INSUBCONTINENT EXCLUSIVE:
The first cannabis startup to raise big money in Silicon Valley is in danger of burning out
A Technology News Room has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten
its ability to make payroll or settle its AWS bill
its own marijuana brands through its own depots
The funding was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on
Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime
The spokesperson refused to discuss personnel issues, but noted that there have been layoffs at many late-stage startups as investors want
to see companies cut costs and become more efficient.From what we understand, Eaze is currently trying to raise a $35 million Series D
round, according to its pitch deck
The $15 million bridge round came from unnamed current investors
(Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers and a
number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital,
is said to have walked away at the eleventh hour.Eaze is going into the fundraising with an enterprise value of $388 million, according to
company documents reviewed by A Technology News Room
through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide
online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and
dispensing the product directly
brands through its own delivery depots to earn a higher margin
With a number of other cannabis companies struggling, the hope is that it will be able to acquire at low prices brands in areas like
marijuana flower, pre-rolled joints, vaporizer cartridges or edibles.An Eaze spokesperson confirmed that the company plans to announce the
then became a competitor, and then sued it over payment disputes, before finally selling part of its business
has only expanded to one other state beyond California (Oregon)
Its aim is to add five more states this year, and another three in 2021
But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic
Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.An employee at the
company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this
is total merchandise value, before any cuts to suppliers and others are made
marijuana industry: a lack of working capital
Another source says late payments have pushed some brands to stop selling through Eaze.Another drain on its finances has been its marketing
A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point
buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.Indeed, Eaze claims that its pivot
into verticalization will bring it $204 million in revenues on gross transactions of $300 million
model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its
disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or
buying from a black market dealer.It is not the only startup that has been chasing that audience
Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from
Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some
$11.9 billion in 2018 and projected to grow to $63 billion by 2025.Eaze was founded on the premise that the gradual decriminalization of pot
ChoyThat impression was not to last
The company, this employee was told when joining, had plenty of funding with more on the way
The newer funding never materialized, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and
leadership: former Yammer executive Keith McCarty, who co-founded the company with Roie Edery (both are now founders at another cannabis
startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the
acquisition Eaze made several years ago of a startup called Push for Pizza
Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favorite pizza order in the
app, and when you want it, you pushed a single button to order it
it into a weed app, Push for Kush
In it, customers could craft their favorite mix and, at the touch of a button, order it, lowering the procurement barrier even more.The
company was very excited about the deal and the prospect of the new app
but no more than that.)Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired
by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model
Push for Kush by cash was less appealing
The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only
cards, but not smoothly: Visa specifically did not want Eaze on its platform
Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed
Currently the company appears to only take payments via debit cards, ACH transfer and cash, not credit card.Another incident sheds light on
secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.The vulnerability was brought to the
It was something that was up to product to fix, but the job was pushed down the list
It ultimately took seven months to patch this up
discovered but claims it was promptly resolved.Today, the issue is a more pressing financial one: The company is running out of money
access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market
But high government taxes, enduring black markets, intense competition and a lack of financial infrastructure willing to deal with any legal
haziness have caused major setbacks.While the pot business might sound chill, operations like Eaze depend on coordinating high-stress
logistics with thin margins and little room for error
Plenty of food delivery startups, from Sprig to Munchery, went under after running into similar struggles, and at least banks and payment
processors would work with them
