Weedmaps Archives - Green Market Report

Debra BorchardtDebra BorchardtDecember 14, 2020
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20min7440

This interview has been slightly edited for grammatical purposes.

Green Market Report Editor-in-Chief Debra Borchardt:  

So first, congratulations. That’s quite a feat to have pulled off this year. Certainly, SPACs have been the way to go. Most of the deals in cannabis this year have been with the public companies, not so much on the private side. So, kudos to you guys for doing that.

Weedmaps CEO Chris Beals:                         Thank you.

Green Market Report:   I had a question regarding your numbers in 2019 versus your numbers in 2020. It seemed your net income really dropped in 2019 and then it bounced back in 2020. And I was curious what you did to make that happen?

Chris Beals:                         So, we’ve gone through a cyclical approach to investment, just with building out this “business in a box” in sort of the tech platform. Keep in mind, we’ve essentially built this entire operating system in the last three years. Two things underpin that. One was that I believed in embarking on this strategy that we’ve seen increased economies of scale. So, we’d be able to launch successive pieces of software more cheaply because we’d increasingly be able to rely on parts of the sort of a software layer where the data normalization work we were doing to preceding pieces. But the other is we’d be able to lower our cost of acquisition or our cost of adoption by doing things like having self- onboarding occur and that sort of thing. One of the things that we’ve done is we go through successive waves of investment. So, we’ll invest heavily in building out the next suite of the platform and then work to make sure that we have adoption in product markets before we cycle forward. We also, periodically, we’ll have some heavier investment periods when we see the market’s open and given that the last few years from a macro view has been a bit muted in terms of the rapid expansion most people expected.

Green Market Report:   Back in 2019 you guys had some negative headlines about listing dispensaries that weren’t licensed and then you started 2020 on a mission to eradicate those unlicensed operators from Weedmaps. Is that complete?

Chris Beals:                         Not only is it complete, what we’ve done is something that frankly, I don’t think there’s any other sort of marketplace I’ve seen out there do it, which is we’ve been rolling out sort of this enhanced verification process for businesses that want to be on the site as opposed to say what you see with the Googles (NASDAQ: GOOGL) and others of the world relying on their section 230 defense and that sort of thing. In part, I think that’s a natural extension of the amount of work we do on the policy side that we build into sort of our software compliance stack. It’s all part of the same cycle, but yeah, so we have that enhanced verification with the marketplace side, but also that same sort of enhanced verification exists for businesses using the WM business.

Green Market Report:   Looking at the revenue, your revenue estimates from ’21 to ’22, you jumped from $205 million to $300 million, and then ’22 to ’23, you estimate a jump, another pretty big jump, from $300 million to $440 million. What is going to get you there? Because granted your previous increases have been pretty respectable, but they seem like they’ve been a little more consistent in the size. And then all of a sudden we have these huge jumps, but then you also say within your investor presentation that you’re not really relying on new markets. So, what’s going to be behind that big jump from ’21 to ’22? To me, it would seem like it would be reliant on these new markets, but you’ve said that you’re not really baking that in.

Chris Beals:                         So, we’ve driven over the last five years a 40% CAGR. And as you look on the go forward, that’s essentially a carry forward of that 40% CAGR. Although we have a large and very effective policy team, a lot of that allows us to build this compliance by design, and with the WM business suite, we typically sort of on the go forward look, take a fairly conservative view in terms of our estimates when markets will open, maybe aggressively conservative. Given what happened in this last election, but separately, we can’t have our go-forward projections be sort of reliant on the vagueries being exactly when a certain market opens. So, we built in the conservatism for that reason.

In terms of the “go-forward” what you see on the go forward is actually a continuation of that roughly 40% growth rate we’ve historically had. The other thing that’s worth noting is on the marketplace side, not only the largest and sort of most effective marketplace for cannabis, we also have a dominant position in terms of actual cannabis’ rivals. And so, a lot of us don’t realize this, but people who consume cannabis once a month or more are less than 10% of the population we’d estimate. When you look across the Weedmaps marketplace user base, over 90% of those users consume monthly. In fact, over 70% consume daily. And so, the thing that’s interesting is we’re actually right now by far the cheapest way for cannabis businesses to reach consumers, but we’re also the most effective once they do reach them.

We have about a 50 cent cost per click, which is a fraction of what it would cost to go out and try and aggregate demand on generalized platforms or out of the home. Separately, we’re driving an almost 15% conversion rate across our platforms and at best, you’re looking at likely a low single-digit conversion rate on the sort of any other platform, not to mention the fact that getting to these consumers is incredibly valuable. You sort of go out and sort of try and attract demand in a generalized sense. 90 to 95 cents on every dollar you spend are effectively wasted because you’re not actually hitting a cannabis consumer.

