Prop. 64’s Win Opens Floodgates for On-Demand Cannabis

As David Hua built Meadow, a cannabis technology company launched in 2014, he and his co-founders kept asking one question: Do we want to be kings or kingmakers?

Social and political tides were shifting. For the first time, a majority of Americans favored legalizing marijuana. There were whispers and murmurs, then chatter and finally shouts about California being poised for a “green rush,” a rapid and sweeping expansion of the marijuana industry.

For cannabis advocates, the green rush represented a social victory. It meant easier and safer access to medical cannabis and, as of last week, recreational pot, too. But the green many others see is cash. And the earning potential is colossal: San Jose is on track to bring in $9 million in medical marijuana tax revenue just this year. Hua and his partners created Meadow in this climate, and the answer to their question—kings or kingmakers—came organically.

“We’re better as a team to be kingmakers,” Hua says.

This philosophy shaped Meadow’s focus: creating a software for pot shops that helps manage inventory, sales and deliveries. “We believe there’s plenty of room at the table; we don’t need to be at the head of it,” Hua says. “Why not build the tools and features that can help empower many people to have a better service?”

Questions about motives continue to dog companies entering the cannabis industry. San Jose recently passed two marijuana ordinances, both at least partially aimed at protecting the industry from predation and profiteering. The most recent, an urgency ordinance rushed through by the council on Nov. 1, bans growing, manufacturing, distributing, testing or selling recreational marijuana. The city designed the rule to give it time to study what legalizing recreational pot means for San Jose in the wake of voters’ approval of Proposition 64.

Another rule approved at the Nov. 1 meeting allows medical marijuana delivery within the city. Once it goes into effect Dec. 2, San Jose’s 16 licensed collectives will be able to deliver medical marijuana to patients 21 and over, between 8am and midnight.

Under the ordinance, third-party companies like Meadow, which works with 60 cannabis collectives across the state, can facilitate deliveries, but the products must come from the 16 approved dispensaries. Drivers must also be employed by the dispensaries and, like all cannabis workers in San Jose, they’re subjected to a background check and given an official badge.

These protections are put in place in part to ensure that outside companies don’t swoop in and profit off of the city’s broadening marijuana regulations. But they also stemmed from a desire to stamp out the numerous cannabis collectives and delivery services that operate illegally in San Jose.

“My clients were getting very frustrated with illegal operators,” says Sean Kali-Rai, a lobbyist for the local cannabis industry. “We came up with the whole concept with the San Jose Police Department of fighting fire with fire.”

Cannabis advocates and SJPD tout delivery as a safer way to help increase patient access.

“At a high level, [delivery] couples accessibility with safety,” says Keith McCarty, CEO of Eaze, another on-demand cannabis delivery company looking to break into the South Bay market. “When you don’t give patients accessibility, they don’t get what they need… or worse yet, they resort to getting it from illicit drug dealers.”

Safety comes down to three things: the purity of the products, the security of patients and drivers, and respect for the law. Both Meadow and Eaze offer real-time tracking of drivers, like a DoorDash or Uber, so both the collectives and the patients know where the delivery is at all times. Legalizing delivery also addresses the biggest problem for San Jose medical marijuana patients: location. Currently, San Jose only allows medical cannabis collectives in industrial zones, far from public transit and the city’s center.

“The city, with its aggressive zoning regulations, pushed us, pushed the legal collectives, into very difficult-to-reach areas for most patients,” says Neil Ruditsky, director of business for Elemental Wellness. “We’re just excited to relieve the burden for some of our most seriously ill patients.”

Any of San Jose’s 16 collectives interested in on-demand delivery service will have to submit a plan to SJPD for approval, according to Michelle McGurk, assistant to the city manager. Collectives will have to choose between managing deliveries on their own or using a third-party, like Meadow or Eaze.

Eaze launched in 2014, the same year as Meadow, and McCarty says cannabis delivery helps overcome any stigmas by operating in a more discreet, professional manner. Meadow and Eaze provide similar services with subtle differences, but both charge collectives for their services, rather than patients. Eaze charges a dispensaries software-licensing fee. The company does not publicly share information on those fees, but Sheena Shiravi, a spokesperson for the company, says Eaze treats “each business uniquely.”

