Business - Cannabis

Eaze’s Delivery Dominance Draws Scrutiny From California Regulators

  • Cannabis delivery service Eaze, gives little inventory options to affiliated Cannabis dispensaries due to set menu
  •  Licensing laws prohibit the distribution of Cannabis that is not government regulated, although Eaze is an exception due to its status as an Internet-run business.  
Eaze’s cannabis delivery app is popular among California consumers, but has drawn complaints from retailers and scrutiny from state regulators. (Photo courtesy Eaze)

Since its founding in 2014, the delivery app Eaze has created an ever-expanding presence in California’s cannabis industry.

At the end of 2016, when hundreds of unlicensed delivery services operated in California, Eaze enjoyed no shortage of partners. The company promoted itself as a convenient cannabis hook-up in more than 100 cities. Customers were promised fast delivery at the touch of an app.

By insisting on standardized menus, critics say, Eaze is exerting control over cannabis inventory. And if you control inventory, you need a license.

The company has become a darling of the cannabis-tech economy. Last September, Eaze booked an additional $27 million in venture capital, bringing its total to more than $50 million, with a list of investors including the Casa Verde Capital fund, whose principals include Snoop Dogg.

The genius of Eaze lies in its business model. The company doesn’t actually deliver the product. The Eaze app merely facilitates orders, collecting a service fee on every transaction.

On January 1, 2018, though, Eaze entered a new and uncertain era. California’s newly regulated cannabis market contains far fewer delivery partners. Earlier this year, Eaze said it would drop all carriers who were unable to obtain state and local cannabis licenses.

That revenue shock may have been softened by new partnerships with licensed retailers set to gain market share abandoned by non-licensed dispensaries. The San Francisco-based Eaze inked deals to facilitate delivery from some of California’s leading licensed retailers, including San Jose’s cannabis emporium Caliva and San Diego’s Urbn Leaf.

Los Angeles: Now Open for Delivery

Now Eaze billboards, promising “Marijuana Delivered – For Super Chill Vibes,” are springing up across Los Angeles, announcing the company’s first dispensary-delivery app partnerships in the state’s largest metropolis. The opportunity in LA is vast. Los Angeles previously banned cannabis delivery, but the city now allows drivers to move products from licensed dispensaries to waiting customers. And Eaze looks poised to become the delivery leader in the nation’s second largest city.

At the same time, the company is starting to take fire from some cannabis retailers. They complain that Eaze’s business model and footprint may be shaping the California market and consumer purchases through its licensing agreements.

“They would like to use our dispensaries as ‘fulfillment centers’ for their delivery,” said Jerrod Kiloh, president of the United Cannabis Business Association (UCBA), an independent policy group for marijuana retailers. “This is where they are not a technology platform. They are not giving us a choice.”

By insisting on a standardized product menu, critics say, Eaze is exerting de facto control over the inventory of its California retail partners. And they say that may be crossing a legal line – or treading perilously close.

Lori Ajax: ‘They May Need’ a License

In a recent statement to Leafly, Lori Ajax, California’s cannabis regulatory czar, questioned whether Eaze’s increasingly dominant role may require the company to obtain a state cannabis license.

Clearly, Ajax’s position on the matter is evolving. In February, Ajax said in an interview with Leafly that Eaze was not subject to state regulation. “An internet platform wouldn’t need to get a license,” she said.

On April 23, though, her office sent a follow-up statement to Leafly, suggesting that her thinking has changed:

“To conduct commercial cannabis activity in California, a business must obtain a state license,” Ajax said. “If the Eaze business model has changed from an internet platform application assisting licensees to a more direct role where they are conducting or directing cannabis activities, they may need a state license.”

There Are No Eaze Drivers

Besides Caliva and Urbn Leaf, Eaze has signed agreements to facilitate cannabis delivery with the Perennial Holistic Center and Superior Herbal Health dispensaries in Los Angeles, as well as non-storefront retailers DCSM Inc. in San Francisco, Hometown Heart in San Francisco and Oakland, and Green Coast Management Inc. on the San Francisco Bay Peninsula.

While Eaze officials declined to discuss the details of those agreements, they confirmed that partnerships with retailers include a standardized ordering menu for delivery.

That makes some competing cannabis retailers, including delivery companies vying for state licenses, angry that Eaze’s business model may have an unfair influence on the market—and the company may be gaining an additional competitive advantage by avoiding the costs of a state license. Eaze officials counter by insisting their app is a fair and legal market blessing and a worthy consumer service.

“Does Eaze help people put together great businesses and bring together partners?” said David Mack, Eaze’s senior vice-president for communications, in an interview with Leafly. “Yes. That is what platforms do.”

That doesn’t mean the company is subject to state licensing requirements, Mack added. “There is no such thing as an Eaze driver,” he said, adding: “We don’t grow, transport, test or deliver cannabis….

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