Cannabis Startup Eaze Makes A Comeback With $700 Million Valuation

Cannabis startup Eaze is on the road to recovery...

Welcome to Four PM — a newsletter that provides cannabis industry news & insights from cannabis industry leaders.

In Today’s Issue 💬

→ Eaze’s $700 Million Valuation 📈

→ Tilray’s U.S Expansion Plans. 💸

→ Canadian Cannabis Producer Folds. ❌

Eaze’s Road To Recovery

On the 16th of January 2020, TechCrunch reported that cannabis startup Eaze was weeks away from having to shut down.

Today, Eaze announced an all-stock deal to acquire Green Dragon — a leading cannabis retail chain with stores in Colorado and Florida with a freshly minted $700 million USD valuation.

Founding Eaze…

In 2014 Keith McCarthy who was an early employee of Yammer which sold to Microsoft for $1.2 billion created Eaze to become the “Uber Of Cannabis”.

Eaze raised $1.5 million USD for their seed round in 2014, followed by $10 million in April 2015.

The Business Model?

Eaze initially focused on medical cannabis and made money by charging cannabis retail stores a “technology fee” and providing advertising space in addition to charging brands for premium placement.

Unlike Uber who pays their drivers a direct commission, drivers that delivered orders for Eaze were paid directly by the cannabis retail stores or brands whose products they were delivering.

Cash, Cash & More Cash…

Having delivered cannabis to some 200,000 people living in California in 2016, Eaze raised an additional $13 million USD in their series B, however, less than a year later Eaze founder and CEO Keith McCarthy stepped down as CEO.

During this time, Eaze was burning boatloads of cash to fuel their aggressive expansion plans, and once again they turned to investors for more.

It was reported that Eaze was burning $1 million USD in cash per month, however, having grown their sales by 300% in the 12 months prior Eaze managed to raise an additional $27 million USD.

The Challenges…

Eaze experienced some major setbacks.

In June of 2019, Apple announced it would no longer allow cannabis companies to sell cannabis products from within apps, followed by Google.

Caliva which is the largest direct-to-consumer cannabis brand in California also announced they would no longer be working with Eaze.

In fact, Caliva would be directly competing with Eaze moving forward as they expanded their own direct-to-consumer operations.

Unrealistic Expectations?

In 2017, Eaze said it would sell $1 billion worth of cannabis in 2020 by expanding into several new states.

Eaze raised an additional $65 million in their Series C in December 2018, valuing Eaze at around $400 million.

In 2020, under the guidance of a new executive team and after a round of layoffs, Eaze has pared back that expectation to $190 USD million in sales.

Eaze was forced to lay off 36 employees, and their CEO Jim Patterson resigned from the company.

The Pivot…

Eaze continued to burn cash at an alarming rate, and CEO Rogelio Choy decided it was time to bet the house.

As opposed to delivering cannabis products on behalf of cannabis retailers and direct to consumer cannabis brands they worked with — Eaze would now deliver its own cannabis products.

“Until now, we’ve invested in proving our market fit, building an enormous and loyal customer base, and becoming California’s biggest marketplace for legal cannabis delivery.

Now, we’re proving we can make this business work in a more sustainable and profitable way, while continuing to grow Eaze’s existing services.” — CEO Rogelio Choy said in 2020.

To complete this pivot, Eaze purchased the assets from a bankrupt cannabis producer DionyMed.

Fast Forward….

Credit where credit is due, Rogelio Choy’s decision to bet the house on becoming a vertically integrated cannabis company is paying huge dividends.

Although Eaze has not shared any information surrounding its growth, or increased profits margins since making this move — what we do know is that no company doubles its valuation without experiencing explosive growth.

Our Take

There is something to be said about a company that simply refuses to admit defeat, and despite the countless mistakes that Eaze has seemingly made — the company is right back on track today.

Tilray’s Takeover Of MedMen

The billion-dollar Canadian cannabis producer wants to acquire MedMen

On October 17th 2018 Canada legalized cannabis — on this same day California cannabis company MedMen was valued at some $5.8 billion USD.

MedMen is currently valued at less than $280 million.

Building MedMen….

MedMen was co-founded in 2010 by Adam Bierman and Andrew Modlin.

The duo said they saw a business opportunity in the emerging cannabis industry and a chance to redefine society's relationship with cannabis.

