DishDivvy serves up marketplace for on-demand, home-cooked food

Sitting down to a homemade meal is not always easy, but DishDivvy has come online to make it more of a reality, and at the same time provide home cooks with a way to make money from their creations.

Ani Torosyan, co-founder and CEO, started the Los Angeles-based company three years ago with CTO Davit Avetisyan. Her family immigrated to the U.S., and though both of her parents were busy engineers, Torosyan recalls growing up with a home-cooked meal on the table everyday.

DishDivvy, Ani Torosyan, co-founder and CEO

Ani Torosyan, co-founder and CEO of DishDivvy. Image Credit: DishDivvy

“Fast-forward to now, I am the busy working parent, and although I love to cook, we always have the dinner dilemma of what to eat,” she added. “I have a mother-in-law who is also a good cook, and I kept thinking about how to productize what she was doing, especially as I saw more and more of the people in my community open to paying for access to this.”

Etsy was the inspiration for DishDivvy’s marketplace, which aims to reduce the additional overhead costs for its home cooks, Torosyan said.

“Its reason for success was that it was providing tools to take the boring business stuff out of running a business and help people focus on their craft,” she added. “Similarly, we provide SaaS tools for uploading menus, orders, revenue and transactions. We also partner with DoorDash, so any home cook where there is coverage can have delivery. All of those are a hurdle for people who just want to make food.”

Indeed, home cooks, who are vetted and food-safety certified, get a suite of tools on the app to upload their menu items, and they can tag ingredients, allergens and note the prep time, which is used to calculate how much advance notice is needed for people to order and a calendar to schedule their dishes. The home cooks don’t have to be a 9-to-5 restaurant, either. They can offer, for example, three dishes on Thursday and two on Friday.


DishDivvy’s app for home chefs. Image Credit: DishDivvy

On the customer side, they can explore the meals being made near them, add dishes to their cart, select the day and time for pickup at the cook’s home or delivery, and checkout. When the customer pulls up for a curbside order, there is a button on the app that tells the cook they are there. Torosyan boasts that the average time from the customer saying they are there to getting the food in their car is 44 seconds.

The global pandemic saw many people start working in the gig economy, and similarly, Torosyan saw a surge in cook applications beginning two years ago. Not just for home cooks, but for people who used to work in restaurants and hospitality.

Torosyan was also on the advocacy team leading the passage of AB 626, the California Homemade Food Act. That has since paved the way for legislation around home kitchen operations to progress into 44 home cooking bills across 29 states since 2018.

Now DishDivvy boasts more than 500 cooks and 10,000 users across California. “Initially we were looking at the ethnic uniqueness of the cooks, but now that we have so many cooks, we are focused on food that you can’t find in a restaurant or can’t find a more authentic dish,” Torosyan added. “It’s like having an ‘Anthony Bourdain’ experience without leaving your neighborhood.”

Today the company announced $1.3 million in pre-seed funding to expand its reach in California and into pockets of Austin, Chicago, Charlotte, N.C., Baltimore and the Washington, D.C. area. It will also invest in product development, operations and team growth.

Torosyan aims to triple the size of the team of nine this year after seeing its revenue grow an average of 33% year over year over the past three years. Its average order volume is $48, and 85% of that goes to the cook.

10X Venture led the pre-seed, with participation from early employees and senior executives of DoorDash, Etsy, Eaze and MasterClass.

Prahar Shah, who was an early employee at DoorDash and is currently managing director of 10X Venture and a member of DishDivvy’s board, said he also recalls his family eating together, and, in fact, the immigrant community he was a part of in Canada fed itself.

“You knew everyone’s speciality,” he added. “I’m surprised this marketplace didn’t already exist in the U.S., but it really exists offline. Ani is the voice of the home cook, and when I met her and experienced the product, I knew I had to be involved with it.”

Meanwhile, DishDivvy is operating in an increasingly crowded landscape, where companies like WoodSpoon, Shef, Feastastic, Supper in London, Wummly, Foodcloud, Homefoodi, FoodyBuddy and ZuperMeal are going after what Torosyan estimates is a $6 billion home restaurant market inside the larger $1 trillion restaurant industry.

Torosyan saw many competitors come online after the California home cook bill passed; however, she also saw many start up for a few months and then abandon the idea. What she ultimately sees is having access to what amounts to a personal chef service at to-go prices.

