Technology Archives - Green Market Report

Adam JacksonAugust 11, 2022
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Akerna Corp. (Nasdaq: KERN) posted less than positive results as it missed expectations — showing that mixed demand and weaker sales are rippling through the sector. The cannabis tech firm released its second-quarter financial report card ending June 30, 2022.

Akerna missed expectations with total revenues of approximately $6.1 million during the period, a 24% gain from $4.9 million for the same quarter last year — missing Yahoo Finance Average analyst estimate for revenues of $7.1 million.

“We have continued to take important steps to grow revenue, reduce costs, and position ourselves for growth in the future,” said CEO Jessica Billingsley. “While client demand has been mixed thus far in 2022, and with softer sales and bookings in particular during the second quarter throughout the sector, we believe we are on pace for a year of solid growth in 2022, compared with last year.”

Software revenue was $5.9 million, up 33% from $4.5 million in the same time last year — with $600,000 worth of software bookings this quarter.

The company saw a gross profit of $4.2 million, or 69.8% of total revenues — up 42% versus $3.0 million in the prior year.

The company also reported a second-quarter 2022 GAAP net loss of $29.6 million — including a $24.1 million impairment of certain long-lived assets — versus a net loss of $22 million sequentially and a loss of $6.1 million last year. However, the company noted that reductions announced in June are expected to generate material cost savings in the second half of 2022.

Diluted loss per share in the fourth quarter was $0.83 cents versus diluted earnings per share of $0.12 cents in the same period last year.

“On the cost side, we’re pleased with our gross margin improvement over last year at 69%, and the expense reduction program across the board that we announced in Q2 should enable more material improvements going forward, beginning with our Q3 results,” Billingsley said.

Despite taking cost-reduction steps, the company said average new business deals decreased by 9% year-over-year.

Adjusted EBITDA was a loss of $2.1 million in the second quarter — down 22% from a loss of $2.3 in the previous quarter — versus a loss of $1.6 in the same period last year.

The company said it had $14.1 million in cash and restricted cash as of July 5, 2022 — following the closing of a $10 million financing via S-1 filed/effective on June 29, 2022. It said it would continue to “pursue strategic alternatives to optimize the capital structure and strengthen the balance sheet.”


Debra BorchardtAugust 8, 2022
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Cantor Fitzgerald analyst Pablo Zuanic thinks Weedmaps or WM Technology Inc. (NASDAQ MAPS) could use a little more disclosure when it comes to talking about its statistics. While the analyst maintains his Overweight rating on the cannabis platform company, he also lowered his target price from $11.30 to $10.50. The stock was lately trading at $3.43 and the company reports its earnings on Tuesday after the market closes.

Zuanic sounds supportive of the company but seems to have tweaked his numbers and attributed that to a lack of visibility into the details backing those numbers. On the positive side, he notes that the company’s sales grew 6% sequentially at a time when most in the industry reported sales falling 3%). He also pointed out that Weedmaps is the “number one e-commerce marketplace and SaaS provider to the cannabis industry (close to 70% penetration of US retail shops; 16 million actively engaged monthly users; sales 5x those of comps like LFLY [NC] and 8x SBIG [NC]).” He went on to write, “Our anecdotal checks imply dispensary owners remain engaged with the platform and are not cutting spending.” Despite that, the analyst’s estimates for earnings are at the low end of the guidance range that Weedmaps had issued. His forecast is for sales of $60.9 million, while the range is $60 – $63 million.

Visibility Problems

The analyst outlined various issues he has with Weedmap‘s disclosures on its businesses. Zuanic was impressed with the company’s expanded suite of solutions but questioned whether they added to the top-line revenue. He wrote:

For starters, the company does not distinguish between the number of subscribers to the WM platform vs. the average monthly paying clients (AMPC). If we were to
assume both are the same (probably not), then it would seem subscription revenue per client is down (not a signal that paying clients are using the services more). The
company said WM business subscriptions were 20% of sales in 1Q22 vs. 23% in 1Q21; in that period, AMPCs increased 28%, so revenue per client would be down 5%.

