The marijuana industry just changed by 360 degrees as tech companies are now buying MSOs and cannabis licenses.
The cannabis industry headlines lit up recently as software and delivery operator EAZE stepped up and bought a multi-state operator (MSO). Ho-hum, nothing to see here, just a software and TECH company not getting bought by an MSO, but the exact opposite — a company that specializes in data and delivery buying a multi-state marijuana operation.
Let that sink in.
A technology platform backed by billionaire Peter Thiel and Privateer Holdings, just bought cannabis licenses in multiple states. The entire deal flow of the cannabis industry has been changed forever. Wait, what do you mean?
The big fish are supposed to gobble up the small fish in business. The big publicly traded cannabis companies have all the cash and equity to do billion-dollar deals, so how is a relatively small tech and delivery company swimming upstream and buying an MSO? One, it tells us investors are shifting their value proposition from “let’s invest in dispensaries” to “let’s invest in technology that can deliver and create cannabis orders on the cheap, hence creating a moat around margins”. EAZE recently raised $35 million in order to facilitate this buyout.
Weedmaps, now publicly traded with a market cap of $1.7 billion, is a big technology platform that helps you find and buy weed. Did I mention they are also the most successful cannabis company in the history of mankind with half a billion in sales before ever selling any marijuana?
Akerna, a publicly-traded menu management and hoping-to-be-ecommerce-platform, just announced a new ordering and dispensary delivery platform.
Still not convinced?
Leafly, the internet’s second biggest weed website behind Weedmaps, will also be going public under a SPAC fund and is looking at a $300 million valuation. Did you know who owns Leafly? Peter Theil and Privateer Holdings, same guys who own EAZE and just bought an MSO. They also happen to behind Tilray before the spinoff. How long do you think it will be before there is an “order now” button, at least in selective states, next to all those #1 ranked pages in Google coming from the Leafly strain guide?
How Did We Get There?
How did we get to this day, why didn’t we all see it coming? Well, if you are a regular reader of Cannabis.net we have told you in over 5 articles the future of cannabis is a Shopify game. In the end, cannabis will be commodity, much like its cousin’s broccoli and kale. It is a plant that grows in 12 to 16 weeks, indoors or out. Brick and mortar dispensaries are only protected by an archaic moat known as state legalization with Federal law restrictions. The walls are crumbling around keeping cannabis illegal as politicians and businesses men see the vast potential in a full-fledged, worldwide cannabis industry.
With all these recent moves the investment world is telling you one thing. Data, delivery, and traffic are the new Golden Gooses, not grows, dispensaries, and the actual product. In a race to the bottom for pricing, margin compression over the next few years is inevitable as the world legalizes cannabis, the winners will be those that can get an order and process it for pennies on the dollar. The top line will face massive price pressures from local and international competition, so the only way to improve your margins if you can’t raise prices, is to lower your bottom line. How can you get orders for free or super cheap, while the other guy pays millions to Google and Facebook for ads and clicks?
Basically, the guys who have all the traffic are now figuring out ways to take the order as well. The race to create a fully controlled single ecosystem for ordering and delivering cannabis is on, like an Amazon app for weed.
What caused this tectonic shift in the marijuana industry? How did this all happen so fast?
A decision by the phone and ecosystem giant to allow cannabis apps in the IOS store changed marijuana forever, and not many people understood the ramifications of that announcement. I am sure even a few in the industry thought, “Cool, Eaze and Dutchie now work on my iPhone, that’s neat” and then went on scrolling down their news feed.
That was the earthquake that will end the Cannabis Industry 1.0 and begin the Marijuana Industry 2.0.
When all else fails, follow the money.
Apple makes the decision to allow marijuana apps in the IOS store. Within 100 hours, Weedmaps announces they can now process orders within their app (i.e. no outside browser or URL required). Within 1,500 hours, EAZE announces they are buying a full-on MSO, Green Dragon, and will now have cannabis licenses in 2 states to start. Within 1,600 hours, Akerna, or MJ Freeway cannabis menu management, announces a new ordering platform and delivery options. Let me remind you that Leafly, Weedmaps little brother, has already filed paperwork to go public at close to a $400 million valuation.
Investors are now betting big on technology and traffic, not on dispensaries and brick-and-mortar. The small fish are about to reverse stream and start buying up licenses and MSOs if they can. They are the key to fat margins and healthy profits as worldwide margins compress with full legalization.
Dispensaries are playing checkers while cannabis sites and tech platforms are playing chess.
The world will want to order cannabis in two-clicks, just like Amazon taught us.
That is just the beginning of this shift, we will look back at the cannabis industry and say, “Is that BA, before Apple, or AA, after Apple’s decision to allow weed ordering in the app store?”.
Next up will be well capitalized cannabis tech companies buying more licenses and turning this into a traffic and sales funnel game. Dutchie is well positioned and capitalized to jump into the licensing game. Sites like Jane, Cannabis.net, Dispensary.com, anyone that has traffic and hosts online menus will be take-over targets. Cannabis sites with strong domain authority with Google will be in high demand, so look for sites like Leafwire, The Fresh Toast, Ganjapenuer, to be in play. You may even see High Times get bailed out of it’s dire straits by this newfound investor thirst. Could MJ BIZ itself be acquired based on traffic and domain authority? Jeff Bezos, tech guy, owns the Washington Post, so why can’t Peter Theil own the industry’s version of the Wall Street Journal?
Cannabis has great investment potential for the long run, but who knows when the US will finally legalize? Tilray just bet that it happens pretty soon with their acquisition of MedMen. In the meantime, the most successful cannabis company in history is a tech and menu management platform, and others are coming up the pipe like EAZE, Dutchie, and Akerna. All dealing with tech, menu management, and traffic.
Watch in the coming weeks or months for Dutchie to make a similar move into vertical marijuana integration by buying dispensaries or licenses in multiple states. Why can’t Akerna go buy a few licenses in different states to increase their intrinsic value and revenue streams?
The new green rush has begun, and it looks a lot like the NASDAQ.