17 December 2021 |

Cannabis Marketplaces

By Matthew O'Brien

Cannabis Marketplaces

Breaking down the past, the present, and the future of cannabis marketplaces…

Who will become the leading cannabis marketplace?

Disclaimer…

Some of the companies I will be discussing today are partners of The Green Paper, however, there isn’t enough money in this world to make me say good things about a cannabis company I don’t like.

The past…

To understand the present moment, and to have any chance of predicting the future — it’s essential to understand the past.

The past is where we will begin today.

When & why was Weedmaps founded?

In July 2008 Weedmaps was founded by Justin Hartfield (Chief Executive Offer) and Keith Hoerling (Chief Technology Officer).

Weedmaps initial goal was to become the “Yelp of cannabis” whereby cannabis consumers could discover & review cannabis stores nearby, in addition to reviewing the products they purchased.

Weedmaps was one of the very first companies to bring a solution to market, and they immediately gained significant traction.

When & why was Leafly founded?

Leafly was founded in March 2010 by Cy Scott (Chief Executive Offer), Brian Wansolich (Chief Design Officer) & Scott Vickers (Chief Technology Officer).

Leafly was founded with the goal of making it easier for consumers to find the right cannabis products in their local area.

They were by no means the first to discover this opportunity, however, despite the competition it didn’t take long for Leafly to gain traction.

During this time Weedmaps was already generating over $400,000 USD in monthly revenue, however, by focusing on educating cannabis consumers Leafly was able to remain relevant & grow.

When & why was Dutchie founded?

Dutchie was founded by brothers Ross Lipson (Chief Executive Offer) and Zach Lipson (Chief Product Officer) in July 2017

Prior to building Dutchie Ross Lipson built an online food ordering startup focused on the Canadian market called GrubCanada, however, the company was acquired in 2011 by the online food ordering giant JustEat.

The idea to build Dutchie came to Ross when he was patiently waiting in line to purchase cannabis on the very first day that Oregon legalized cannabis back in July 2016 .

The goal was to make it as easy as possible for consumers to purchase the right cannabis products without having to wait in line, and Ross teamed up with his brother Zach who had also recently sold a startup he co-founded.

When & why was Jane founded?

Jane Technologies was founded in January 2016 by brothers Socrates Rosenfeld (Chief Executive Offer) and Abraham Rosenfeld (Chief Technology Officer) and Howard Hong (Chief Financial Officer).

Having consumed cannabis for the very first time when he was 29, Socrates developed a deep appreciation for cannabis as he was transitioning out of the military where he was formerly a Commander, Apache Helicopter Pilot.

During this time Socrates was working for McKinsey & Company where he and his team were analyzing marketplaces for a client.

Similarly to Dutchie, Socrates Rosenfeld discovered how difficult it was to purchase cannabis products online at this time and identified the opportunity to help cannabis retailers solve this problem.

Shortly afterwards Socrates partnered with his co-founders to build Jane.

The present…

Despite being 9 years younger than Weedmaps, Dutchie is currently the most valuable cannabis software company in the world by a significant margin.

Valuations…

In October, Dutchie raised $350 million USD at a $3.75 billion USD valuation.

Weedmaps is currently valued at $772 million, down from $2.99 billion USD when we previously analyzed the top cannabis marketplaces in June 2021.

Jane Technologies has not disclosed its valuation, however, having recently raised $100 million during their series C in August we can approximate Jane Technologies valuation is north of $500 million USD today.

Leafly announced its plans to go public in August in a deal worth $532 million USD, however, they are yet to complete their planned merger with Merida Merger Corp.

Based on these valuations, Dutchie is valued at more than 2x Weedmaps, Leafly & Jane Technologies combined.

Supply vs demand…

When building a marketplace one of the most difficult challenges is the cold start problem where the marketplace doesn’t have enough supply to generate demand, and they don’t have enough demand to attract the necessary supply.

In the case of cannabis, marketplaces are competing to be connected to as many cannabis retailers as possible (the supply) such that you can make the best products available to consumers (the demand).

Here is the most recent data.

  • Jane is connected to more than 1,000 cannabis retail stores.
  • Leafly is connected to more than 4,600 cannabis retail stores.
  • Dutchie is connected to more than 5,000 cannabis retail stores.
  • Weedmaps is connected to more than 4,444 cannabis retail stores.

Business models…

How can Dutchie be worth more than 2x Weedmaps, Jane Technologies and Leafly combined?

The answer is that they have adopted a different business model.

Whereas Weedmaps & Leafly charge cannabis retailers fees to list on their marketplace such that they can benefit from the large number of visitors they receive, Dutchie sells software to cannabis retailers.

  • Leafly received 13+ million visitors in the last month.
  • Weedmaps received 11+ million visitors in the last month.

Is it even a marketplace?

Perhaps it’s a mischaracterization to call Dutchie a cannabis marketplace, as their current business model is software as a service like Shopify vs a traditional marketplace such as Amazon.

Nonetheless, Dutchie.com received over 9 million visitors in the last month.

Additionally, Iheartjane.com which is owned by Jane Technologies received over 2.79 million visitors in the last month.

Creating value from demand…

With both Dutchie and Jane Technologies having recently raised capital, both companies need to continue to increase their revenue, and in order to create new revenue streams a company needs to create and capture new value.

I don’t think Dutchie wants to become a marketplace similar to Amazon as this model pits cannabis retailers against each other as they compete for the limited consumers using these marketplaces.

Nonetheless, Dutchie is still seeking to create value for cannabis retailers by sending them more traffic from Dutchie.com 

The walled garden…

I would describe Dutchie’s current marketplace as a walled garden.

As opposed to allowing consumers access the products of every store listed on the platform at the same time, consumers are asked to select a store at which point they are provided with this store’s inventory.

Weedmaps, Leafly and Jane Technologies have taken a different approach whereby cannabis consumers can search for products from multiple stores.

Continued growth…

Raising capital at a very high valuation is not always a good idea.

The higher the valuation a company receives, the greater the amount of future revenues they are expected to generate.

In Duchie’s case, it’s clear that they are going to be expanding their software as a service business model to other areas of the cannabis industry in addition to doubling down on cannabis point of sale software.

Previously I suggested that Dutchie could acquire some of the smaller cannabis marketplaces, however, I think it’s much more likely that Dutchie would seek to acquire other cannabis SaaS companies.

Looking forward…

To answer the original question of who will be the leading marketplace I would have to say Jane Technologies has a really good chance of becoming the market leader if Dutchie chooses to stick with its walled garden approach.

Nonetheless, I see Dutchie continuing to succeed with its software as a service model as they can expand into many new categories in cannabis.

My hot take on Leafly is that I think they should become the number one cannabis education company in the world.

I have divided opinions on Weedmaps, however, we will learn a great deal from the launch of their upcoming social network.

Closing comments…

Competition drives innovation, and I am very excited by the level of innovation we are seeing in the cannabis software industry today as the cannabis industry continues to attract extremely talented entrepreneurs.