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- Business Insider took a deep dive into cannabis startup Eaze’s financial projections from 2017 to the present.
- Internal documents and interviews reveal the once-brash startup’s vastly scaled-back ambitions.
- In 2017, Eaze — then a cannabis delivery service — projected that it would sell $1 billion worth of marijuana on the platform and aggressively expand to new states.
- In 2020, under the guidance of a new executive team and after a round of layoffs, Eaze has pared back that expectation to $190 million in sales.
- Here’s a look at Eaze’s 2020 deck, which the startup recently presented to investors.
- Click here for more BI Prime stories.
Eaze was once a darling of cannabis and cannabis-curious investors.
With the promise of the rapid spread of cannabis legalization in new markets, venture capital firms and high net worth investors were trying to figure out how to bet on the potentially millions of new consumers getting access to a product that had been classified as a Schedule I drug for half a century.
In 2017, companies like Eaze, ostensibly a delivery service, used the promise of a cannabis boom to woo investors and grow their businesses.
Because cannabis is federally illegal in the US, many investors are barred from betting on companies that handle the plant itself. To them, Eaze was an attractive investment because, as a middleman, it handled cannabis transactions but didn’t derive any revenue from selling marijuana.
Like many startups that sought to aggressively expand in emerging markets with lots of legal gray area, the initial story that the startup trotted out to investors in 2017 — of widespread legalization and hundreds of millions in revenue in a few short years — was more attractive than the reality that materialized.
Business Insider obtained internal documents from Eaze, including its 2020 pitch deck published in full below, that reveal the startup’s pivot and scaled-back ambitions after a series of setbacks including layoffs, a lawsuit, and executive churn.
By January of this year, the company had pared back its sales projections and announced that it was shifting to running its own dispensaries and selling its own branded cannabis products on its platform.
Comparing Eaze in its early days to Eaze now “is a bit like apples to oranges,” an Eaze spokesperson told Business Insider.
“I think since the early exuberant days of 2015, 16, and 17, people have had to do a lot of reconciling between what they thought the market would look like and what the market actually supports,” the spokesperson said.
Once billed as the ‘Uber of weed,’ Eaze has scaled back its ambitions
Once billed as the “Uber of weed,” the startup promised an easy way to connect dispensaries and brands to consumers. Using Eaze’s app, consumers could easily order cannabis from a variety of dispensaries and have it delivered to their doorsteps.
In 2018, as California opened up its adult-use cannabis market, Eaze transitioned from delivering medical cannabis to recreational, which would reach a much larger customer base.
Eaze’s initial business made money by charging dispensaries a technology fee and providing advertising space, data, and menu placement to brands, per a 2017 pitch deck reviewed by Business Insider. The drivers that delivered orders through the Eaze app were paid by the dispensaries or brands that partner with Eaze, rather than by Eaze itself.
In the 2017 pitch deck, produced before adult-use legalization went into effect in California, the company predicted massive scale, touted expansion plans into eight new states by the first half of 2019, and said it would handle $1 billion worth of cannabis transactions across multiple states by the end of 2020 with what the company expected to be thriving commercial cannabis markets. In 2016, the company handled just $24 million in cannabis sales.
Eaze’s 2020 pitch deck reveals a very different company than what it predicted it would be in its earlier years.
In the 2020 deck, Eaze says it hopes to sell $190 million worth of cannabis by the end of this year, generating $125 million in revenue — a far cry from the $1 billion projection three years earlier.
Eaze has raised $201 million from investors
In the 2017 deck, Eaze claimed to be the “only service that supports credit card payments,” a claim formed the basis of a lawsuit filed in June 2019 on behalf of the Toronto-based Dionymed, a former partner and competitor of Eaze. Most cannabis companies, at the time, couldn’t take credit cards, since the substance is federally illegal. The lawsuit is complex, but at the heart of it, Dionymed claimed that Eaze was committing fraud by accepting credit and debit card payments.
An Eaze spokesperson said the company does not handle credit card purchases, and customers are able to pay with debit, cash, or direct deposit.
Dionymed went bankrupt — resolving the lawsuit — and Eaze ended up acquiring a portion of its business as the basis of Eaze’s pivot to running its own dispensaries.
