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Dutchie: How one start-up went from launch to dominating cannabis online ordering in 18 months

The co-founder of Dutchie shares scaling advice with The Rise and explains how the COVID-19 shutdown actually helped his business grow.

4 min

Some of the greatest entrepreneurs have embraced life experience and flexibility in building their successful ventures. They may have worked for another company and found a pain point that required a new solution, or they may have run through a series of other entrepreneurial pursuits before landing on the winning idea. There are countless examples of these: 

  • Slack was originally a multiplayer game before it became the de facto leader in collaborative communications.
  • Before Twitter became what it is today, it was called Odeo, and was planned to be used as a source to find, make, and subscribe to podcasts.
  • YouTube launched as a dating website, with it’s first slogan being “Tune in, hook up”, before becoming the leader in online video streaming.

Many successful cannabis companiesand their foundersare mirroring these transformations. While some businesses struggle to differentiate themselves today, Dutchie is betting on the industry’s future growth. It’s a lesson that CEO and co-founder Ross Lipson learned when he launched and exited a food delivery business in Canada. 

“Nobody was doing online food ordering in Canada at the time,” says Ross. “We had learned this business model in the [United] States so my partner and I packed up our things, planted ourselves in Toronto, partnered with a few Canadians, and launched Grub Canada in 2008.” 

Grub Canada would eventually be sold to Just Eat in 2012 as third party food delivery companies grappled over Canadian market share. 

After taking a few years off, Ross ended up in Bend, Oregon, looking to find what he would be passionate about doing next. He was in line on Oregon’s first day of recreational cannabis legalization when the idea clicked.  

“It was a very long line and I just had lightbulbs blaring. More than just ‘there has to be a better way’ but the entire universe of online ordering for the legal cannabis space. It seemed so obvious to me. Both my worlds just collided. Online ordering expertise background and a passion for cannabis, and understanding the people and the plant coming together. That was the birth story of Dutchie.”

Ross already had the delivery playbook and had run it before. While it had to be repurposed for the cannabis space the performance management and go-to-market strategy were all the same.

“The [initial] business plan for us was pretty easy because we knew it. We never really had to draw it out. It was more just designing the product, which is much more differentiated than the online food ordering business plan.”

By July 2017, Ross and his small team had designed a minimum viable product and found a dispensary in Bend to serve as a beta partner. He quickly found out the differences between food delivery and cannabis retail. 

“The biggest difference we found from food to cannabis is that when you sign-up a restaurant, the menu is usually static. It doesn’t change very often. Dominos Pizza might change their menu a few times per year, but rarely enough that you could manually make changes. We launched the same way with cannabis, and barely two days into our beta the dispensary owner calls us and asks ‘how am I supposed to keep up with the menu changes?’ and when I told him he can just plug in a new product every time he brings one in and remove one every time he sells out, he said ‘I’ll be sitting at my computer all day! I sell out of 40 products a day and bring in another 40 every day.’”

Dutchie quickly learned that they were going to have to integrate with point-of-sale (POS) systems to automate menu updates. Then they could start to scale across Oregon. The plan was to own their home geography, work out all the kinks, and then start to expand across North America. Luckily, Oregon has one of the highest number of dispensaries per capita in all of the U.S., making it a great place for early expansion.

Once Dutchie had enough customers and a business model, they went out for their first raise. 

“Before we knew it we had 50 dispensaries on the platform in Oregon and it was time to go after our seed round. We went out and put together our deck and the data that we had from the first 50 and we landed a US$3 million round in September of 2018.” 

With a scalable business model and ample cash, Lipson felt pressure to go into growth mode right away. But he knew growth meant nothing if the organization wasn’t future proofed.

“Before we started signing on more dispensaries, I wanted to make sure we could build an organization that can handle growth. We started hiring and forming the organization and then we started speaking to new dispensaries and going to more states.”

Lipson believed that a meticulous approach to building their customers would lead to long-term success. Dutchie started by offering a free product to dispensaries to learn about their customers and entrench themselves in the dispensary’s process. With these insights in hand, they could improve their product prior to turning the monetization tap on.

“My big thing about scaling was all about the processes and making them more efficient. You have to have that process you follow to stay efficient but you also need to have data points that you’re tracking along the way so you can improve. That is your performance management.”

Dutchie has grown from 50 dispensaries to 1,100 dispensaries in only 18 months and the business has continued to grow significantly through the COVID-19 pandemic. Dispensaries have transitioned into a click-and-collect or delivery model, and online ordering has gone from a nice-to-have to a necessity. Order count is up 600 per cent for the year, and the company continues to sign up new dispensaries every day, making it a market leader in both Canada and the U.S. 

“I love cannabis. I always have. From being a consumer to the people and the culture, the idea of getting rid of the stigma to normalizing it and the benefits, but really mainly to the opportunity that I knew inevitably would present itself once cannabis was legalized from a business standpoint.”

Extracts

  • This story offers lessons from a cannabis software start-up founder who gained a deep understanding of his customer and then expanded meticulously
  • It should help you understand how seemingly unrelated experience—such as online food delivery—can be enough to start a successful cannabis business
  • While goal-setting can be important when scaling up, “setting a specific goal is tough because it can actually be limiting.” Lipson’s advice is to focus on refining processes to make them more efficient and repeatable.

Disclosure: Canopy Rivers, owner and operator of The Rise, has an advisory relationship with Dutchie.

This is not an offer to sell or a recommendation to trade in securities. This content may contain forward-looking information and/or data from third parties and is subject to limitations as discussed under The Rise's Terms of Use. Forward-looking information is based on assumptions that may be incorrect and is subject to risks, including those set out in Canopy Rivers' AIF and MD&A available at www.SEDAR.com. The views expressed above are those of The Rise’s editor and do not necessarily reflect the views of Canopy Rivers. Readers should not place undue reliance on this content.