Why Amazon is coming for the cannabis industry
Not. crazy.
Many are salivating at the prospect of US cannabis reform, which will hopefully usher in seamless banking, interstate commerce and social equity. Yet, every MSO and many LPs should consider one possible implication: the entry of one of the World’s most powerful enterprises, Amazon.
Last week, Amazon endorsed a Republican bill to federally legalize cannabis. The reason, according to the firm, was relatively benign: to no longer disqualify people from working in certain roles if they test positive for cannabis use. If you think this was Amazon’s only motivation, I have some swampland to sell you.
Amazon is a vertically integrated retail, logistics and technology powerhouse with forecasted 2021 revenues in excess of $400B. They are formidable competitors in every market they enter.
Why would cannabis be in their crosshairs?
1. Amazon is hungry for large markets. Huge firms need to enter big growing markets (like the projected $50B+ North American cannabis market) to maintain their growth trajectory and share price;
2. They have scalable world-class ecommerce, analytics and fulfillment capabilities. One proof point, the company will ship over 5B packages in 2022;
3. The firm understands the habits of tens of millions of consumers who not coincidentally are also cannabis consumers. Their Alexa, ecommerce and Prime services provide a daily flow of rich consumer data, which can be mined for product, operational and marketing insights;
4. Their best-in-class recommendation engine can target cannabis brand switchers with a private label product. To wit, many consumers search their site without looking for a specific brand name;
5. Amazon has the financial means to easily buy into the sector, currently suffering from historically low valuations.
Amazon’s endorsement represents a decisive shift in corporate America’s interest in the cannabis sector. When big, influential companies get behind legalization they bring considerable weight in terms of lobbying, voters (Amazon employs ~1M Americans) and political contributions.
Amazon needs to see a clear path to favorable reform – and that’s not evident right now. However, this is a company with a long planning cycle, strong execution competencies and a considerable amount of patience. Cannabis industry, you’ve been warned.
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