Whole Foods is a major part of the organics industry and growth of small brands.  If you have been following our insider’s look into the food industry, especially how it is impacted by Amazon purchasing Whole Foods, welcome back. If you missed Part 1 and Part 2, feel free to read those first!

Amazon’s founder Jeff Bezos is one of the greatest entrepreneurs in modern history. Surely, he would not have bought Whole Foods Market with a strong “Plan B” and “Plan C.”

Let’s assume Plan A is reviving Whole Foods. In the first two parts of this blog series, I laid out a few facts about changes in organics and in Amazon’s management of Whole Foods that call into question whether that will happen. It seems pretty obvious that Plan B would be to change Whole Foods into local Amazon distribution stores. What is the most fun to talk about (and I admit a bit of a stretch) is that Plan C could be converting the Amazon and Whole Foods gift card industry into a cannabis banking system? And, these three plans don’t have to be alternatives, Bezos could do all of them, and in a relatively short period of time.

Bezos’s Alter Ego Is Unlikely Mr. Green Jeans

Bezos’s plan was never just Plan A. That’s too boring for him. Whole Foods was ripe for a buyout because of declining profits. But, turning around a grocery from declining to rising profits has been done many times before — cutting costs and squeezing vendors is nothing Bezos invented (see Part 2 of this blog series). It’s hardly exciting for someone looking to take people into space (Blue Origin).

whole food owner space program

I’m sure his team did enough research to know about the changes in the organic industry (see Part 1 of this blog series) and the challenges of growing a company that sources much of its goods from a very small amount of organic farmland production (under 1% of US farmland is organic in the US). He must know there are a finite number of stores a high-priced grocery like Whole Foods can operate. Wealth is concentrated in pockets of the United States, just check a map of the Starbucks locations to find out where.

Based on the changes he’s implemented already at Whole Foods, I am guessing Bezos may not appreciate how important the Whole Foods experience is to shoppers – finding and supporting small local brands, the inviting, warm in-store experience. In fact, since I wrote my last blog highlighting these two issues, Amazon fired its entire marketing team that does those cute hand-drawn (looking) signs on chalkboards that are part of what makes the store feel more like a farmers’ market. From the perspective of the shopper and small vendors, it looks like Plan A of “making Whole Foods great again” is not likely to happen. So, let’s move on to Plan B.

Plan B Comes to the Rescue When “Making Whole Foods Great Again” Fails

Amazon’s biggest challenge it’s last mile. The company is great at getting goods from one warehouse to another but getting it to your door is expensive and challenging. That’s why you see the US Post Office at your door on Sunday afternoons delivering your Amazon goods. Clearly, Bezos likely can make a lot more money operating Whole Foods’ 450 locations as local pickup spots for Amazon purchases and having the grocery side morph into the “Amazon Fresh” program for food delivery. But, there is plenty of reason to keep the grocery stores open to shoppers.

Amazon Could Redefine In-Store Shopping

Amazon has been experimenting with “checkout free shopping,” and it has real appeal to it. Standing in a checkout line is so 2015.

Given that, why even go to an Amazon store at all? After all, you don’t need to try on earphones, and they can be delivered to your door.

Fresh food. Fresh food is what brings you to the store most often, produce and refrigerated items. Most people prefer to pick out their own produce to make sure their apples aren’t spotted and peaches aren’t bruised.

Amazon would be smart to use high quality, low-price fresh grocery items as bait to get you into the store. While there, your impulse-buy of a new pair of headphones and tiny Bluetooth speakers for your cat (because cats can’t wear headphones) become the store’s profit center. If we could get all that in one place, we might not mind so much that the cute chalk board signs are gone and the organic apples are from Chile.

shopping whole foods

I have a friend who owns a very successful chain of sporting goods stores. His bait is athletic shoes but I dare you to walk into his stores and not come out with 3x the cost of those shoes in other non-essential, higher profit margin items from yoga mats to tents to Frisbees. The problem with Plan B is that stores like Target and Walmart already offer everything from produce to furniture, and City Targets serve some of the same high population areas. Amazon Whole Foods will need to offer a superior experience to get an edge on these retailers, but as I wrote in Part 2, it’s already losing that “customer experience” edge. And, once Bezos perfects “checkout free shopping,” companies like Target and Walmart are likely to copy it.

Will Bezos Be Bold Enough to Revolutionize Banking?

I’m not really predicting Plan B because Bezos and his team are already making moves in that direction with Amazon locker pickups at Whole Foods locations. What’s more interesting is to explore the idea of Plan C in which Bezos could become the premier banker for the cannabis industry virtually overnight.

Let’s me preface this by saying that I am NOT a banking expert. This discussion is more a topic for lively cocktail party conversation, not one on which you should base an investment decision. But surely the rise of Bitcoin has shown that banking is ripe for a revolution. Bitcoin also isn’t helpful if you deal in cash though; the whole point of the crypto-currency is that it is cashless.

Remember cash? You used to carry it in your wallet all the time, even in your shoe. Cash is an important conversation topic now because various aspects of growing and selling cannabis is now legal in several states, and cannabis is largely a cash-based business.

