Previously published on Cannabis.net.
The entire business model that the legal marijuana industry has been built on has been shaken with one quote, from one powerful politician. If you have not followed the news, the Republicans and Democrats now seem to be racing toward legalization of cannabis, as both sides seem to want to get credit for “legalizing marijuana” before the other side can claim it.
First, Senator Majority leader Mitch McConnel from Kentucky introduced a bill that would legalize hemp at the Federal level. Then, Senator Gardner from Colorado struck a deal with President Trump to protect states’ rights on legal marijuana and open the door to a federal plan for cannabis. (By the way, Treasury Secretary Mnuchin has said there is a federal plan to allow marijuana businesses to use banking, it is just not been unveiled, or made legal yet.)
Follow that up and you have Senator Bernie Sanders signing onto the Sen. Corey Booker’s marijuana legalization bill. Followed up by former Speaker of the House, Senator John Boehner, joining the board of a cannabis company after being “anti-pot” for years while he served in the government. (He said his thinking on cannabis has “evolved” by the way). Also joining the same cannabis company’s board was former Massachusetts governor William Weld.
We all see the writing on the wall, but then the absolute game changer showed up.
As Tom Angell reported, the top Senate Democrat, Chuck Schumer, is going to introduce a bill to “remove marijuana from the Controlled Substance Act altogether so states can set their own policies.”
This one line should shake the cannabis investment industry to the core.
What does a total removal from the “Controlled Substance Act” mean? It means no DEA jurisdiction or interference anymore. No FDA interference anymore. No Federal office interference anymore, including the Post Office. Substances not on the Controlled Substance Act include peanut butter, tissues, cotton, chocolate, and about 25 million other things.
Why mention the Post Office? Stay with me and see how this is an absolute game changer of historic proportions.
The is a good chance the Democrats take the Senate and/or House this year, not even having to wait until 2020, but in 2018 midterm elections. If that happens, Schumer’s bill will sail through both houses and be on the President’s desk quicker than some people think.
What if your whole business model is built on a substance being a restricted or schedule 1 drug, and then suddenly, it is not? What if you invested millions and millions of dollars based on laws that were about to change?
In economics it is called a negative incentive, referring to the penalties if caught selling cannabis and shipping in through the mail and such. You could get caught and go to Federal prison. If cannabis is removed completely from the Controlled Substance list, that negative incentive is removed. Even if states put penalties on such sales, it will be minor compared to the Federal government past statue. What can a state do if they catch you selling a substance that is not on the controlled substance act? What is the fine for sending two pounds of peanut butter to someone, or a pound of your homemade honey?
Will removing cannabis from the Controlled Substance Act make cannabis legal in 50 states? No, it will remove all Federal jurisdiction over cannabis and associated penalties of growing and selling a schedule 1 drug. This in effect, will cause cannabis legalization, even if it is not done on paper.
Wait, this is crazy, why isn’t everyone talking about this and doing something?
The game just changed, and the people who sit on the demand side, like cannabis websites with traffic, are now the hottest investment in the entire world, literally. The sites that have traffic and can create cannabis orders are now the golden goose of the cannabis industry, the unlimited power to create orders and sell products without having to advertise.
For full disclosure, Cannabis.net is currently talking to 3 groups about a funding round or an outright sale as I write this article. The golden rule of the Internet, no matter what, is that the most valuable thing in the world is always traffic. It always has been, and always will be. Google wants more traffic each day, Facebook wants more traffic each day, Amazon wants more traffic each day. Traffic is gold, no matter what niche or product you are in, whether selling shoes, pizza, adult content, software, you name it, traffic is king. The cannabis niche is no different, and even heightened to an extent due to the fact cannabis businesses can’t buy advertising in almost all cases. If you can’t buy it an ad, you sure better be able to rank well organically, or else you won’t be getting many visitors to your site.
Wait, aren’t you just pumping your own feathers, since you are a cannabis site in a funding round or selling?
Just like we have seen with “brick and mortar” verse Amazon in the past 10 years, cannabis ordering will all be done online within 36 months. Two clicks, and either delivered to your door that day if you live in a major metropolitan area (think food delivery models now like GrubHub) or delivered the next day by Fed Ex or USPS. (FedEx already delivers cannabis legally in Canada to medical patients, logon, click, pay, select FedEx, done.)
