Ross Lipson's e-commerce platform, backed by Howard Schultz, Kevin Durant and Snoop Dogg, commands more than 40% of the market and doubled in value to $3.8 billion last year. But as legalization spreads, the company's business could be in trouble.
On October 1, 2015, the first day recreational marijuana was legalized in Bend, Oregon, Ross Lipson waited in an hour-long line to buy marijuana. A few years ago, he sold the online food ordering business he co-founded after dropping out of college for an estimated $30 million. Since then, the 20-something entrepreneur has been snowboarding during what he describes as a “sabbatical” from working for a living. But before she could get to the register, Lipson had a new business idea. That means starting a company to help pharmacies take orders online.
“I really feel like I was the right person in the right place at the right time,” says Lipson, now 34. A light bulb goes off in my head as I order cannabis online. And you know I'm the right person to do that because I have almost a decade of extensive experience in the restaurant industry. ”
He immediately called his brother Zach, who was looking to sell his startup, Repro, an online tool for financial advisors, but was wondering if his idea was a good one or if he was inspired by cannabis. I confirmed whether this was just a fantasy of an entrepreneur. “He immediately said, 'It's easy, you just have to do it,'” Ross Lipson recalls. By July 2017, the brothers launched Bend-based Dutchie as an e-commerce software company. The company helps pharmacies post their menus online, allowing customers to order and pick up flowers, food, and e-cigarettes with just a few taps on their smartphones. No delivery. Optional. This is essentially a model that combines Shopify and Seamless, but for pots.
The first pharmacy to use Dutchie's software was the same one where Lipson had his eureka moment, and within a few months, 50 pharmacies in Oregon had signed up for the service.
“We're adamant about staying on the technology piece of the puzzle rather than touching on the plant,” Lipson said of Dutchie.
Excited investors jumped on the idea of a way to invest in the cannabis industry without investing directly in a drug that is still federally illegal. Snoop Dogg's venture firm Casa Verde Capital led a $3 million seed round in 2018. Two years later, Josh Kushner's Thrive was a success. Capital, NBA star Kevin Durant's fund, and billionaire and former Starbucks CEO Howard Schultz endorsed it. In March 2021, Dassey raised $200 million in Series C led by Tiger Global, which has backed companies such as Peloton, Roblox, Spotify, and Juul. This investment makes Dutchie a cannabis unicorn worth $1.7 billion.
Seven months later, in mid-October, Dutchie announced a new $350 million funding round led by billionaire Daniel Sundheim's D1 Capital Partners, valued at $3.8 billion. It's all based on possibility. Overall, Forbes estimates that Ducky earned approximately $5 million in 2020 and approximately $45 million in 2021. Mr. Lipson would not comment on his company's earnings.
Dutchie sells e-commerce and point-of-sale software to pharmacies that helps them take online orders, manage inventory, comply with state laws, and operate cash registers. Dutchie sells its software products on a monthly subscription basis, with prices ranging from $500 to $1,000 per pharmacy. There are currently an estimated 9,000 pharmacies across the United States and Canada, and approximately 5,000 pharmacies carry at least one Dutch Software product, Duckey claims.
But most of all, Dutchie's investors are excited about the potential of the cannabis industry, which is still in its infancy. US cannabis sales reached $17.5 billion in 2020, and that number is projected to increase to $100 billion by 2030. That makes Dutchie a way to invest in the cannabis industry without investing in a cannabis company. Lipson said Dutchie would never grow, sell or distribute marijuana.
“It’s always, always, always software,” he says. “We are adamant about staying with the technology piece of the puzzle rather than tinkering with the plant.”
This is an important distinction because many investment funds are governed by rules that prevent them from supporting companies that violate the law or violate limited partner ethics clauses.
High Demand: Dutchie helps the pharmacy take orders and manage inventory, but does not make deliveries or travel to or from the factory.
dutchie
Gaurav Ahuja, a partner at Josh Kushner's investment firm Thrive Capital, which invested in Ducky, says a turnaround is still years away. “We see a lot of similarities with beer, wine and spirits, which is a $235 billion (annual sales) category,” Ahuja said. “But these are still relatively early days for the cannabis industry. As access to cannabis increases, Dutchie's opportunities will expand.” Expand. ”
“People are starting to realize what a big opportunity this is and how much more Dutchie can do,” said Snoop Dogg's Casa Verde Capital Money, which participated in all Dutchie funding rounds. Karan Wadera, partner at Ging. “Fundamentally speaking, just being one of the leading POS and e-commerce companies is incredibly exciting. Ducky will have a presence in every new market and then internationally and continentally. There will be a chance.”
Some are skeptical about how far the company can grow. For example, Dutchee says its platform will process $12 billion in cannabis transactions in the U.S. and Canada this year. However, the word “processing” is a bit of a misnomer. Dutchie and its POS products, GreenBits and LeafLogix, are not payment processors, and many of the transactions that flow through the company's e-commerce platform are recorded by other POS systems. Additionally, most of the industry's transactions are still done in cash, and Visa, MasterCard, Square, and other payment processors will not accept cannabis transactions until it is legalized at the federal level. This means that pharmacies can only accept cash or cash equivalents, such as ACH transfers or sketchy cashless ATM transactions.
To put that $12 billion claim into perspective, annual sales in the U.S. and Canada amounted to an estimated $29 billion in 2021, according to Cowen analysts. So Dutchie claims to have captured 41% of the North American market last year. However, interviews with industry cannabis investors, executives, and analysts suggest that Dutchie's market share is about as generous and positive as it can be. “I roll my eyes when I see those numbers,” says a longtime cannabis investor who asked not to be named.
Cannabis laws by state
Most of Ducky's investors, including billionaires Howard Schultz, Dan Sundheim, Josh Kushner and the president of Tiger Global Inc., declined to be interviewed or answered questions via email. I didn't. Lipson defends his numbers, saying the company's predictions are true. “We fully stand behind the accuracy of our numbers 100%,” Lipson said.
For the time being, it doesn't really matter whether Dutchie's number is bulletproof or not. Armed with large amounts of capital, the company was able to sell software to pharmacies at a lower price than its competitors. That's because Lipson is now concerned about growth, not profitability. (Dutchie is not making a profit, and it is unclear when it will become profitable.)
Meanwhile, federal legalization is far from certain under the Biden administration, and cannabis banking reform was cut from Congress' defense spending bill last year. This is doubly bad news for the industry, but good news for Dutchie. When the U.S. eventually lifts prohibition on cannabis, e-commerce giants like Shopify and payment processors like Visa and Square will move in, leaving companies like Dutchie vulnerable.
Ever the optimistic preacher, Lipson rejects the idea that Dutcher could be crushed by a receding mainstream following legalization. “We don't see it as a threat,” he says. “We see this as an opportunity. This is not a winner-take-all market, and there are a lot of opportunities for a lot of people.”
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