The report also questioned the quality of the average monthly paying clients. While Weedmaps said that the AMPC grew, it didn’t dive any deeper into the quality of those accounts. Zuanic points out that he actually thinks this type of detail would be positive for the company. He thinks Weedmaps should break out the top five states and the penetration there. One example he gives is that adding paying clients that have stores with lower revenues isn’t as great as adding a client with higher revenue. He also believes that this type of transparency would shut down the complaints that Weedmaps continues to work with illicit operators – a claim Weedmaps denies.

It was also suggested that Weedmaps begin to report a type of same-store sales statistic. Retailers often use these statistics to show growth in established stores. Zuanic thinks Weedmaps could report on whether its established paying clients are increasing their spending year-over-year. He also would like to see more information regarding the monthly average users. Weedmaps claims it has roughly 40 million users, but of that number – how do they actually use the site? Zuanic would like to see statistics comparing search versus transactions.

Marketing Budgets

Zuanic also took a look at how much companies were allocating in their budgets for Weedmaps and sees a silver lining. He wrote, “We calculate CA accounts are spending about $8,000 per month on the platform (62% of 1Q22 sales of $57.5Mn divided by 3 months and by ~1,400 accounts) vs. >$2,000 for the rest. Very roughly, we estimate CA retailers (brick & mortar and online) generate about $3.8Mn in sales per month ($5.3Bn per year / 1,400 accounts) or $320K per month. If they spend $8,000 on the WM platform, that would be 2.5% of sales. If we assume these stores would spend 7-10% in marketing ($22-32K), then MAPS has room to expand penetration per store.”


Adam JacksonJuly 20, 2022
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Seed-to-sale technology firm Alleaves said it raised $40 million in a Series A funding round to expedite a multi-state commercial rollout, led by investment group The Eleven Fund at a valuation of $240 million.

The financing deal comes during a time when a lack of cash is forcing cannabis companies to find new and creative ways to raise capital. The deal is Eleven Fund’s second investment, as it raised $125 million last December for Pear Therapeutics – a software-based digital therapeutics platform designed to treat disease and enhance the efficacy of pharmaceuticals. 

“I have watched the cannabis industry evolve from the backwoods of society to a major US industry, said The Eleven Fund CEO Hartley Wasko, “yet the industry remains handicapped by a number of structural and regulatory factors, in addition to the challenges of what has largely been home-brewed cottage industry technology.”

While the past few years have served well enough for companies looking for an injection of investment, rising interest rates and the sobering lul of U.S. federal legalization has crimped industry optimism of companies interacting with banks and credit card companies anytime soon. Companies in other sectors of the industry such as Leaflink and Bepoke Financial have ventured to remedy this issue by expanding their fintech capabilities and implementing direct payment services.

“We are thrilled to secure this strategic capital financing to accelerate our best-in-class seed-to-sale platform,” said Alleaves CEO Michael Beedles. “Although we have been profitable since inception, this injection of capital from The Eleven Fund will accelerate our bold growth plans and expand our technology platform and commercial deployment.”

Data provided by Viridian illustrates this cash crunch, as capital raising has significantly dipped across sectors including cultivation, retail and real estate.

With the completion of the deal, Alleaves will advance a multi-state commercial rollout with other industry MSOs. In addition, the company will look to acquire and absorb complementary cannabis technology platforms to both expand its customer base and create a seed-to-sale software, transaction and compliance platform.

“As a technology investor, I have been waiting for a true enterprise class technology company to come along and usher the cannabis industry into the realm of the modern technology era,” said Wasko. “I believe that company (Alleaves) has finally arrived and is on the cusp of a major transformative growth opportunity.”


Debra BorchardtJuly 20, 2022
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Cannabis platform tech company Dutchie is jumping into the world of fintech with the launch of Dutchie Pay, a fully-integrated digital payment solution. Cannabis companies have faced huge challenges on the payment side of the business since the major banks and credit card companies refuse to work with cannabis. The product remains federally illegal and that is enough for these financial institutions to just say no.