Meadow, meanwhile, charges cannabis retailers on a sliding scale based on how many “active users” they have. That’s defined as someone who signed up with the collective or placed an order through Meadow.

“Part of our ethos is that we aren’t successful unless our partners are successful,” Hua says. “We really don’t make money until our partners make money.”

This is a reflection of a philosophical difference between the two companies. Meadow focuses on serving patients by making the collectives more successful businesses. Eaze, on the other hand, “really [focuses] on the patient experience,” according to McCarty.

“We do that by collecting data around consumption behaviors or interactions with the technology, and constantly improving that through the technology,” McCarty says.

Both Eaze and Meadow support San Jose’s regulatory approach, while also being careful not to step on the toes of collectives, which are naturally protective of their clientele and profits. Kali-Rai says the collectives he works with are excited about, if not a bit daunted by, the prospect of delivery. Many will likely welcome the chance to expand their customer base for a nominal fee. But, Kali-Rai notes, his clients are wary of companies delivering products from outside the city—a practice not allowed in San Jose.

While collectives aren’t eager for outside competition, San Jose officials are open to allowing the delivery to other municipalities. “If a neighboring jurisdiction were to allow delivery, we would allow our folks to deliver there,” McGurk says, adding that Campbell is considering a proposal to ban dispensaries but allow delivery from San Jose’s. By contrast, Los Gatos has banned collectives and delivery.

The rush to profit off of pot delivery is still in its infancy, but since last week the city was flooded with enough questions that it established a website with information about what Prop. 64 allows now and once state licensing begins.

9 Comments

  1. LOL, your going to keep profit out of not selling recreational marijuana to patients, LOL !
    What do The Crips, The Bloods and MS13 have to say about that?

    _M_
    {+$+}
    !()!

    • Jen hit you with a wall of text, it was very effective! Crit 9000!

      You can’t blame this on the city. Prop 64 doesn’t go into effect until 2018, so until it does we’re still under current laws until then.

      Jen: TL;DR’d that for ya.

  2. > And the earning potential is colossal: San Jose is on track to bring in $9 million in medical marijuana tax revenue just this year.

    Marijuana is the largest cash crop in California.

    $9 million dollars in tax is like a nickel tip at a Michelin five star restaurant. IT’S AN INSULT!

    It’s the Big Marijuana greed bags putting one over on the stupid, gullible taxpayers.

    The tax on marijuana should be in the same league as the tax on tobacco, and then be ratcheted UP UP UP until it affects the demand. The tax on marijuana should START at 5000%. It’s for the children.

  3. The real question is: How much will cultivation permits cost, and where will San Jose permit them to be located? Probably not anywhere within the city limits, is my guess.

  4. Why the anxiety over “profiteering”? And why the irrational fear of “outside companies swooping in and profiting…”? After all, aren’t we a nation of outsiders swooping in and profiting?
    What about some poor immigrant who just wants to feed his family? He’s not allowed to earn a living in San Jose?

    • The fear of profiteering comes from the irrational fear that this will only be open to big companies. Could be stoner rumor mill, but George Soros donated a lot of money to get 64 passed. George Soros also owns a lot of Monsanto stock. (These two statements are not rumor, but proven fact)

      The bigger fear is from the unknown. What changes to current regulations will Soros do to ensure he’s the sole provider of product. Nobody knows, they think they have an idea, but mostly its just stoner conjugation. A lot of comparisons are made to “Big Pharma” and “Big Alcohol”, but oddly enough if everything stayed under the moniker of “Medical” then the former situation of “Big Pharma” would be a reality since all “Medicine” would have to fall under the jurisdiction of the state pharmaceutical board.

      Since it has fallen into the latter “Big Alcohol” with the passing of 64, we’re just about guaranteed that there will be no meddling by the pharmacy board, and the new marijuana board is taking a lot of cues from ABC. The argument of “Big companies swooping” then becomes moot, because now the environment exists to have smaller boutique (think microbrew) types of operations.

  5. What’s the URL, for the City of San Jose Website, where they spell out the regulations, please?

  6. Obviously it’s already too expensive to cultivate here and quality control only sucks up the profit.
    Like everything else these days it should be produced in China loaded with lead and toxic waste,
    shipped in and taxed like tobacco.

    There I have solved another problem.