A Proper Look At … Marketplaces, And Why Product Driven Beats Retailer Driven Every Time

Nothing rivets the audience like a good debate over the relative merits of marketplaces: two sided or three sided, product driven or retailer driven, fill rates and more. In fact, I’m guessing that this opening line will eliminate more than 90% of potential readers that weren’t already dissuaded by the title itself.

And yet, it is the stuff we obsess over at Proper.

When we look at the industry as a whole — we see disarray. The number of dispensaries will not continue to rise — and profitability is challenged. This flows downstream, leading to discord in the brand space, as well as the distribution, growing and manufacturing areas.

In fact, the only thing steadily growing is legal sales — and while they are not growing as fast as expected (thank you regulatory reform!) — e-commerce is still growing well — taking a larger share of the $20B+ legal market. And that trend is not likely to abate anytime soon.

Historically, tech companies in the cannabis space have been focused on the needs of the dispensary. POS companies like LeafLogic, Treez, Blaze, etc…. are all selling into dispensaries. As are marketing tech companies like Weedmaps, Leafly, Jane and Dutchie. Throw in CRM specialist Springbig and the two data contenders BDS Analytics and Headset, and you have most of the tech teams building products for an audience that is having trouble paying their collective bills.

Given this — it should come as no surprise that we find these companies looking to maximize these relationships and their tech stack to extract value through the part of the business that is steadily growing: consumer e-commerce.

A look through the investment decks of Dutchie or Jane will yield an inexorable move to a marketplace business model. Leafly has tried it with little success, we have written about the opportunity that we see at Weedmaps, and some POS companies like LeafLogic have been purchased by players like Dutchie.

Now, marketplaces come in a variety of flavors. There are two-sided marketplaces — which bring together a buyer and a seller. In cannabis — think Leaflink or Leaftrade — both are wholesale marketplaces marrying buyers (dispensaries) and sellers (brands or growers). Airbnb, Uber, Amazon, and dating apps are all good examples of two-sided marketplaces, and match a buyer and a seller of a specific product.

There are also three-sided marketplaces — adding a layer of complexity to the puzzle. Food delivery companies such as Grubhub or UberEats are perfect examples where consumers interact with an app to reach a restaurant and choose their food. There is coordination between the consumer, the service, and the delivery of that service. Consumers go on and choose a restaurant — then look at the menu. You search for Italian restaurants, not chicken parm.

Cannabis can be either two or three sided — depending on the use case. Consumers can interact directly with a dispensary and order ahead for pickup or delivery. In California, Eaze or Grassdoor are ideal constructs for this, however, more and more, we are seeing three-sided marketplaces emerge.

A three-sided cannabis marketplace brings together a consumer, a product and a retail partner all in one transaction. These marketplaces can either be focused on the retailer — or more optimally, in our opinion, the product.

Weedmaps is a great example of a retailer-based marketplace. Open the app, or hit the homepage, and you will be greeted with lots of retailers, delivery services, some brands, and very few products. Search a product — and you will be given a bunch of choices as to where you would like to purchase that product — hoping one is nearby.

Dutchie is the same — but with even fewer choices.

At Proper, we have taken a different approach. Because we were built from the ground up to bring together brands and consumers — we have always viewed dispensaries and delivery services the same way one might view supermarkets or bodegas when searching for a Coke.

You don’t really care where you get the Coke from — assuming the price is close — it is the Coke you want — not the shopping experience. Though this is not to denigrate retailers — as they are hugely important and will absolutely differentiate themselves on price, selection, knowledge, convenience, etc… It is an effort to point out the importance of building your business around what is actually driving these consumer’s decisions.

When the legal cannabis market was in its infancy, the question of where to buy weed was paramount — and no one answered it better than Weedmaps. But that is no longer the question — and businesses built to connect consumers to retailers have more value derived from the consumer side than the retailer relationship.

As cannabis grew into e-commerce — companies like Jane and Dutchie emerged to dominate the online menu business — selling a fungible software service at a low price to retailers. Great while retail was growing and thriving, and great for raising money, but less valuable today in a shrinking and difficult environment.

Proper has never been burdened by huge success selling to retailers (we simply have never tried) — so there has never been a reason to build a marketplace that was retailer centric. We took a clean sheet of paper and envisioned a marketplace that worked well for all constituents.

We believe that over time, consumers will continue to shop for cannabis the way they shop for every other product. They will look for branded products that have consistent efficacy at a price that’s affordable to them. Any flower smoker will tell you that one dispensary’s Blue Dream is different from the next — just as one tomato is different from the next — but it is still Blue Dream — and consumers will demand a choice and differentiate on price versus perceived quality and convenience.

Even generic flower is effectively a branded product based on the buying relationships that a dispensary has. Consumers want Kiva Camino Blueberry Midnight Gummies because they work for sleep — they don’t want to necessarily see the 75 stores that carry the product and then choose. Consumers don’t want to have to figure out if their favorite Stiiizy cart is available at a store that shows it carries Stiiizy on a store finder — they want an actual product.

And that’s what a product-centric marketplace does — focus on products first — and distribution second. This is a far harder problem to solve if you come at it de novo — as we have done at Proper — but even harder if you have to start making decisions between your existing clients — as is the case with Jane, Dutchie or Weedmaps. They have an Innovator’s Dilemma issue of having to disintermediate their own business in order to grow — always a move that yields a high degree of difficulty.

But that’s not even the hardest part: the real difficulty lies with the data. Unless your database is complete, and has an ability to sort through all of the products in the market — and remove duplicates (both duplicate products and duplicate menus — as they are tons of both) and filter on all sorts of metrics (size, weight, effect, flavor, strain, price, etc….) you end up with a sub-optimal consumer experience.

At Proper, we pride ourselves on having spent years (and millions of $) to get this functionality right. We believe our brand database is second to none — but more importantly — our product database is more complete, and it is linked directly to products on shelves or in warehouses — allowing us to locate the best distribution point for any product being requested in real time.

Want that Kiva Camino Blueberry Midnight Gummy in Santa Monica today? No problem — we have 131 different outlets ready to sell it to you. Want to just add it to a cart like Amazon Prime? Also no problem. Care about price? Then sort that way and make a decision. Time more valuable to you than the $1 difference? Again — no issue. Going to be driving up the coast and want to just order ahead and pick up on PCH in Malibu? Again, no problem. Proper’s platform simply removes pain points, and allows consumers to plan out their cannabis purchases with ease.

Another big differentiator in a product-first marketplace is the ability to find, identify and serve up deals. Cannabis customers are nothing if not cost conscious, and being able to see every deal near your physical location is paramount. Whether that deal originates with a retailer or a brand makes little difference to a consumer — what matters is that a product you are interested in is on sale in a location that is convenient to you.

We don’t have it all worked out. In fact, no one in cannabis does — but I guarantee you that someone will — and soon. And we have bet (with our time and $) that the product-focused, three-sided marketplace is the scalable answer in a world that is geographically constrained and marked by poor data quality.

By understanding the geoconstraints of retailers, and coupling them with in-depth product knowledge, data and detail, Proper has the tools necessary to win this game, or at the very least, combine its capabilities with someone who thinks similarly to come out on top.

If you’ve gotten this far, and it makes sense to you — check out www.aproperhigh.com and give it a try. We are adding products and geographies daily — and suspect that within the next few weeks we will have literally millions of products to browse through. Whether you are in Boston or San Diego, Chicago or Miami — we think Proper will help you find your high (and buy it nearby!)