“Part of the passion is to make good food and feed the kids, and home cooking is all about that,” she added. “We are bringing back eating well, but keeping it hyperlocal so none of the food travels across the country. That sends a signal that every person can become a home cook, and we have a place for you to do it.”

Eaze to become America’s largest cannabis delivery service after buying Green Dragon

Eaze this week announced  significant plans to expand into one the U.S.’s largest cannabis delivery services. One of the original on-demand cannabis delivery services, the Bay Area-based company is set to acquire cannabis retailer and cultivator Green Dragon, which operates in the hot markets of Colorado and Florida. Combined with existing operations in California and Michigan, the deal would find Eaze operating in America’s four largest cannabis markets.

Less than two years ago, it was unclear if Eaze would have enough cash to continue operating. According to TechCrunch’s reporting, it was experiencing significant trouble raising funds and went through unannounced layoffs. The company was switching from providing delivery services to operating as a delivery dispensary. Eaze was effectively the Uber of Weed, attempting to become the Amazon of Weed.

Founded in 2014 by Keith McCarty, Eaze has raised over $255 million to date. The company cycled through leadership and has seen three CEOs, with Rogelio Choy leading it since 2019. Former CEO Jim Patterson recently pleaded guilty in a $100 million scheme to deceive banks into processing credit and debit payments in cannabis purchases. The case is similar to one brought against Eaze in 2019, though the company denied involvement and is not a defendant in the case against Patterson. The future was unclear, but now two years later, it’s raising more funds and is on track to become the nation’s largest multi-state cannabis delivery service.

The company switched gears in 2019 and closed a previously-announced Series D financing round of $90 million in August 2020. This year, Eaze is trying to close a $75 million Series E with 80% of the funds already committed. The company expects this round to close in November. Eaze tells TechCrunch that this round will value Eaze at more than $700 million — double its fundraising valuation in 2019. The anticipated funding will be used to drive additional retail expansion.

Eaze Chief Strategy Officer Cory Azzalino justifies the higher valuation as such, “The company is fundamentally different. Even our California operations are significantly larger than they were back in 2019 from a revenue standpoint. But also just in terms of future growth opportunities. There’s a substantial increase in our addressable market. Florida, Michigan and Colorado create some $6 billion worth of incremental market size.”

Eaze is quickly becoming a major national cannabis operator. Earlier in 2021, it announced that its delivery service will be moving into Michigan, the hottest cannabis market in the midwest. If the Green Dragon purchase closes, the company also gains delivery operations in Colorado (now approving cannabis delivery companies) and Florida (a state with a massive medical marijuana market). According to a press release, Green Dragon saw more than one million transactions in 2020, and its Colorado stores grew 39% in 2020. In July, the company turned to Florida, announcing the opening of its first two dispensaries in the state and its intention to secure 20 more locations by the end of 2021.

The timing couldn’t be better for Eaze. In June 2021 Apple changed an App Story policy, allowing licensed cannabis dispensaries to list and sell cannabis products (flower, edibles, and vapes) directly from an iOS app. Eaze jumped, becoming the first retailer to sell weed from an iPhone app. However, purchases are only possible in Eaze’s two markets: California and (soon) Michigan.

“Eaze has achieved exponential growth over the last two years by successfully shifting to vertical operations and continuing to grow our loyal customer base,” said Eaze CEO Rogelio Choy said in a released statement. “Green Dragon’s airtight operations in Colorado and expansion into Florida’s booming market adds key operational capabilities to our national footprint and cements our leadership as California’s largest MSO. Together, we are well-positioned to leverage the market’s explosive growth now and into the future.”

Cannabis VC Karan Wadhera on why the industry, which took a hit last year, is now quietly blazing

Early last year, excitement over the burgeoning cannabis industry was palpable in Silicon Valley, with a small number of venture firms writing their first checks to cannabis-related startups. Among them is the cross-border venture firm DCM, which even hosted an “inaugural” cannabis “tech summit” in May 2019 that drew so many investors that finding a seat was difficult.

Yet the buzz began to fade soon after, owing to a confluence of events, including a bubble in publicly traded cannabis companies; legalization that moved more slowly than hoped in certain states like New York; and an outbreak of lung injuries tied to vaping last fall.

