Inside Shopify’s strategy for dominating the booming cannabis industry

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Shopify wants to dominate online cannabis sales in Canada.

The e-commerce giant recently inked a deal with the government of Ontario to handle online cannabis sales for the provincially-backed Ontario Cannabis Retail Corporation.

Loren Padelford, a VP and GM at Shopify who's charged with heading up the company's cannabis push, discussed the company's strategy in an interview with Business Insider.

Shopify, a Canadian e-commerce giant with a market cap of over $15 billion, is setting its sights on dominating the booming cannabis industry.

In February, the company inked a deal with the province of Ontario to power all in-store, online, and mobile marijuana sales in the province, immediately making it a major player in the cannabis e-commerce sector.

Like liquor sales in Canada's most populous province, cannabis will be sold solely through provincially-run Ontario Cannabis Store (OCS) outlets rather than privately-owned dispensaries, handing the provincial government — and its private sector partners — a monopoly over millions of potential customers.

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For a public company like Shopify, there's much less risk involved in providing services to the cannabis industry in Canada, which is set to legalize cannabis at the federal level later this year, than in the US, where the federal government's attitude towards cannabis is still unclear.

"One of the biggest things is how fast this market is going to develop," Loren Padelford, a VP and GM at Shopify who's charged with heading up the company's cannabis retail strategy, told Business Insider in an interview. "Retail is in this massive transformation in general — we think as this becomes legal and pushes out to the market it's going to just dynamically change."

The logo of Shopify hangs behind the Canadian flag after the company's IPO at the New York Stock Exchange May 21, 2015. Picture taken May 21, 2015. REUTERS/Lucas Jackson

The logo of Shopify hangs behind the Canadian flag after the company's IPO at the New York Stock Exchange in 2015.

Cannabis is a huge opportunity

The opportunity is huge. A recent report from CIBC predicts that legal cannabis will be a $6.5 billion industry by 2020 in Canada alone, eclipsing liquor sales. All those sales will generate over $1 billion in earnings for the private sector, according to the bank.

Ontario, where Shopify is starting out is a massive market: The province has 13.6 million people — almost 40% of Canada's population — including Toronto, Canada's largest city and financial center. Ontario's GDP is over $830 billion, meaning if it were a US state, it would have the fourth largest economy, rivaling Florida's and just behind New York's.

The OCS is planning on establishing a number of brick-and-mortar stores, and it'll also allow the online sale of cannabis, which is where the entire retail industry seems to be moving.

'A natural fit' between Shopify and Ontario's cannabis retailer

"This is really kind of a natural fit because the cannabis industry are about to become very large retailers," Padelford said. "This is about providing a retail technology platform, which is where we've been since our inception and giving that same flexibility and reliability, and scale to a brand new industry that's going to be very large overnight."

Shopify's software will also be used to display product information and handle transactions in physical OCS stores as well, the company said.

Padelford said that Shopify first dipped its toes into the cannabis industry a few years ago, working with some of the big Canadian cannabis producers, or LP's, to help distribute medical marijuana.

As the federal government worked on legislation to legalize recreational cannabis nationwide, the opportunity was "clear," Padelford said.

When the Ontario government started looking for private sector partners to help roll out cannabis sales, "they quickly realized, you know, how much experience we had in retail, and how powerful our platform is," Padelford said.

"They needed technology and a platform and a partner who could scale as quickly as they needed," he added.

While Padelford wouldn't say whether Shopify is setting its sights on the US — an even bigger market where cannabis is available for adults to purchase through private retailers in many states— he did say that the company is "having discussions with players all over the world."

"I think our focus right now is Canada because we have clarity," Padelford said. "Canada is much farther down the path."

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