around $ 25 billion in sales, according to Cowen. .
Uber Eats starts with online orders and payments in Canada, but Naim doesn’t see this business strategy holding up.
âI don’t see Uber succeeding with this model,â he says. âUber’s value proposition is really its network of pilots. “
The challenge for delivery to the United States is that in most states that have a legal jar market, deliveries must be made through a licensed dispensary. Marijuana delivery companies like Eaze are fully licensed, so if Uber is to take advantage of its fleet of drivers in the cannabis industry, it will have to be laid off.
âIf they really want to get into the industry, they’ll have to acquire dispensary licenses in every state,â says Naim.
The model that Naim thinks Uber is most likely to take in the marijuana industry is to acquire his way. Uber did this with alcohol delivery when it acquired Drizly, the Boston-based alcohol on-demand market, for $ 1.1 billion.
âThey are obviously very interested in space, and rightly so – it’s a big market and it’s growing,â says Naim. “If Uber is serious about making a big splash in cannabis, it will probably be through a big acquisition.”
Uber may be the most recognizable name to enter the cannabis industry, but it’s just the latest mainstream company to test the waters of the booming industry.
AmeriGas, which is owned by publicly traded parent company UGI Corp., is known to sell propane tanks for backyard barbecues, but sales to commercial cannabis growers is one of the fastest growing segments. faster for AmeriGas, said Caleb Boyer, sales manager.
Pennsylvania-based Clark Associates, one of the largest foodservice equipment distributors in the United States, has also started serving cannabis growers. Kevin Burg, senior account manager for Clark, says he sells everything from food-safe steel tables and measuring cups to industrial refrigeration units and companies like Curaleaf.
Socrates Rosenfeld, CEO of cannabis e-commerce software company Jane Technologies, also sees Uber’s arrival in Canada as a precursor to its entry into the United States.
âI see it as a cheap test for them,â says Rosenfeld. âThis is their first foray into cannabis and it’s obvious they chose Canada because it’s federally legal there. ”
Rosenfeld also believes that while Uber is used to disrupting regulated industries, the âlevel of complexityâ of the US cannabis market is âseveral orders of magnitudeâ higher than that of the Canadian market.
âI think this is a great first step and a great way to understand how to navigate a legal federal market in a new space,â says Rosenfeld. “But by no means, if you can fix it in Canada, can you rinse and repeat and move it to the United States”
Ultimately, Rosenfeld sees Uber entering the industry as a good thing.
âAt the end of the day, it’s great any time we see a big tech company moving into this space, because it confirms that this industry is valuable and is here to stay,â says Rosenfeld. “We need more traditional buyers and we need more publicly traded companies moving into space.”