The industry is still navigating around some of these trends, but it’s also proving more durable than outsiders might imagine, according to Karen Wadhera, a managing partner at Casa Verde Capital, the cannabis-focused venture firm founded by Snoop Dogg back in 2016. “Four plus months into COVID, cannabis has really proved itself to be a non-cyclical industry,” he told in a chat last week, where we talked about what went so wrong, what’s happening right now, and whether he ever worries that Casa Verde might be too early to the cannabis party. Parts of that chat, edited for length, follow.

TC: The last time I saw you in person, last year, there was a lot of interest in cannabis. Since then, the headlines have pretty consistently been bad. What’s going on?

KW: What happened to the public perception of the cannabis industry is not too dissimilar to the dotcom bubble of the late ’90s, where there was a lot of hype — a lot of it driven by public companies — and a lot ofspeculative trading and valuations that weren’t really founded in reality. [We’re talking about] projections multiple years out into the future, and then crazy revenue multiples on top of that. Things just got really frothy, and that eventually burst, and last April or May was sort of apex of that of that moment. It’s when things started to trade off. And it’s been those names, the public names in particular, that have been hit particularly hard.

TC: Why?

I don’t know if it was driven purely by scarcity value, but there was definitely an incentive to go public. So you had a lot of companies go public well before they were prepared to. And then you’ve had a lot of companies, which are just, quite frankly, poorly run, with poor management teams, and some with even real ethical concerns [regarding] how they ran their businesses. So I think that all started to come to a head and led to a pretty serious implosion.

It was pretty painful, for sure. But what’s so interesting is that even though that has been the public perception based on these stocks, the reality is the macro has continued to improve. Sitting here today, four-plus months into COVID, cannabis has really proved itself to be a non-cyclical industry. Cannabis has been deemed an essential business everywhere across the U.S. We had record sales in March, April, and May, and the trend has has continued. And now that we are getting into an environment where governments are going to be looking for additional sources of tax revenue, the potential urgency around cannabis legalization is going to be there, which is going to be massively positive for the industry.

TC: I thought the governor of Massachusetts was concerned about people bringing COVID into the state, but I guess he reversed course on dispensaries as essential businesses?

KW: Yeah, he was the one outlier, and he reversed course. What’s been interesting is first, as you can imagine in a moment where people are especially anxious, cannabis has been something many people have been turning to. Then, beyond that, what’s also been interesting is that like many other areas of the economy, we’ve seen e-commerce really [take off]. One of our businesses, Dutchie, which enables retailers to launch their own e-commerce and have their own delivery and pickup, has seen its gross merchandise value increase by like 600% [since March].

TC: You’re also an investor in [the same-day delivery startup] Eaze, where former executives were accounting for consumer sales as if they were transactions made to third party vendors. What do you think of that situation? 

KW: It’s certainly in the past, but as you know, there’s always been a massive issue with the cannabis business [in that it] can’t really access traditional banking like other industries can, and one of the big issues there is credit card processing. So it sounds that an issue earlier in Eaze’s history was that it was able to process credit card payments potentially by not fully disclosing what was actually being transacted. I don’t know a ton of the details and where that lies currently, but I know that’s not anything that Eaze is involved in anymore.

TC: Bigger picture, does it tarnish the industry and make it harder for everyone to raise money? What are you seeing? Are new investors coming to the table? Are early investors still believers in this opportunity?

KW: It’s been fascinating for sure. The conversations have changed dramatically from when I first entered the industry to today. Initially, we [as a venture firm] were unable to get in front of a lot of pensions and endowments to have those conversations. Now, we’re at least having those conversations and they’re interested to hear about what we’re doing. I’m not quite sure if they’re ready to pull the trigger, but certainly even just the fact that they’re interested in understanding the industry better is a huge change.

TC: What are the biggest pockets of opportunity you see in cannabis investing right now?

KW: We have two main areas of focus. We love the ancillary tech-lead opportunities for businesses that are going to benefit from the overall macro theme of legalization and globalization of the cannabis industry, whether it’s software for retailers or manufacturers, or ancillary services like staffing and financial services. One of our businesses is Bespoke Financial, which helps with short-term financing for the industry. So we still see a lot of development in those areas.