Dispensaries in every legal state are already delivering, most dispensaries, even newer opens, have online order and delivery. Some even have their own app, or work in conjunction with apps like EAZE and Weedmaps. The dispensary, in general, is a legal anomaly, it will be something we look back on in 10 years and say, “Really, you use to have to go to a separate place to get it when it was a schedule 1 drug on the Controlled Substances Act?”.
Think that cannabis won’t be everywhere? Remember when liquor was sold at just liquor stores with a state license? Now, just about every grocery store and convenience store has, at a minimum, a beer and wine license today. Ever order wine or beer online and have it sent through the mail or UPS to you? Just saying, the past may not repeat exactly, but it sure does rhyme.
Online ordering and selling is the future, and he who controls the traffic online controls the order. Let’s take a look at a few big players already moving toward this model.
Herb.co – The old Stoners Cookbook, one of the most trafficked cannabis sites in the world with about 4 million visitors a month and 10 million-page views a month. They can create over 200 million video views a month if you count their Facebook page and Instagram. Matt Grey, the CEO, is not stupid. Go to their site, they don’t have any ads running. Wait, what? They have a program for native ads if people want to buy text stories as well as video packages, but no banner ads. Why? Because banners and such don’t make much money in this niche, at least not yet. Matt got a funding round and guess what he did? Opened up with a new content team and started selling ancillary items online, like bongs and vapes. He then put up ads for hiring about 12 new people, a lot for a TECH startup, but not for coders or engineers, instead it was product designers and packaging experts. He also posted these types of shot.
What is he doing? He is going to convert traffic to buying customers and then put cannabis in his store, most likely starting Canada. He can partner with an LP or try and get his own licenses. As they grow and make more partnerships and agreements he can start to sell cannabis online in the US, Australia, Europe, etc. Do you know how much cannabis you can sell online with 10 million-page views a month and a Facebook fan page with 9,700,000 fans? Get the store and funnels set up, sell them products, add cannabis into each store per geographic area you can as you get approval or a license, rinse and repeat.
Weedmaps (marijuana.com as well) – The $500 million-dollar company who is thumbing their nose up at the California Cannabis Commission right now is the gorilla in the online cannabis room. They are already the main menu management website for the cannabis industry, as well as controlling the landscape for daily coupons and specials in the cannabis industry. They are already taking orders and working with dispensaries and delivery services. Some dispensaries on their map may actually be owned by Weedmaps under shell companies as it is being rumored, hence this model I am talking about already in full effect. Why on earth would they ever challenge the ruling from the California Cannabis Commission to only list licensed companies on their map, when we know in the long run that is that is what they will have to do? At the same time, they are pissing off all the legal cannabis dispensaries that advertise with them by also promoting illegal and mobile dispensaries that aren’t paying for licensing and paying taxes? It seems like an absolutely stupid move unless you are making so much money on the ordering and delivering side, you are thinking you can tie this up in court for 3 years and get all that revenue until you finally must comply. The only risk that Weedmaps is taking here is California calls on the Feds and starts talking about the RICO Act and “aiding and abetting a class 1 drug”. As we saw with Backpage getting shut down, the Feds can move in and close your site while you debate for years in court. Weedmaps being open for 3 years while lawyers argue is a good move, the Fed’s seizing the site while you argue for a few years is bankruptcy. I am guessing Weedmaps has some good lawyers and has thought this out very well.
Leafly and Eaze – Both owned by Privateer Holdings and have raised over $55million dollars on these two sites alone. Why? Leafly is the prominent strain guide in the industry and runs a strong 2nd place to Weedmaps in dispensary menu management and mapping. EAZE is a fully compliant delivery service now serving multiple states through their app and website, with California being their largest base of over 350,000 registered users. EAZE takes the funnel even deeper by also running EAZE MD, which allows a person to get a medical marijuana card through their online service. You can literally get your medical marijuana card, place an order, and have it delivered within an hour to your house while never leaving your driveway. How easy would it be for Leafly to put an “ORDER NOW” button next to every strain that is indexed, send that person to a menu, see if EAZE services that zip code, and the deliver an ounce of Blue Dream to someone?
