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This is a B2B2C newsletter
Tech mergers, Brooklyn (yay), Long Island (sigh)
**Downloadable New York tear sheet**
Since this is the last Money Puff - Cannabis of the week, we’re putting out state spotlights on Wednesdays now. This week, you can download the first in a new series of state tear sheets, this one on New York. Feel free to put these in your presentations, newsletters, Twitter feeds, whatever.
Back in my day, B2B was all the rage.1 But, like the weed market with vapes, tech can’t help but chase the newest thing. Now tech weed is moving beyond B2B, and breaking ground in… B2B… 2C! Here’s Green Market Report on the merger between Leaf Trade and Sweed:
Nevada-based cannabis tech companies Leaf Trade and Sweed will merge into a new yet-to-be-named business entity, with Leaf Trade CEO James Yi at the helm.
The combined company, Yi said, will result in a new “B2B2C” tech platform that is unique to-date in cannabis.
“It’s connecting that B2B transaction point with the B2C transaction point, and that unlocks a ton of efficiencies for a lot of our clients, because all of a sudden, they can do stuff like take product catalogs and run them all the way through the supply chain,” Yi told Green Market Report.
At this point, the two companies are keeping their respective names and operational sectors, with Leaf Trade being a wholesale platform and Sweed being focused more on streamlining operations for retailers. But, Yi said, they’re joining forces into a new single business entity and will be cross-selling each others’ suites of services.
I was a fintech banker, so let me break down the combination. (Full disclosure: I used to work at Leaf Trade’s competitor LeafLink.) Leaf Trade hopes that retailers will purchase their inventory from the Leaf Trade marketplace. It’s free for retailers to use, and Leaf Trade charges listed brands a fee per order.2 They also have some advertising tools and such that they charge brands for as well, on top of the marketplace orders.
The marketplace is probably where most of Leaf Trade’s revenue comes from. Their other offering, according to their website, is an ACH payments offering. ACH payments are convenient, but they don’t make very much.3 Also, a lot of business in cannabis happens outside of the banking system, because cannabis companies have trouble getting banks to work with them; it’s tough to retain customers and extract long-term value from them in the current environment.4
Enter: Sweed. (Full disclosure: I used to work at Sweed’s competitor Dutchie.) Sweed provides POS software to retailers. Their enterprise resource planning (ERP) package offers financial and inventory management software at the point of sale, as well as backend integrations for analytics, marketing, ecommerce, etc. This product is a lot more sticky, because it’s harder for retailers to switch their POS system than their ordering platform.5
However, Sweed conspicuously does not seem to offer payments, which is the real money maker of POS software. In other industries, POS providers often give their software away for free and just monetize on payments. But in cannabis, due to regulations, retailers usually can’t take credit cards or offer other traditional payment methods. Sweed probably figured that it was too much of a headache trying to figure out a solution, so they’ve been focusing on mission-critical software.
Leaf Trade has been building their payments offerings, albeit for a different side of the industry. Sweed is getting access to some of this expertise, plus a suite of wholesale products to attract valuable brand customers. Leaf Trade is betting on an improved retention rate: with LT suddenly integrated with mission-critical software, they’re hoping that retailers will order more often and increase the value of the marketplace. A comprehensive payments offering is presumably on the roadmap for both companies once regulations allow for it.
And by the power vested in Money Puff, we now declare you… a yet-to-be-named B2B2C cannabis company! You may now hit the joint.
Brooklyn, my home borough, is finally getting an adult-use location. That’s thanks to a ruling from U.S. the Court of Appeals for the Second Circuit on Tuesday afternoon. Here’s GMR with more:
An injunction issued by a federal judge in November that stalled retail cannabis licensing in five of New York’s regions has been narrowed now to just one – the Finger Lakes.
That means marijuana retail licenses can now be awarded by the state Office of Cannabis Management in the other four regions, which include Brooklyn, Central New York, Western New York, and the Mid-Hudson areas.
Poor Finger Lakes. The case centers around the dormant commerce clause, which we’ve talked about before. Basically, a Michigan entrepreneur took issue with New York’s residency requirement for the adult-use market, and the courts prevented new stores from opening while the case was under review. Now, a judge has decided that, since the plaintiff sought to establish their company in the Finger Lakes, all the other New York regions are cleared for business.
That does not mean that the issue is resolved. The court will still have to rule on the residency requirement in the Finger Lakes; history tells us it could go either way. A federal judge nullified the residency requirement in Maine, while it was upheld in Washington.
Meanwhile, the good people of the Finger Lakes just want some weed!
Long Island (sigh)
Here’s an interesting map from Bloomberg that shows the per capita income distribution of Long Island (just kidding it’s about weed):
One more reason this newsletter doesn’t go to Long Island.
From the perspective of a former fintech banker. B2B SaaS, B2B payments, B2B marketplaces, etc.
Others charge brands a flat monthly fee.
Like 25 cents per transaction.
Some platforms are trying to use the situation to their advantage by offering things like accounts receivable factoring in place of traditional credit offerings; this is risky, though, because a lot of cannabis companies are in dire financial straits and don’t pay their bills.
This is especially true in cannabis, where, for regulatory reasons, there are a litany of things that retailers are required to keep track of and report on daily and throughout the supply chain.