We’re also very interested in consumer-facing brands. For a long time, cannabis sales were driven by potency and price. To use the alcohol equivalent, it would be as if every consumer made their decisions by walking into a liquor store and asking what’s the highest-proof vodka for the best price. We know that’s not how decisions are made.

TC: You and I talked before about precision dosing, soon after you’d invested in a vaping company that made it easier to understand how you’ll be impacted by what you’re ingesting.

KW: So that is business called Indose, which has created a medical-grade device that [enables users to] dial in the exact amount that they’re taking in . . . It’s much more of a business that’s going to be working with other consumer brands and allow them to use its technology to have that precision.

TC: How are these consumer-brands reaching customers? Do they have to be more . . . careful?

KW: Yeah, I mean, again, with cannabis businesses, that’s another huge restriction that a lot of them face. You can’t use a lot of the traditional channels that would be available to to non-cannabis businesses, so no Facebook ads, no Instagram, no Google AdWords, things like that, which is now a lot of the new brands’ playbook. So you have to be creative. There’s a lot of marketing happening in store within the dispensaries. You can rent billboards. Experiential marketing, pre COVID, was something that was people were very actively doing. There is also influencer influential marketing online that can still happen through Instagram channels or [channels] that a brand may own. But oftentimes those get get shut down as well. So yeah, it’s a tricky world from a marketing perspective for cannabis businesses.

TC: From a 20,000-foot level, one of the limitations of investing in cannabis would seem to be exit opportunities. There aren’t a whole lot of companies that are in a position to buy a cannabis business because of legal issues in part. How do you address that?

KW: There are a few ways to look at that. I think for ancillary, periphery businesses, there will be a lot of acquisition opportunities in the future from strategics that decide that they want exposure to the cannabis industry and may get it by buying a point-of-sale business or an e-commerce player or a financial services businesses, because that’s less directly touching the plant.

It’s going to be a question of how comfortable you are on the risk curve. Until we see kind of full-scale legalization, or until we see at least some of the the current bills in front of Congress passed or the rescheduling of cannabis from schedule 1 to schedule 2 or lower [by the Drug Enforcement Agency], some companies are going to be concerned about jumping into the space. But that’s the opportunity, as well, and as long-term investors, that’s how we see it.

In the meantime, we’ve had a couple of exits driven mainly by follow-on investors who want portions of our business, [including] a private equity firm that’s pursuing the roll-up of a particular category, and [to] a financial investor.

TC: Do you see the climate changing around acquisitions and legalization with a Biden administration?

KW: I think regardless of who’s in office, we’re going to see we’re going to see a lot of progress in the next four years. And that’s because this is no longer purely a partisan issue. I think Biden will be very helpful. He has laid out many of the things that he wants, and [while] he isn’t taking it as far as full-scale legalization, he’s certainly in favor of full-scale decriminalization, [meaning] letting states have full authority over what happens with their businesses, and also the rescheduling of cannabis down from the current schedule 1 level. So all of that will be incredibly helpful and will bring a lot more players who will feel comfortable investing in the space and potentially acquiring some of these businesses, as well.

To listen to this interview in its entirety, you can find it in podcast form here.

As COVID-19 dries up funding, only drought-resistant cannabis startups will survive

The COVID-19 crisis is creating an untold amount of uncertainty through every business sector, but for cannabis startups, it’s exacerbating a critical market that was already in decline.

TechCrunch spoke to Schwazze CEO Justin Dye following his company’s recent rebrand. He joined the company when it was Colorado’s Medicine Man Technologies (MMT) in late 2019 and is revamping the organization, including changing its name to Schwazze and acquiring a handful of companies to create a healthier, vertically integrated cannabis company.

The cannabis market is experiencing a correction after a period of rapid expansion. Shops are feeling the pain, and public valuations are settling under IPO levels — and this was before a pandemic swept the world. Cannabis media outlet Leafly laid off 91 employees in late March, and Eaze, an early mover in on-demand pot delivery, is experiencing major trouble after raising serious cash and recently losing a top partner in Caliva. In several states, efforts are underway to prop up the cannabis market by asking for the federal government to allow these businesses to be eligible for federal financial relief.

According to Dye, there are several things CEOs of cannabis companies of every size should work toward. His advice echoes what TechCrunch has heard in other verticals, as well: During the COVID-19 crisis, cannabis companies must hunker down and lean on strong teams to weather the storm. Once the skies start to clear, capital will be available to the survivors.

