When we ask retailers about their order management, things can vary wildly from state-to-state. Several factors influence how dispensaries operate, including:

1. State regulations
2. The timing of legalization (pre, during, or post-COVID)
3. Consumer expectations

In this blog post, we'll delve into the two overarching ways to run a dispensary: the Traditional Retail Model and the Fulfillment Model, using Illinois as a case study to shed light on its unique efficiency in the cannabis market.

Traditional Retail Model

• Consumers predominantly visit the dispensary in person to place their orders with a budtender.
• Product may be either prepacked or packed at time of sale.
• Dispensary operations are designed to give you a good in-store experience.
• Budtenders play a crucial role in delivering delightful one-on-one user experiences, guiding customers through their product selections.

Fulfillment Model

• Consumers mostly order online and come in-store only to pick up their product. 
• Product is prepacked for quick fulfillment.
• Dispensary operations prioritize streamlining the in-store visit, minimizing wait times, and maximizing convenience.
• Budtenders are often trained to persuade any in-store customers to transition to online ordering, as it aligns with the dispensary's operational efficiency goals.

‍

The Data: Illinois

Illinois stands out as a significant player in the cannabis market, projected to reach sales of $1.9 billion in 2023, making it the third-largest market in the United States.

‍

‍

However, the number of dispensaries in the state ranks relatively low at 215, putting it in the 15th place nationally.

‍

When we analyze the top five largest markets and divide projected sales by the number of stores, Illinois surpasses even the largest market, California, with an average sales figure of $8.9 million per store, more than double California's $4.1 million per store.

How is Illinois so efficient?

The efficiency of Illinois dispensaries can be attributed to a combination of factors. One retailer in Illinois mentioned that when the state launched recreational in January 2020, they initially conducted 100% of their transactions online due to the high volume of customers. This approach proved essential when the COVID-19 pandemic forced in-store closures in March 2020, driving even more customers to embrace online ordering. 

While online ordering did experience a slight decrease post-pandemic, it remained high (this retailer cited ~80-90%) due to Illinois customers' familiarity with the Fulfillment Model.

Are all of Illinois' retailers embracing online ordering? We're not sure. But anecdotally, we have seen stores in Illinois processing thousands of orders per day, which is impossible to do just in-store with budtenders. If we had POS data to gain more insight into the Online/In-Store split, we'd delve more into it and share.

What have we missed?

Are we missing pieces in telling this story? Honestly, probably! One data point of note is that Illinois' efficiency could also be linked to its higher prices. Data from Headset reveals that the average item price in Illinois is currently 89% higher than the rest of the U.S. market. This higher price point allows dispensaries to maintain healthy profit margins even with a streamlined, high-efficiency model.

Crowdsourced Additional Insights

Thanks to our cannabis friends who commented on Jeremy's post, we've got some additional reasons Illinois appears so 'efficient':

Limited Licenses

Licenses are limited with a total of 215, but only 160 retail stores open.

Border States

Illinois is the 6th largest state by population and borders several illegal states including Wisconsin, Iowa, and Indiana, so likely see a lot of traffic from those states.

Medical market head start

Illinois only issued ~60 medical licenses and made them extremely cost prohibitive to obtain. They then awarded all medical licenses a second license for recreational. They gave these medical licenses first dibs, which allowed them to have 3 year head start on the recreational market.

They also prevented new social equity licenses from accessing the medical market, which allowed original operators (mostly now MSO's) to corner half the market.

Why does this matter? It basically forces any new entrants to operate under the same high-efficiency model in order to compete in the market. Anyone trying to do something new will likely get eaten up.

Regulatory Restrictions

Illinois stores have set themselves up to do high volume transactions from the start due to the regulatory limitations around how you can display and show products in store - or really the lack of the ability to do so in Illinois. So it's less about the in-store experience, and more about the transaction.

Crazy Taxes

They tax a lot! And they are also the only state to tax based on potency.

High taxes mean you must keep your product margins high in order to make up for all of the money that's going to the government instead of in your pockets.

Closing Thoughts

While this data provides valuable insights, it's important to recognize that the cannabis dispensary landscape is not just black and white. Many dispensaries employ a hybrid approach that combines elements of both the Traditional Retail Model and the Fulfillment Model, similar to the way Chipotle offers a high-touch, fast in-store experience while also facilitating a high-volume of online orders.

Cannabis is unique.

But cannabis isn’t the same as food or traditional consumer goods: many customers are new to cannabis consumption. We recognize that education remains a crucial component, one that is hard to do online. Striking a balance between online convenience and educational engagement is key to fostering customer loyalty and satisfaction. 

How can we, the online menu provider, help move some of that education that has traditionally been done in-store into the online space? We’ve spent some time designing and implementing digestible cannabis-data-heavy shopping experiences. But there's always more to do. We're solely focused on e-commerce, so you can be sure we'll continue to iterate here.

What's next?

Now if only we could help our payment partners increase pre-payment adoption, so customers really could completely transact online, then pick up and go! We're working on it. More on that soon. 🚀