By late 2018, Eaze had become one of the most well-known startups in the cannabis-tech ecosystem. The company closed a $65 million Series C funding round in December 2018, valuing the company at around $400 million, Business Insider reported at the time.
Just over a year later, Eaze closed a significantly smaller $35 million round after replacing its CEO, laying off dozens of employees, and churning through executives. Business Insider has not been able to confirm Eaze’s current valuation.
An Eaze spokesperson said the latest round was smaller because the startup raised with a “very specific purpose,” in funding the company’s pivot. In all, the company said it’s raised $201 million.
In February, Business Insider reported that Eaze lost a valuable partnership with Caliva, a California cannabis retailer. Caliva is building up its own delivery business.
The company that once billed itself the “Uber of weed” is now trying to become a vertically-integrated cannabis retailer, a move that Eaze CEO Rogelio Choy describes as the company’s “second act.”
It’s important to note that Eaze is far from the only cannabis company to struggle in recent months, as issues in accessing venture capital and retaining employees have been compounded by the economic downturn caused by the coronavirus pandemic.
The Eaze spokesperson said the company is “engineered to be responsive to what the market looks like today, versus what people hoped the markets would look like,” as evidence by the pitch deck published in full below.
The startup’s ups and downs over the past three years provide insight into the wild ride that cannabis startups, investors, and employees have been on since US states began legalizing the drug.
Take a look at Eaze’s 2020 deck below:
This year, Eaze began to change its business model to ‘verticalize’ the company, expanding past its delivery-service model to owning more parts of the supply chain and creating its own brands.
To finance the pivot, Eaze raised $35 million in February from investors including FoundersJT LLC, Rose Capital and DCM.
The core of the company is still its ability to “provide legal access to cannabis through safe and convenient delivery,” Eaze says.
The most notable figure on this slide is Eaze’s projection that it will sell more than $190 million worth of cannabis products in 2020, generating around $125 million in revenue for the company.
In documents obtained by Business Insider from 2017, Eaze projected that by 2020, it would handle $1 billion worth of product sales. Later, in 2019, Eaze adjusted its projections to half that amount, as previously reported by MarketWatch.
Last year, Eaze says its gross transaction value increased by 78% and totaled $176 million.
In this slide, Eaze outlines its pivot from “marketplace” to “vertical retailer.”
The transition, the company says, gives it more room and opportunity to reduce costs and increase working capital. An article by TechCrunch this January noted that Eaze was facing cash shortages and was struggling to pay vendors.
The transition to ‘verticalization’ is two-fold. One part involves what Eaze describes as ‘depot consolidation,’ or owning its network and dispensaries. The other is a push for its own brands, which the company says will provide improved margins.
Eaze says it aims to control over 95% of its dispensaries by July of this year. It also plans to push its own products, “Circles” and the upcoming brand “Anarchy,” to take up 40% of its menu share, because of the bigger margins its own products will provide to the company.
The company is pushing hard to have control over its network.
Within four months, Eaze went from owning none of its network to 60%, according to this slide. A spokesperson told Business Insider that as of mid-May, the company’s network control is closer to 65%.
A look at the margin differences between a “house brand” and third-party brands.
The company expects its sales to ramp up throughout 2020 and is pushing to have its “house brands” make up close to 40% of its sales by the end of this year.
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As an ecommerce company, Eaze has the advantage of giving its own products the best placements in its digital store.
Within the first two weeks of launching its Circles brand, Eaze says the house brand made up around one-fourth of sales in the flower and vape categories.
By having more control over its network and pushing its own brands, Eaze says it will improve profitability.
Eaze says that at $20 million in gross transaction value per month, it would break even and post a small profit as measured by EBITDA, or earnings before interest, taxes, depreciation and amortization.
The company expects to reach that break-even point this year.
The goal after Eaze becomes profitable in California is to expand to additional states, highlighted on this map.
Eaze says there are three key elements that make this expansion possible: its differentiated technology, brand recognition, and data advantages.
In this slide, Eaze lays out its 2019 revenue and outlines its expectations for 2020.
Eaze’s management team has seen a big shakeup over the past year.
New execs include CEO Rogelio Choy, who replaced Jim Patterson in October of 2019, and SVP of Finance Cory Azzalino who came on board from Dionymed, among others.