Separately, on the WM business suite, we offer this entire operating system for retailers for $500 a month. It offers a huge amount of benefits from a compliance and operational efficiency you’d bring because those pieces link together, but separately, if a business were to go out and buy those pieces individually, it would cost several times that. And so, as we look at the go forward, obviously, I think there’s the ability to sort of think about monetization more on the business in a box, that SAS suite, but separately, over 40% of our headcount is engineering, product, and design. We have a zesty roadmap of new products, new features that we expect to bring on and be able to monetize. So, I would say that if you look at that go forward growth if you’re just looking at the steady-state of where the markets are right now, I guess the easiest way to analogize it is there’s a lot of room for growth within existing markets, just on that base level.

Green Market Report:   NASDAQ recently announced its desire to have the companies that list on their marketplace to have diversity in the board and looking at Silver Spike and Weedmaps, it’s just a bunch of white men. Are there any plans for the board to have any females?

Chris Beals:                         Absolutely. Diversity is really a core part of Weedmaps and what we strive to do. Look, I think it’s always an area that companies can improve in and I would say we’re no exception. It’s something that we’ve actually made a focus internally. Separately, in terms of board composition, we absolutely care about having a diverse board. And that was something we would do regardless of the changes or whenever the NASDAQ comes out.

Green Market Report:   Well, that could have maybe happened before. Any acquisition plans?

Chris Beals:                         Keep in mind, just one note on that actually, it’s a closely held LLC. Part of this transition will be forming a new board.

Green Market Report:   Got it.

Chris Beals:                         And that’s part of the merger process.

Green Market Report:   Are there acquisitions planned? It looked like most of the proceeds were planned for just like more tech and an expansion of the tech that’s existing. I didn’t really see that there were any plans for acquisition, so I was just curious if that was part of the mix?

Chris Beals:                         Yeah. We always want to ensure that we have dry powder for acquisitions. I think we are a company that’s looking sort of out further, but I would say one thing that sometimes weighs against that is sort of the continued efficiencies we’ve been able to drive on sort of our internal development efforts and separately as a company ethos, we’re very sort of ROI focused on our investments, whether that be internal initiatives or potential M and A. But that’s something we keep track of, but nothing sort of specific planned.

Green Market Report:   Along the line of the board member question, what Weedmaps has done with regards to any kind of social equity or social justice types of movement. Is that something that you guys are engaging in?

Chris Beals:                         Actually, it’s a pretty core mission. Weedmaps’ mission is to power a diverse and inclusive cannabis industry. We actually launched something called the WM Teal (Together for Equity Access and Legislation) and that was basically a social equity support program that we launched late last year, which was basically intended to give free software, support, consulting services and to help these businesses participate. Separately through our policy team, we actually wrote a lot of the initial draft language on social equity programs and have been big advocates for actually having social equity programs within jurisdictions that are opening up. We’ve worked closely, for instance, with the NAACP and other groups in New Jersey in advocating for that.

I think, yeah, there is a lot we’re doing in this space. I think part of it is the support of folks who get licenses and unfortunately, a lot of these social equity programs have been too slow to roll out, but the other part is advocating. And this is something we’ve been doing for some time and writing white papers and this mock language on, sort of a model legislative language on, which is trying to get more jurisdictions to implement social equity programs or to actually have that opportunity as well as encouraging jurisdictions to realize that starting up a cannabis business is incredibly expensive between the fees, the licensing, but then the sort of sheer rigor of these compliance regulations where we’re really regulating cannabis like it’s a radioactive substance. And so, encouraging state and local governments to think about things like grants or sort of loan forgiveness programs or things like that because you can have the programs, we can give the software, we can give all these enablement tools, but ultimately, raw capital is, unfortunately, sometimes feels like a must in this industry just because of sort of how we’re regulated for this.

Green Market Report:   So, looking at your revenue numbers, they were pretty solid. You consistently, as you noted, grew your revenues. Why go public? Because going public is certainly not, as I’m sure you’re finding out, the end all and be all. You got special accountants, you’ve got to have so many things that you’re doing with regards to the compliance and then, of course, reporting every quarter to your shareholders. Why go that route? Why not just stay private?

Chris Beals:                         We have a pretty seasoned executive team and we have folks who are fairly familiar with the rigors of the process and yeah, we would not disagree with you that there’s a lot of increased work and rigor. Look, I was a former life scientist and tech transactions attorney, I’m, yes, very familiar with it. I think for us, it’s a couple of things. I think one, being the first sort of tech company at this valuation you got at NASDAQ, in and of itself I think has a frankly, sort of these positive externalities in terms of raising the profile of the company and also enabling us to do successive transactions more easily, to have a public currency that we can utilize if we’re going to go about and do M and A, but then the other part of it is, is that this was frankly, a very effective way for us to raise capital, but also bring, given the fact that we’ve essentially been a bootstrap company for our entire history, to bring bellwether investor groups in and to support the story and grow.