One, the cannabis market is looking for financially sustainable companies, Dye said.

“This next reset in the cannabis industry will not only be aspirational, but it’s going to be coupled with a requirement for performance in terms of executing against a plan and driving profits — or driving it to create free cash flow to be reinvested in the business and product experiences.”

$75M weed giant Caliva ditches Eaze, launches delivery

It’s a brutal time for marijuana startups. I’m hearing some are raising at 1/5th of their 2019 valuation amidst rampant competition, tall taxes, and slow legalization. The struggles for marijuana’s best-known startup, delivery service Eaze, continue as today it’s losing one of its top partners. $75 million-funded weed brand empire Caliva has dropped Eaze in favor of launching its own delivery system.

By partnering with Hypur banking to solve the marijuana payments legality issue, Caliva will be able to accept contactless mobile payments unlike Eaze that usually requires customers pay in cash. Caliva buyers won’t have to worry about trips to the ATM, especially now during COVID-19 shelter-in-place orders, which the startup expects will boost their average order volume. Combined with verticalizing delivery in-house plus its retail and wholesale operations, Caliva hopes it can grow its margins and survive this long winter for weed startups.

“Our mission at Caliva has always been to provide safe and easy access to plant-based solutions for health, happiness and healing,” said Caliva CEO Dennis O’Malley. “Together with Hypur, we are proud to offer our customers safe, compliant and convenient cashless payment options to improve and modernize their purchasing experience.” It hasn’t been so easy for Eaze, though.

Back in January, we reported that Eaze was in trouble, having suffered unannounced layoffs and executive departures. It burned cash on billboards, and never launched the services of a startup it acquired. There were questions about data security, and weed brands dropped Eaze due to delayed payments. It was almost out of money and in danger of vaporizing. It luckily managed to secure a $15 million bridge round to keep it alive plus a $20 million Series D in February just before the COVID hit the fan, though I dread to think of the terms of that funding.

The plan for Eaze was to verticalize, buying and developing brands that it could sell through its existing delivery service to up its margins. Now it’s seeing former partner Caliva do the reverse, launching a delivery service to sell its own Fun Uncle, Deli, and Caliva brands as well as distribute other vape, edible, and flower brands like Dosist and Kiva. Its menu breadth to attract customers and in-house brands to drive profits could be a winning combo. After limited pilots in SoCal, Caliva delivery is launching in LA and the Bay Area.

Unfortunately, traditional payment processors usually refuse to work with marijuana companies for fear of legal repercussions. That’s why most delivery services can’t accept credit or debit cards, or do so through sketchy legal workarounds that have led payment providers to be sued. Others like CanPay only offer ACH transfers, while Square only works with CBD sellers. “We spent time researching and evaluating all platforms that accept cannabis payments in the U.S., and found that Hypur has the best security, compliance and consumer experience” O’Malley tells me.

400-person Caliva is now trying to raise a Series B, but may experience tough headwinds with shelter-in-place orders in effect in states where marijuana is legal. Stiff taxes on marijuana have meanwhile helped the black market continue to thrive, as California’s $3.1 billion in legal 2019 sales were overshadowed by an estimated $8.7 billion in illegal sales. Faster delivery and simpler payments could help. But enthusiasm for the industry has dwindled following the initial flood of entrants sought to exploit the end of prohibition. Is the Green Rush over?

Eaze’s struggles reflect falling VC interest in cannabis startups

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Yesterday, TechCrunch reported that Eaze, a well-known cannabis-focused startup, is struggling to stay in business amidst a cash crunch, leadership turmoil, banking issues and a business model pivot. It’s a compelling, critical read.

The news, however, asks a question: How are other cannabis-focused startups faring? We’ll explore the question through the lens of fundraising and the public market results of public cannabis companies in Canada.


Marijuana delivery giant Eaze may go up in smoke

The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch 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. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt major pivot to ‘touching the plant’ by selling its own marijuana brands through its own depots.

If Eaze fails, it could highlight serious growing pains amid the ‘green rush’ of startups into the marijuana business.

Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple source. The fund was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues, and internal disorganization.


An Eaze spokesperson confirmed that the company is low on cash. 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 TechCrunch. It’s not clear what valuation it’s aiming for in the next round.