Cannabis Banking Background (for those interested in some detail)

Let’s quickly cover some background. In a nutshell, eight states have legalized cannabis and a handful more are considering doing the same in 2018. The trick is that under federal law, cannabis is simply illegal drug money, despite these state legalizations. And, though the Obama White House was willing to look the other way on the matter, the Trump Administration has threatened otherwise. Jeff Sessions called marijuana, “slightly less awful than heroin.” Cannabis bankers can be charged with racketeering, which is a criminal offense. They also can’t get FDIC insurance for the accounts, but if you are in jail for racketeering, I think the insurance issue is probably not what you are regretting.

Congress has considered, but not passed, a bill to protect the cannabis industry in states where it is legal. Despite this, the number of banks accepting cannabis customers has increased nearly 20% in the last year, but that only brings the total to 400. And, the prevalence of banks depends on the state. This is because, in 2013, deputy US attorney James Cole issued what is known as the “Cole memo,” which outlined the eight biggest concerns the federal government has with the industry, like selling to children. The Treasury Department followed up with guidelines for banking based on those eight priorities. This guidance does not change the fact that cannabis is still illegal under federal law, but it gives banks a little more security if they dare to enter the business. States are required to issue regulations based on the guidance. It’s a bit like being in a flimsy legal hammock hanging high up between illegally planted trees–with Jeff Sessions down below pondering over a chain saw.

So far, only the state of Colorado has issued state regulations based on the Treasury guidance. California should be next. In fact, California and the city of San Francisco are considering setting up banks that would accept cannabis accounts. This may make it seem like banking reform is already happening, but remember the federal guidance could be revoked any time.

Under federal law, cannabis remains illegal. Even with the Cole memo and state regulations, bankers willing to take the risk are technically racketeering. Legalization is rolling out fairly quickly state-by-state. So, even if the federal guidance stays in place, there will be a lag time before state legislatures and banks can catch up. With six more states likely to legalize cannabis in 2018, the problem will continue far into the 2020’s.

cannabis

Bezos Could Instantly Double the Number of Cannabis “Banks”

As a result, people in the cannabis industry carry around a LOT of cash, and they will be for quite some time. Employees are paid in cash; warehouse leases are paid in cash; taxes are paid with money orders; you get the picture. Robberies plague the industry but they are downplayed so the public does not get concerned. With that background, let’s circle back to Bezos and look at how this could emerge as his Plan C.

There are about 450 Whole Foods stores in communities across the country concentrated exactly where you would think they would be, in densely populated areas with higher incomes.

Amazon already offers one of the most useful gift cards in commerce. For this model, think of them as electronic cards — basically a number you receive that used to be embedded in a card but would become your electronic Amazon cash account (just download the Amazon money laundering app to access it). People with cash can convert it to Amazon money by dropping off their cash at any of Whole Foods 450 locations around the country (please spray with a non-toxic deodorizer before arriving).

Suddenly, the entire industry has a place to deposit their cash, and it’s located in the same place they can spend it! I would imagine the green entrepreneurs would happily pay a fee for this service, which Bezos would need for lawyers and self-insurance. Inevitably, a secondary market will come to bear to help people convert this Amazon money into actual money that could be used to pay tuition, buy a car or be put into savings in a traditional bank. Assuming no one goes to jail, which is a big assumption, this could develop into a brilliant new banking system.

About jail. Amazon Whole Foods would be expose itself to racketeering charges and possibly others I’m not aware of? Yes, of course.  But in the meantime, Bezos could rapidly make piles of money and zip past legislators and regulators who scramble to try to figure out what to do. How long could he keep that up before someone puts on the brakes? If Uber can be used as a comparison, indefinitely.

Plan C is a stretch for sure, but Bezos has stretched the commonplace in commerce since he first started his online bookstore decades ago. And, an industry with a cash problem expected to grow from $9B in 2017 to $21B by 2021 is just asking for entrepreneurial disruption.

What Will the Future Hold?

If Bezos keeps going down the path he’s headed on with Whole Foods under Plan A, and the company will likely lose its competitive edge in grocery. The next evolution under Plan B, to create “Amazon stores,” could fail if they prove to be nothing more than an overpriced City Target. Wouldn’t it be incredible if, as fantastical as it sounds, Plan C’s cannabis banking ends up being Amazon Whole Foods’s new bread and butter, without the . . . bread and butter.

I sincerely believe a man with tens of billions in dollars in personal wealth who is rapidly building a company to go into space will not be satisfied with turning around a grocery store or building a better Target. I can’t wait to revisit this in two years and see what happened.

What do you think? Would you like to shop for produce, books and computer game systems at your local Whole Foods, or would you just go to Target? If you don’t support cannabis legalization, would you choose not to shop at Amazon Whole Foods if the company became entwined with that industry? Would you feel comfortable shopping at a grocery that was accepting large cash deposits or would you be concerned about robbery? Have fun with this at your next cocktail party!