I know it sounds a bit cliche, but I think one of the toughest things about doing what we do, doing this very regulatorily intensive software stack, working on this marketplace, which frankly, wouldn’t have transactability without us doing a bunch of machine learning and data normalization and building the wrong product catalogs that actually underpin these listings so that when you click on an individual menu listing, there’s information that enables a consumer to transact. These are really complex things where we’re doing things like machine learning and that sort of thing. And I think by bringing these investors around the table, I think it highlights and it is a sign of recognition of, I think, just how tough what we’re doing is and sort of, I think, how future says, we’ve been in our approach.

Green Market Report:   Have you had any pushback from NASDAQ? Because I know that NASDAQ folks are not very friendly towards the cannabis companies. They’ve certainly not shown a desire to really work with them very much. And while Greenlane and Akerna and a couple more have managed to get in the door, have you felt any pressure from them with regards to any of the marketplace transactions that you would be engaged in selling cannabis?

Chris Beals:                         A couple of things to note there. We’ve had a very cordial and open dialogue because as you can imagine, they want to understand that this is a compliant company and then how we operate. I think the thing here that’s really important to note is we provide SAAS software on a licensing fee basis and then we provide the sort of broader consumer reach things. We don’t do anything that is involved in a cannabis transaction. We don’t enable payments for cannabis transactions, we don’t take Visa on cannabis transactions, anything like that. And so, I think part of what underpins, and look, we take a fairly conservative approach from a compliance view, so it’s one of the ancillary benefits of having a large compliance and policy team for building the software we build, is they also give you advice on sort of everything else.

We as a company, keep a very conservative path from a compliance view and I think that’s something that NASDAQ understood and took comfort in, but there’s a lot of intentionality there. And look, undoubtedly, there are definitely opportunities for us. In fact, I think frankly, very large opportunities exist when federal legalization or something like federal banking, like when the Safe Banking Act passes and we simply don’t or won’t, or can’t do now because of that compliance first mindset.

 


Debra BorchardtDebra BorchardtDecember 10, 2020
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4min5750

WM Holding Company, LLC, better known as Weedmaps, and Silver Spike Acquisition Corp. (Nasdaq: SSPK), a publicly-traded special purpose acquisition company, announced today a definitive agreement for a business combination that would result in WMH becoming a public company that would remain on the NASDAQ marketplace. The estimated post-transaction equity value of the combined company is approximately $1.5 billion and provides up to $575 million of gross proceeds through the approximately $250 million of cash held-in-trust by Silver Spike Acquisition Corp. and a fully-committed common stock PIPE of $325 million

The combined company will be led by Chris Beals, Chief Executive Officer of WMH. Weedmaps was founded in 2008 as an online listings marketplace for cannabis consumers and businesses. The company solely provides software and other technology solutions and is non-plant touching, which makes it NASDAQ friendly. WMH has grown revenue at a CAGR of 40% over the last five years and is on track to deliver $160 million in revenue and $35 million in EBITDA for 2020.

The company said in a statement that as a result of outsized demand, the PIPE offering was significantly oversubscribed and upsized, including investment from funds managed by AFV Partners, the Federated Hermes Kaufmann Funds and Senvest Management LLC along with a $35 million commitment from Silver Spike Capital. WM Holding’s executive officers will retain 100% of their equity in the combined company, which will have approximately $100 million of cash on hand after closing

SaaS Business

Many cannabis consumers are familiar with the business location tool the company is mostly known for. There are over 10 million monthly active users and 18,000 business listings across the U.S.. The maps give customers information about retailers and product availability. In addition to the consumer facing product, Weedmaps also has a cloud-based WM Business SaaS subscription offering that provides cannabis retailers with an end-to-end operating system to access valuable users, grow sales and scale their businesses at a compelling return-on-spend.

Th company describes this “business-in-a-box” functionality that ranges from integrations supporting product menus that have online order-ahead, delivery order fulfillment software, data & analytics, a point-of-sale solution and a wholesale marketplace. “WMH has been investing in and optimizing its WM Business software solution to also facilitate compliance for businesses amidst the complex, disparate and constantly evolving regulations governing the cannabis industry. Underlying this compliance functionality is a proprietary and sophisticated rules engine that is a core underpinning of the WM Business SaaS platform.”

Illegal Operator Issue

Weedmaps came under fire in 2019 for listing unlicensed dispensaries and began 2020 in an effort to remove those listings. That was after California regulators sent a cease and desist order to the company to stop advertising illegal operations. At the time, Weedmaps President Christopher Beals defended the company’s decision to run the ads,  saying that Weedmaps was  “showing the same information that Google and Yelp and Craigslist and 30 other websites are showing.” Then Weedmaps’ main competitor Leafly decided to no longer support illegal dispensary ads putting pressure on Weedmaps to comply.

