Seattle Caregivers, a Seattle-based dispensary, unveiled the region’s first pot vending machine a few weeks ago. The unveiling made quite a few headlines because although the same vendor, American Green (OTC Pink: ERBB), has shipped 18 machines equipped to carry a variety of marijuana products to dispensaries in California, Colorado and Washington state, Seattle Caregivers’ machine is the vendor’s first to have the capability of including marijuana flower buds in its offering. Despite media attention, however, two questions remain: What value do vending machines offer dispensaries? And how important are they to the cannabis industry as a whole?
Vending machines are designed to facilitate the marketing, distribution and point-of-sale of any product, without the need for a sales person and/or cashier. They are not new and almost anything and everything that can fit in a relatively small space can be vended, from food, beverages and cigarettes to small consumer electronics and coupon books. However, low-technology vending machines have always been positioned by owners as a means to sell low-value/high-volume product items in a location where there is going to be a lot of consumer foot traffic, or if there is a captive market of buyers with little choice but to use the machine if they want the product (think of a soda machine in an amusement park queue that charges $3.00 a bottle.)
So why would a dispensary adopt this technology if it can hire a relatively low-wage salesperson to man a counter at less than a quarter of the price (assuming that the brick-and-mortar store already exists)? “The whole point,” according to American Green’s COO, Stephen Shearin, “is their profit potential.” He cited congested living in New York City as an example. Humans can be slower than well-designed machines, which means vending could be most beneficial in high foot-traffic areas during busy times. Adding more sales staff is a possible way to scale up, but then at a certain point the marginal cost of adding a new sales person is likely far greater than just buying a self-service point-of-sale kiosk to address high demand.
Interactive kiosks are only worth the investment if the sales justify the costs—according to Shearin, it’s $50/month to lease a ZaZZZ, and according to The Huffington Post, it’s reportedly $50,000 to purchase a two-machine dispensing system from Medbox, Inc. With time, expanding product lines and regional placement is expected. But in the end, the most significant challenge facing the use of interactive kiosks, or vending machines in general, is going to be the high capital expenditure requirement for its potential owners.
Snapshot of the Value Chain
The current cannabis vending machine market is fairly concentrated among the top three market participants due to relatively high entry barriers related to the requirement to have the mechanical and technological acumen necessary to be a niche competitor in the more general interactive kiosk industry.
American Green, previously Altitude Organix, is focused on automating the dispensary experience. The vending machines are designed to be fun to use, interactive and regulation-friendly. ZaZZZ machines are equipped with VE Global Vending’s VE Connect technology. They are connected to the Internet and feature easy-to-use touchscreens that can support games, social sharing and digital signs. They are also designed to maintain product freshness and quality.
Besides American Green, there are two other major players in the medical distribution vending space, namely M3Hub, which is a subsidiary of the micro-cap publicly traded company Endexx Corporation (OTC Pink: EDXC), and Medbox (OTCQB: MDBX). M3Hub, through its online-based service THCFinder.com, helps patients easily locate the nearest dispensary with one of the company’s Autospense™ marijuana vending machines inside. Medbox, which holds a patent for its prescription medicine dispensing systems, sold approximately 160 marijuana vending machines to U.S. dispensaries in late 2013, making it the biggest player in the market, if not the most oft-reported. Dr. Bruce Bedrick, the company’s CEO, told The Huffington Post, “I’m not concerned necessarily about competition, generally speaking.”
Impact along the Value Chain
Janice Schenk, Marketing Manager at VE Vending (a smart vending machine company), explained her company’s role in the realization of American Green’s ZaZZZ machines: “We take new or refurbished machines and put a touchscreen in the front and a computer in the back.” This seems simple enough, but interactive kiosks are not your grandfather’s cigarette machines. They can be stand-alone or are networked, computer-driven self-service point-of-sale units, and quite a bit of research and development must go into the machines in the forms of hardware configurations, customized software and internal controls, to provide the optimal machine-to-consumer experience.
VE Vending’s retail vending machines are deployed around the world and carry a variety of retail products. According to Schenk just about anything of reasonable size can be vended, and many other industries are benefiting from interactive kiosks that supply higher value products, and this means potential for higher grade strains and consumables may be machine-distributed and beneficial to the same extent as lower-end products, such as a pack of gum.
This technology may also benefit dispensaries by providing seamless record-keeping, including a consumer’s age, verified identity and prescription information. For example, Medbox uses a fingerprint scanning solution to confirm a given patient’s identity. Smart machine technology also encourages interactivity among consumers, which in turn provides vending machine operators higher quality consumer information.
Gamification, the act of turning a task or process into a game-like experience, is a trend that is not new, but it is gaining pace in many health and wellness markets as a way to better understand the behavior of its consumers. With gamification capabilities, interactive kiosks are able to enhance the purchase experience of customers and encourage them to provide feedback on their purchases socially. The potential for heightened business performance by understanding the consumer better is high for dispensaries and vendors alike who choose to employ an interactive kiosk solution.
Despite the excitement swirling around the advent of interactive vending machines in the cannabis industry, there are still potential risks. All three of the major vending machine developers in the cannabis market are either OTC or Pink Sheet companies. This is most likely due to the cannabis market being in the beginning stages of development and still “learning the ropes” of the financial world, but it is still a systematic risk that investors ought to consider.
Interactive cannabis kiosks are something to watch out for, but it is important to do your homework when it comes to individual company operations. The machine-to-consumer model will likely see the most success in tourist traps or in places where there are a lot of potential captive users that can privately and safely use cannabis in close proximity to the kiosk and do not really care about its cost compared to other cannabis sales channels like brick-and-mortar cannabis dispensaries.
Companies that adopt industry best practices and are ahead of the curve in terms of offering a truly tech-savvy interactive kiosk will be crucial to ensuring consumer confidence in the long run, and consequently, the cannabis vending machine market segment’s long-term success.