The scramble to establish legal cannabis dispensaries in Canada has revolved around real estate and licensing, with companies signing leases, lobbying governments and entering lotteries. Going forward, retailers will have to focus on the quotidian task of managing inventory and sales in a highly regulated market.
Dozens of software companies have emerged over the past few years in Canada and the U.S. to help with this task, offering point-of-sale (POS) systems geared towards the cannabis space. One of the most prominent Canadian companies is Vancouver-based Cova Software, which recently spun off from iQmetrix Software Development Corp., a seller of POS systems for cell phone retailers. Cova’s software is used in dispensaries in Colorado, Washington and California. Since Oct. 17, the company has begun rolling out its systems in Canada.
Cannabis Professional spoke with Cova’s CEO Gary Cohen about his company and the dynamics of the cannabis software market. The interview has been edited for clarity.
Cannabis Pro: Cova started as part of iQmetrix. How did a company selling POS systems to cellphone retailers get into the cannabis space?
Gary Cohen: The cellular industry isn’t expanding like it was. I’m not going to say it’s in decline, but you can fill in the blanks. When we were thinking, ‘where can we go, what in retail is really hopping?’ the answer was nothing. When you walk around a mall, there is no, ‘wow, that’s where we’ve got to go.’
So when we thought about where to expand we thought about high growth and high complexity. When you go into a Rogers store and get a new phone, think of the rate plans, the hardware, the insurance, the warranty; it is a nightmare, and it's a nightmare for companies like iQmetrix because Telus does it differently, and Bell does it differently again, so you have that fragmentation. To leverage what we had, we needed a high-complexity industry. And with cannabis you've got the second most twisted kind of thing you could get into.
CP: Does Cova still have a relationship with iQmetrix?
GC: We were kind of like a skunkworks division, whatever you want to call it, and ultimately it made sense for us to kind of go on our own. But we still have a relationship with iQmetrix where we share resources. They provide us with a lot of the administrative and operational things, like legal, billing, customer support, all the way down, and we pay them for those services. For us, what’s awesome is it allows us to scale. If I need one more customer support rep, they convert him from a cellular rep to a cannabis rep.
CP: When building Cova’s software, how much were you able to bring over from the cellphone POS system?
GC: We always talk about the cake and the frosting. The cake is what we could bring over: when you think of the whole stack, at the bottom of the stack is general ledger, inventory management, cash management, a lot of these basic accounting-oriented functions. Unfortunately to build the icing, which was the cannabis specific functionality, it was six times more than what that cake was.
I always get asked, ‘hey Gary, why can't we go buy software that Tim Hortons runs? It's just ringing up sales.’ The answer is the cannabis functionality. You have perishable goods with expiration dates. As Canada kicks in their compliance, you're going to need to track, from seed to sale, a plant all the way through the supply chain, into your inventory, into the retail store, and then out the front the door. Tim Hortons doesn’t do that. And there are things like purchase limits. If you can only buy 30 grams, as Canada implements edibles, what is the equivalent of 30 grams in cookies, drinks, concentrates? Does the software calculate that, or do you count on a clerk or a bud tender to go, ‘that looks about right,’ and put your license at risk.
CP: Since Oct. 17, you’ve been expanding into your home market. How large is Cova’s presence in Canada?
GC: Canada is about 70 per cent enterprise, 30 per cent mom and pop, in the way the licenses have been allocated. Cova has about 80 per cent of all of those enterprise customers in Canada. I would say there about 10 or 12 really big chains, whether they’re single owners, like Fire & Flower, or they’re franchisers like High Tide or Canna Cabana. We did an amazing job locking that all up, because we’re very enterprise-centric. We’ve contracted well over 200 stores, although they’re being held up by the issues with restrictions on issuing licenses because of supply shortages. We are at the mercy of construction, permitting and licenses.
CP: How competitive is the landscape for software companies focused on cannabis retail?
GC: Here’s a weird thing about the space that we’re in: there is probably 40 to 50 competitors in the U.S. and Canada, but when you look at those competitors, you only have about five or six that are real, well-funded, good technology background, capable, competent companies: Green Bits, BioTrack, Flowhub, Treez. The old leader in our industry used to be a company called MJ Freeway.
At the other end, you’ve got three dudes in a garage. And there’s a lot of those dude companies. One of them worked in a dispensary, one of them was a coder, one of them knows something about business, and in a local market they figured they could do something better than what was out there. That is the history for this industry. The POS stuff was traditionally really clunky and weak: not user friendly, not reliable, not scalable, not powerful. So these guys started it, and they’re everywhere.
CP: As the industry matures, what do you think will happen to these small companies?
GC: The industry is growing so fast and evolving so fast you’re going to need the capital and the know-how to keep up with that pace of evolution. So three guys aren’t going to have the money or the knowledge to go get bigger servers, add security to what they’re doing, keep modifying and changing to meet the laws and requirements. Every dispensary isn’t in downtown Toronto. So how are the little guys going to take care of a store that’s 500 miles from Toronto, launch them, hold their hands, train them, do ongoing account maintenance? Bigger companies can do it, and smaller companies can’t.