 


William SumnerWilliam SumnerApril 4, 2018
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3min13260

The cannabis technology company, MassRoots (MSRT), today reaffirmed its commitment to being compliant with California state law by announcing that it would only list state-licensed cannabis dispensaries on its platform.

Over the next few weeks, the company intends to launch an updated version of its business portal and dispensary finder. In order to become listed on MassRoots, cannabis dispensaries will have to pay the company a minimum of $199 a month.

The announcement comes in the wake of the controversy surrounding MassRoots competitor, Weedmaps. Last month, Weedmaps received a cease-and-desist letter from the California Bureau of Cannabis Control (BCC) demanding that the company stop listing unlicensed dispensaries on its platform.

Defying the bureau’s request, Weedmaps responded by saying that the bureau does not have the authority to regulate it and that the site “interactive computer service” covered under the federal Communications Decency Act, which protects technology companies from prosecution over any illicit activities performed on their platform.

Weedmaps also argued they by not listing unlicensed dispensaries, the state is merely ignoring the underlying regulatory issues as to why those dispensaries are unlicensed in the first place. Nevertheless, other competitors, such as Leafly and now MassRoots, have announced that they would no longer list illegal dispensaries. So far, the state has not taken any action against Weedmaps but that hardly means that the fight is yet over.

“We believe that operating in full compliance with state cannabis regulations is crucial to creating long-term, sustainable shareholder value and building confidence with consumers as well as local, state and federal regulatory organizations,” said MassRoots CEO, Isaac Dietrich, in a statement. “Other services that continue to drive traffic to unlicensed dispensaries are punishing businesses that have invested significant time and resources to gain compliance with state regulations. We view this as an opportunity to build long-term relationships with compliant dispensaries that we believe are the future of the cannabis industry.”


William SumnerWilliam SumnerMarch 13, 2018

4min17800

The online cannabis community Weedmaps, where users can rate cannabis strains and find local dispensaries, is pushing back against demands from the California Bureau of Cannabis Control (BCC) that the site cease displaying ads for unlicensed cannabis dispensaries. Earlier this year, BCC chief Lori Ajax sent a cease-and-desist letter to the owners of Weedmaps, claiming that the website was in violation of the Medicinal and Adult-Use Cannabis Regulations and Safety Act (MAUCRSA).

Specifically, Ajax pointed to provisions in the bill governing the advertisement of cannabis and cannabis products which states that technology platforms may not run advertisements unless the ad displays the cannabis licensee’s name and license number; which unlicensed dispensaries do not have. In response to the Ajax’s request, Weedmaps sent its own letter to the BCC stating that the bureau did not have the authority to regulate them as they are an “interactive computer service,” which is covered under the Communications Decency Act.

The letter goes on to say that the issue surrounding unlicensed dispensaries has less to do with Weedmaps and more to do with the fact that small cannabis businesses, many of whom have been in operation for nearly two decades, are unable to become licensed.

“Scrubbing the internet of the reality of unlicensed operators that have created thousands of jobs over the last 20 years does nothing to fix the underlying issues,” the letter reads. “It is simply opening a new face of regulatory ‘whack-a-mole’ when the ultimate cause is broken policy…”

Although Weedmaps is confident in their defense, some legal experts are not so sure. Speaking with Green Market Report, Silvia San Nicolas, President and CEO of New Game Compliance, characterized Weedmaps’ policy as both illegal and irresponsible.

“Promoting unlicensed cannabis operations is promoting illegal operations. It is irresponsible and a disservice to both the licensed and unlicensed alike,” said San Nicolas. “For the unlicensed operations it’s a target list for authorities and multi-agency enforcement action. For licensed operations it fosters unfair competition in an already arduous environment. If the California cannabis industry is going to survive and thrive, all stakeholders must embrace the regulatory mandates. Ancillary providers are no exception.”

Currently, neither Ajax nor the BCC has responded to Weedmaps’ defense letter and no legal action has yet been taken against the company.

Weedmaps is not the only cannabis company in the state to be hit by a cease-and-desist letter. Since the start of this year, hundreds of cannabis companies have been hit by such letters. On the other hand, some cannabis companies, like the online platform tökr, have avoided the issue altogether by only working with licensed dispensaries.

“The decision for tökr to work only with legal and licensed dispensaries and brands was an easy one,” said tökr co-founder Brian Campbell. “To validate dispensaries and brands, we work with the city, state and government resources to verify all of our partners are properly licensed and in compliance. With that said, California’s regulatory agencies are working hard to shut down bad players in the space and ensure consumers have access to safe products at compliant locations, which is doing a tremendous amount of good for the sector.”


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