Closure of Jay-Z-affiliated Sacramento marijuana delivery service highlights competitive market

A cannabis delivery service connected to rapper Jay-Z is the latest Sacramento marijuana company to fold amid intense competition for a shrinking slice of the city’s legalized pot industry.

Besides Caliva — Jay-Z is its parent company’s chief visionary officer — at least four more of the city’s 58 cannabis delivery services have closed operations in the last several months. A fifth is restructuring and ending general cannabis deliveries.

More Sacramento companies are expected to shut down because consumer demand for cannabis continues to drop, in part because of inflation eating away discretionary dollars. At least several hundred cannabis jobs have already been lost.

Calivawas advertising discounts of as much as 70% last week on marijuana web sites. Its own site Sunday night said cannabis delivery was no longer available in the Sacramento area.

Jay-Z’s role

In his role as chief visionary officer of the Parent Co, which owns Caliva, Jay-Z is in charge of guiding the company’s brand strategy. Parent Co. owns 11 brick and mortar dispensaries in California, though none in Sacramento, and several cultivation facilities throughout the state.

The acclaimed rapper, producer and entrepreneur — in 2103, Time named him one of the 100 most influential people in the world —also introduced his own upper-end cannabis brand, Monogram, with $50 hand-rolled joints in 2020. The products are sold through Caliva and other outlets.

It’s unclear what role, if any, Jay-Z, had in the decisions about the Sacramento delivery.service. When he first joined Caliva in 2019, it was announced the artist would be involved in creative decisions.

Parent Company spokeswoman Colleen Crawford said the company would have no comment.

No stimulus checks plus inflation

Macai Polansky, who owns Cannagram, a Sacramento cannabis delivery company, said the market for legalized cannabis has been shrinking since COVID-19 stimulus checks ended. Inflation, he said, has only accelerated the problem.

“The cost of living has gone up to the point where people don’t have as much disposable income to spend on cannabis,” Polansky said.

He also said there is a lot of competition in the delivery market in Sacramento, so much so, that even a name such as Jay-Z promoting cannabis, is no guarantee of success.

Sacramento city records show 58 delivery service licenses. Another 30 brick and mortar dispensaries hold licenses and 10 more additional licenses are pending. The difference is there is no cap on delivery service licenses like there is on Sacramento on dispensaries.

Polansky said he’s been in business a year and has never made a profit.

“The margins,” he said, “are paper-thin.”

He said he only has been able to stay afloat by not paying himself a salary.

Caliva’s path to closure

For Caliva, the road to business failure in Sacramento. was short.

Less than a year ago, on August 2, 2021, The Parent Co.. paid the delivery service’s former owner Laura Lang $475,000 to acquire Martian Delivery at 8800 Elder Creek Road in Sacramento., according to federal Securities and Exchange Commission filings. The delivery service was re-branded Caliva.

Publicly traded, The Parent Co. did not break down financials for its Sacramento operation, but the company has been struggling. Over the three-month period ending March 31, it reported it lost $32.9 million, almost twice its loss for the same quarter a year earlier

Like other vertically integrated cannabis companies, Parent has also been affected by severe price drops in the cannabis it cultivates and sells to distributors because too much marijuana was grown while demand was slipping.

ICaliva merged in 2020 with several other companies, including, Left Coast Ventures, which owns musician cannabis brands such as Marley Natural and Carlos Santana’s Mirayo, before becoming publicly traded.

Despite its Sacramento setback, and other financial issues, San Jose-based Parent Co. remains one of the largest cannabis companies in California. Caliva branded delivery services still operate in other parts of California.

UnRivaled Brands also struggling

Another company that struggled in the Sacramento cannabis delivery service is UnRivaled Brands, a large West Coast multi-state cannabis operator.

It paid $6 million, show Securities and Exchange Commission filings, to get a foothold in the Sacramento marijuana delivery marketplace in October, 2021, buying up an existing delivery service called SilverStreak Solutions.

Last month, UnRivaled Brands shut down SilverStreak Solutions, laying off around 40 employees.

A spokesman for UnRivaled Brands Jason Assad said the closure is only temporary and that Unrivaled is working to reorganize operations and reopen SilverStreak within several months. He would not go into specifics

UnRivaled owns dispensaries, cultivation facilities, and its own cannabis product lines, operating in California, Nevada, Oregon, Arizona and Oklahoma.. It lost more than $20 million dollars in the three-months ending March 31, 2022, shows its first quarter SEC filing. The company has debt of more than $260 million

In a May 4 press release, UnRivaled Brands new CEO Tiffany Davis announced a 100-day transformation plan that said she would move the company toward profitability, including tightening operating management and reducing costs.

Jody Hutchinson, a former driver for the delivery service, said business had been dropping for months before the closure. He sad he would often make one delivery and then have to wait in the office for an hour for another to occur,

Hutchinson said that all changed on June 7. He said new CEO Davis, with a day’s notice, came down to SilverStreak’s office in the River District of Sacramento to announce the company was closing for a few days to deal with compliance issues. Hutchinson said she did not offer specifics..

“We’re going to give you the rest of the week off and figure this out,” Hutchinson recalled Davis telling employees.

The following week, he said, employees were invited to a Zoom meeting at which Davis said the operation was shutting down. He said employees were muted and unable to answer questions

Working at SilverStreak was rough for the last month of its existence, he said, because the bathrooms were often broken at the company’s garage and SilverSreak’s car mechanic had quit without being replaced.

Hutchinson said the cars in the fleet of 2017 era Nissan Versas had mileage of 150,000 to 175,00 on each vehicle.

“People were getting upset because you were being sent out in a car that wasn’t maintained,” he said. “I had to buy oil several times, brakes didn’t work, bumpers fall off.”

Assad said he could not speak on Hutchinson’s comments.

Three other Sacramento delivery services close

Three other Sacramento delivery services that have shut down in the last few months are Pot Kings, Fire Farms and Dub Hub. Representatives of the companies were unavailable for comment

Another Sacramento delivery service, High Times, which publishes the magazine by the same name, has stopped offering deliveries from cannabis products selected from its website.

Instead, it is working with the brand of marijuana products called Jeeter and will soon announce other relationships with other companies, said spokesman Jon Cappetta.

He said under the new model consumers will order products on the Jeeter website and the High Times team will offer delivery.

Cappetta won’t say if business had been poor at High Times delivery service. He did say some employees have been laid off, without offering specifics.

A tough business model

Polansky, who runs the Cannagram delivery service, said he expects other services to fail in Sacramento. because the market is too small for the number of services allowed

He is putting his full focus on the business to make sure he’s not one of them.

Why did he open in such such a rough environment?

Polansky said it takes several years to open a cannabis business in Sacramento. He began planning for his company back in 2018 before the current tight current market conditions.

He said his company takes in approximately $65,000 a month in revenue, but state, federal and city taxes, licensing fees, advertising fees, salaries and gas costs, exceed that.

Polansky said advertising on Weedmaps, an app ad website which is considered the premiere place to advertise a delivery service, alone costs $7,000 a month.

Polansky said even with a cannabis product markup of 100%, the numbers don’t work for financial success: “Nobody’s really making money in cannabis delivery right now.”

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