High Times – The gold standard of cannabis names, but admittedly got left behind in the digital revolution. That could all change as they are attempting a reverse merger on the NASDAQ stock exchange that would give them a $250mil market cap. They just bought Green Rush media for $7mil as a pure traffic play. Green Rush reported around 10 million-page views a month in the press release, but it is hard to find confirmation of that by looking at their Alexa or SEM Rush stats. Issac Detrich of MassRoots is an investor in High Times now, MassRoots just happens to be working on new apps for mapping and menu management. Follow the money and connect the dots.
CannaSOS– A cannabis site that just completed a successful ICO and is already selling cannabis products online in their store. Based out of Canada and developed in Europe, they will have the capital to deploy in this same arena.
MarijuanaStocks.com – one of the most valuable domains for the future as people looking for cannabis stock information might surge in the next few years, ya think? At around 300,000 visitors per month and already getting calls about funding and being bought out by major stock market players.
Wait, all the companies you mentioned are websites that are privately held, any “real” companies doing this??
Have you ever heard of Namaste Technologies out of Canada? Publicly traded and very crafty in setting up this exact model, build out demand and then fill in supply, a “Lean Start-Up” diagram. They currently have 30 websites in 30 countries (languages too) that sell ancillary products like bongs and vaporizers. Coincidently, they just happen to buy Cannamart and they are very close to being able to sell cannabis online to all their Canadian traffic. The retail license should get approval this month. Build up millions of page views in your store and then add in your cannabis products where you can, and geo-target them. Did you see they also announced a deal in Australia? You can see where this is all going…(PS- full disclosure, I am long Namaste stock).
Cannabis websites with traffic are worth more than gold right now to growers, big sellers, and people like Namaste, Eaze, etc. Since they are unable to take $10,000 a day and put it into ads on Facebook, Instagram, or Google, traffic is even more valuable. Large players need to lock up sites that rank well and have traffic to ensure future profit margins. Do you want to compete with Matt at Herb.co or Cannabis.net for an order or click when we pay $0.03 in content costs for that lead? What is the cost of a new client for a dispensary right now? Since they give so much away in coupons and credit on your first visit to a dispensary, I am guessing the ballpark of a new lead or a new client is north of $100 overall when you consider things like rent, employees, compliance, grow facilities and such. I am guessing the lifetime value of a customer to a dispensary is in the thousands, hence, still a good return.
Do you want to have a contest on who wins if I can get a cannabis order for $0.03 online, give it to a provider or ship it myself, and create margins through the mail of over 100% per order? As Jeff Bezos so eloquently said, “Your margins are my opportunity.” The cannabis niche if removed from the Controlled Substance Act, will be no different, margin compression from the Internet will force some brick and mortars to close up shop.
It is just a numbers game, and the sites with traffic are beyond valuable.
Wait, if we remove cannabis from the Controlled Substance Act, won’t’ Facebook and Google allow ads and then we have a competitive marketplace? Yes, and no. Google and Facebook could change their policies after a Federal change, but how quickly? A year? Two years? If 8 Southern states keep cannabis illegal at the state level, will Google and Facebook allow ads and just block those states?
Either way, if they do allow ads, and we are all competing on the same landscape of $25.00 clicks for the keyword “Blue Dream” or “Kiva Chocolate Special”, online sites with traffic are still creating hundreds of “free orders” from organic traffic, hence keeping our cost per lead 75% below what a brick and mortar is going to have by just using AdWords.
What does it all mean?
Cannabis sites with traffic are sources of unlimited orders. Create more and more good content, great a good opt-in or sales funnel, and you are off in the race to become the Amazon of Weed. They can become the source of a lifetime of orders, traffic, and can be set up for all sorts of monetization. How would Canopy or Namaste like 100 orders for cannabis a day to start online to start? Aphria interested? Big Pharma about to sell cannabis-based medicine might just be interested, no?
If cannabis is removed from the “Controlled Substance List” completely, you just removed all the disincentive for cannabis websites to get in the game and sell cannabis.
Investors, dispensaries, and large cannabis funds have a choice, invest and buy cannabis sites now, or they will turn into your competition within 24 months.