As fast as the marijuana industry is growing, there is a lot of desperation out there to secure a foothold. This is the United States after all, we are THE economic powerhouse and a cannabis tech startup is surrounded by giants. For a delivery service like Eaze, they work in the shadow of Amazon and their anxiety is obvious in the amount of money they are spending to establish their name.
The cannabis tech startup has already gone through $24.5 million of venture capital money raised to market themselves. Can you imagine spending $1 million a month as a delivery service?
The cannabis industry has lit up in the last year, including weed delivery startup Eaze, which just raised $27 million in Series B financing and claims a 300 percent year-over-year increase in gross sales.
But the weed delivery startup has come under scrutiny recently for burning through at least $1 million in cash per month. In contrast, other software-based pot delivery startups like Meadow have played it lean, focusing more on improving the software and logistics.
Eaze has gone hard on marketing spend, using aggressive growth tactics and burning through the $24.5 million it had previously raised in VC cash.
New CEO of the company Jim Patterson, who took over the role in December 2017 explains his approach as just part of the Silicon Valley cycle to get ahead, “We are a tech startup…we’re investing in growth,” he told TechCrunch when asked about the high burn rate. “We’re investing the money now in what’s clearly going to be a very big market.”
Part of the pop in the pot delivery industry is due to tech finally meeting the needs of the medical marijuana community in the state of California, where Eaze operates. Eaze uses its proprietary software to help consumers with a medical marijuana license in the state buy pot from local dispensaries and then delivers those purchases to their door.
However, California is set to begin issuing licenses for the cultivation and selling of the plant for recreational use at the beginning of 2018, which will open up a whole new revenue stream for Eaze and others in the space.
Colorado, a state where recreational use of the drug has been legal for a couple of years now, is reportedly pulling in nearly $100 million in pot sales per month and the marijuana industry is slated to balloon to a $24 billion dollar business by 2025.
Eaze is making the bet on high growth now to cash in on a good piece of those profits later, telling TechCrunch this was the reason for the Series B raise.
We should note that its conceivable other larger tech companies in the delivery logistics space like Amazon could just as easily decide to get into the space, crushing little startups like Meadow and Eaze in the process.
Patterson admits that’s not a far-fetched scenario but doesn’t think it will happen. “If you’re doing anything in retail and not thinking about Amazon at this point you’re crazy,” he said. “But the reality is [weed delivery] is still complicated at the federal level.”