While many see this as a huge challenge, that issue has created a chance for innovation and payment creativity. Dutchie Pay is designed to reduce reliance on cash by providing dispensaries and consumers with a convenient and secure way to pay. It is a closed-loop automatic clearing house (ACH) solution, in which Dutchie Pay allows consumers to purchase their cannabis products online while automating compliance for dispensaries.

“Cash creates too many safety risks and is inefficient. Our industry cannot meet its full potential without modern payment solutions available at scale,” said Dutchie Chief Product Officer and Co-Founder Zach Lipson. “Dutchie exists to create safe and easy access to cannabis. Dutchie Pay advances our mission by integrating a simple and secure product that makes cannabis purchases safer, easier, and more accessible for dispensaries and consumers alike.”

Dutchie said it launched the payment platform with alpha and beta testing in the first half of 2022. The company said that on average, order values have already increased by 30%. It decreased abandoned cart rates by an average of 32%. It also reduced customers’ cash management costs by at least 15%. Dutchie Pay also drives repeat purchases, with 82% of consumers making at least a second purchase since signing up.

Dispensaries have been bedeviled with figuring out how to accommodate customers who expect to have a normal e-commerce transaction experience while maintaining compliance with the companies who do not want to be associated with cannabis. Currently, roughly 90% of all dispensary transactions are handled in cash, creating inefficiencies in operations and added safety risks. Dutchie Pay is a one-click digital payment option for cannabis products online and for delivery via a direct ACH bank transfer. Dutchie Pay allows consumers to quickly connect their bank account and pay directly at checkout.

Behind the counter, Dutchie Pay fully integrates with Dutchie’s e-commerce and point of sale (POS) solutions, providing businesses with a single-vendor advantage to help streamline operations. Dispensaries no longer need to rely on multiple software providers and with this level of integration, retailers can significantly reduce human error, maximize sales, serve more customers, and generate more revenue.

“Our customers increasingly want to buy cannabis products without using cash and without paying ATM or other fees. Dutchie Pay has improved their overall shopping experience while resulting in higher basket sizes and customer loyalty,” said Joshua Kahn, Owner at Takoma Wellness Center. “With Dutchie Pay, I have a one-stop, one-click solution that is fully integrated with e-commerce and point of sale that provides a seamless shopping experience for my customers, a safer work environment for my team, and accelerated growth for my business.”

 

 


StaffJune 30, 2022
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Despite being in financial trouble, cannabis tech firm Akerna Corp. (Nasdaq: KERN) announced the pricing of an underwritten public offering of 29,382,861 units with common stock warrants. The units are being sold at a public offering price of $0.23 per unit and the pre-funded units are being sold at a public offering price of $0.2299 per pre-funded unit. The news sent shares tumbling almost 50% in early trading to lately sell at 14 cents per share. The offering should bring in roughly $6.7 million.

The company said it would use the proceeds for general corporate purposes, including servicing our ongoing debt obligations under our convertible notes, working capital, marketing, product development, and capital expenditures. The company ended the first quarter with $10.2 million in cash.

Just last month Akerna said it would engage in a plan to cut its workforce and operating costs in order to focus its resources, accelerate its path to profitability, and create stakeholder value. These moves won’t be cheap as the company said it expects to report $690,000 in total costs in its second quarter of 2022 to pay for the layoffs, including the following cost elements: $630,000 in severance and associated payroll taxes; $40,000 in legal costs; and $20,000 in employee insurance benefits.

The company has noted when it told investors that it was undergoing a strategic review, that it would need additional funding. Former CFO John Fowle said at the time, “The ability of the company to continue as a going concern is dependent on our ability to secure other sources of financing, reduce debt, and attain profitable operation. Our corporate liquidity requirements primarily include payroll costs, corporate overhead expenses, and debt service costs and our current sources of liquidity include cash on hand, as well as proceeds we anticipate from the access to our ATM programs. The board is addressing the working capital deficiency and considering all options available to the company in the best interest of our shareholders.”

The company’s recent filing spelled out the news more starkly saying, “If we cannot timely raise additional funds, we may also be unable to meet the financial covenants of the Senior Convertible Notes, which could result in an event of default under those instruments which could negatively impact the company.”

 

 

 


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