Part of cannabis and small business and retail
With Canada’s legal cannabis market on the verge of expanding, Shopify Inc. is making a push to grab a bigger piece of the action.
The Ottawa-based e-commerce firm is courting marijuana retailers to use its technology to run their websites, process transactions and manage inventory. Shopify has dabbled in the online sale of medical cannabis for five years, and recently won government contracts to be the software behind recreational-pot sales in three provinces, once legalization takes effect in October.
Shopify’s foray into the space – and its willingness to talk about it – is a sign of how the nascent marijuana sector is maturing into, and being perceived as, a legitimate business. The software company is joining vendors such as white-shoe law and accounting firms, construction companies and stock-exchange operators, all of which are cashing in on the new work and creating an ecosystem around Canada’s growers that will help fuel their expansion further.
“We didn’t necessarily chase cannabis, per se. We were pulled into this direction,” Harley Finkelstein, chief operating officer at Shopify, said in an interview. “Shopify did not get into cannabis. Cannabis actually got into retail.”
Shopify, which has a market capitalization of $23-billion, has quietly worked in cannabis since 2013 and has amassed five medical clients so far.
Its first was CanniMed Therapeutics Inc., Canada’s first legal grower, which agreed this year to be acquired by Aurora Cannabis Inc. Canopy Growth Corp. signed up next, and the latest producer to join is Aurora. Shopify expects that Canopy and Aurora will also use its software as they expand their medical marijuana sales into new countries.
Shopify has been pursuing the recreational market as well, bidding for government contracts over the past year in provinces where pot retailing will be publicly run. It secured a deal with Ontario to build a system that will be used for online and in-store shopping and browsing come Oct. 17, the date of legalization. In June, the B.C. government inked a deal with Shopify to power the province’s digital shop. Prince Edward Island is the latest to sign on with the tech company. (Shopify won’t say what any of these government contracts are worth.)
By the time recreational sales start in October, Shopify expects that its platform will be used in at least seven provinces, said Greg Gorzkowski, a program manager on Shopify’s 12-person regulated industries team that serves the cannabis sector. (The other four provinces he lists are Alberta, Saskatchewan, Manitoba and Newfoundland.)
Shopify touts its system’s ability to handle a lot of traffic, adapt to changing legislation and its ease of use as key selling points for retailers. The company also says users’ data is secure, stored in Canada and doesn’t leave the country.
Additionally, it has features to ensure that shoppers don’t order more than 30 grams of product at a time and don’t ship their order outside a particular province.
Age will be self-declared on the web, so verifying a shopper’s identity will occur at the point of delivery by Canada Post or Purolator, added Mr. Gorzkowski. He said that Shopify is speaking to Health Canada about how to improve this process and create a central database of IDs.
“Already, Shopify is known as that platform that won’t go down. It’s become our focal point and why the provinces have turned to us,” Mr. Gorzkowski said during a demonstration at one of Shopify’s Toronto offices. “We know one day all of Ontario is going to be on the site, maybe not to purchase but to see it.”
Cannabis won’t necessarily be a material boost to Shopify’s business but it will be a boon, Mr. Finkelstein said. The company is careful to stay away from illicit dealers. It fields inquiries from growers and retailers in the United States, but says it avoids this market because cannabis is illegal under U.S. federal law.
Shopify is, however, looking to increase its business in countries where cannabis is fully legal in some form. Its first foreign cannabis mandate is supplying Jamaica’s Epican Medicinals Ltd. with in-store technology.
But the biggest opportunity is still at home.
By replacing a glitchy e-commerce platform that was built in-house, Aurora is looking to streamline the registration and ordering process for patients. That’s part of a broader outsourcing trend, Mr. Finkelstein added, noting that Unilever, P&G, Red Bull and Live Nation are among the more than 600,000 merchants that use Shopify.
In its last fiscal year, Shopify generated US$673-million in revenue by charging transaction and monthly fees, and booked a loss of US$40-million.
Shopify, however, hasn’t won government contracts in every province. The Quebec contract for online sales was awarded to Mediagrif Interactive Technologies Inc., a small firm in Longueuil, Que. Alberta chose a small U.S. phone company called Cincinnati Bell Inc. to power web sales.