To bring this vision to life they focused on building luxurious cannabis stores — raising $110 million USD before going public in 2019.

On the 22nd of March 2019, MedMen who was then dubbed the “Apple of cannabis” went public at a $1.6 billion USD valuation.

They raised an additional $250 million dollars to fuel further expansion.

Trouble In Paradise….

Despite their public persona, many reports began emerging about the outrageous spending habits of the MedMen co-founders Adam Bierman and Andrew Modlin.

In 2019, former CFO, James Parker, filed a lawsuit claiming that he was wrongfully discharged alongside an array of allegations that the founders of MedMen were abusing their positions of power.

On April 19, 2019, MedMen's Chief Operating Officer Ben Cook, general counsel Lisa Sergi Trager, and Senior Vice President of Corporate Communications Daniel Yi all resigned from the company.

On the 1st of February 2020, Adam Bierman resigned as CEO and surrendered all of his Class A voting shares — by this point, however, MedMen was worth less than $200 million USD.

Along Comes Tilary….

In Canada, several Canadian cannabis companies have also raised several hundreds of millions of dollars with Tilray sitting near the top of this list.

Having recently merged with Canadian cannabis producers Aphria, Tilray now has its eyes set on entering the U.S market, however, one major problem stands in their way.

As a result of Tilray being listed on the New York Stock Exchange, they can’t purchase any plant-touching cannabis companies in the U.S.

They can however still purchase debt.

The Deal?

Tilray announced they bought $160 million in debt, or convertible notes from Gotham Green Partners, a fund that invested $250 million into MedMen.

Convertible notes are a type of debt that converts to equity at a later date — such as it becoming federally legal for banks to work with cannabis companies in the U.S.

Tilray's convertible notes can convert to 21% of MedMen's outstanding stock.

With this deal structure, Tilray does not own MedMen, however, their CEO has made clear that they intend to acquire MedMen when they can.

Our Take

We have no timeline as to when cannabis will be federally legalized in the U.S, such that these dollars could have been used today to improve Tilray’s products in the market they are actually allowed to operate in — Canada.

I like MedMen as a brand being acquired by a U.S cannabis company for their licenses and for their retail locations.

Bonify Says Goodbye.

Having received a suspension two and a half years ago, the company has not recovered since.

In 2019 Canadian cannabis producer Bonify had its sales license suspended.

Two and a half years later they are now shutting down their operations.

The company received a suspension after they sourced cannabis from the illicit market and sold it into the legal market.

The Announcement…

As per StratCann Bonify made the official announcement on the 17th of August in an email from CEO Pierre Morris.

“The wind-down started on August 9, 2021, and will conclude in the next few weeks,”

“substantial challenges since (Bonify) inception, not the least of which was the suspension of its sales license for most of 2019.”

Bonify had its license reinstated by Health Canada in Q4 2019, and the company resumed selling recreational cannabis in Canada in 2020.

Bonify “stabilized internal processes, increased production and significantly cut its operational costs.”

“Unfortunately, these changes were not sufficient to achieve profitability or positive cash flows and Bonify continued to suffer operational losses through 2019, 2020, and 2021.”

Too Much Cannabis?

One of the biggest problems with cannabis in Canada today is the surplus of cannabis needlessly being produced.

Current estimates suggest that Canada has over 10x the supply of cannabis they need vs the current consumer demand.

Canadian cannabis producers are being left with no choice but to destroy some 500,000 KG’s of unpackaged cannabis in the last two years alone.

Lower Prices… ⬇️

Prices are decreasing despite consumer demand for cannabis reaching record highs of $248.8 million USD in May 2021.

For many smaller cannabis companies who have not raised hundreds of millions of dollars, they cannot sustain losses.

Many of the largest Canadian cannabis companies such as Canopy, Tilray, and Hexo continue to record losses to the tune of hundreds of millions of dollars — courtesy of the capital they have raised.

Not every cannabis company can do the same.

Our Take

With at least a 10X surplus of cannabis in Canada, companies shutting down might be the only way this problem is solved.

We will continue to see M&A in Canada, however, I also expect it to become much more common for companies to simply cease operating.

For more like this, subscribe to Four PM today to receive the next edition:

If you gained value from this edition of Four PM, feel free to share it with the world. 🌎