An Eaze spokesperson declined to discuss fundraising efforts but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.

Desperate to grow margins

The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house 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 brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges, or edibles at low prices.

An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”

The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.

In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85. 

To date, Eaze 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 expansion. 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. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business. 

Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Since banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. A source says late payments have pushed some brands to stop selling through Eaze.

Another drain on its finances have been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services, or 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. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in ‘private label’ products and has more depot control.

Selling weed isn’t eazy

The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.  

Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with 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 decriminalisation of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the US and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it. 

It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment. 

“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part has gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”

Eaze CEO Ro Choy

That 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 materialised, 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 cofounded 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 current CEO. 

“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow”.

No ‘Push For Kush’

The quick shifts in strategy were a recurring pattern that started well before the company got tight financial straits. 

One employee recalled an 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 favourite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)

Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favourite 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. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line. 

“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (I’ve been able to find the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)

Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”

Something had happened, though: the company had been taking payments 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. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.” 

Eaze’s spokesperson confirmed that “we did acquire Push For Pizza . . but ultimately didn’t choose to pursue [launching Push For Kush].”

Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. 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 model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales. 

Eventually, it moved to 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 appear to only take payments via debit cards, ACH transfer, and cash, not credit card.

Another incident sheds light on how the company viewed and handled security issues. 

Can Eaze rise from the ashes?

At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.

The vulnerability was brought to the company’s attention. 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. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.

Today, the issue is a more pressing financial one: the company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up. 

Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”

As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. 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. With the odds stacked against it, Eaze has a tough road ahead.

Eaze and Wayv founder explains how to raise money for cannabis startups

Keith McCarty could have retired after Microsoft bought Yammer. Instead, he founded Eaze to address cannabis delivery.

He lead the company through its B round and then stepped back, but last year, he founded Wayv, a new cannabis startup to address an even more significant challenge for the industry: supply chain logistics. So far, it’s raised $5 million and is currently seeking its Series A. Fundraising is hard for any entrepreneur, but McCarty’s experience sets him apart from most cannabis industry founders.

The company is now the first complete payment solution in the cannabis industry, allowing money to travel throughout the ecosystem in the fastest, safest way while remaining compliant with all of California’s regulations.

We spoke at length about this ability and along the way, chatted about the cannabis startup landscape.

McCarty has been in the industry for about five years, founding Eaze in 2014 and later leaving after raising a $13 million B round. At the time, startups generally didn’t seek venture funding and McCarty helped the company become one of the first to do so. Now founder and CEO of a new cannabis startup, he’s at it again.

New THC and CBD infused beverage company, Cann, joins the race to replace booze

Cann, a Los Angeles-based purveyor of CBD and THC-infused intoxicants, is rolling out its first major distribution through the venture-backed delivery service Eaze as it begins to hit the streets in California.

The company founded by two former Bain consultants is the latest to take on the growing market for non-alcoholic intoxicants that use a combination of chemicals traditionally found in the marijuana plant to make their drinks.

First dreamed up by Jake Bullock while attending business school at Stanford, Cann launched earlier this month at MedMen and is now selling its $30 multi-flavor six packs both in stores and through Eaze .

The beverages come with 2 milligram dose of THC and 5milligrams of CBD per can.

Bullock and his partner Luke Anderson met while both men were at Bain Consulting — and both have a background in consumer retail businesses. Bullock initially worked at the investment bank, Allen & Co., before moving over to Bain for consulting and finally settling in to a job at Bain Capital investing in the firm’s San Francisco-based private equity shop.

Anderson remained at Bain Consulting until Bullock pulled him away to start Cann.

Combining low doses of THC and CBD isn’t a new concept. K-Zen Beverages has raised $5 million from the investment firm DCM to roll out its line of intoxicants and California Dreamin is a Y Combinator backed intoxicant containing a whopping 10 milligrams of THC.

Bullock graduated from Stanford in 2018 and convinced Anderson to quit his job, the company raised cash through the fall and collected a cool $1.5 million for their venture.

Unlike other brands that are going for more fruity flavored beverages, Bullock and Anderson chose more herbaceous and floral flavors for their drinks –grapefuit and rosemary,  lemon and lavender and blood orange and cardamom (honestly, it seems they’d go well with alcohol rather than replace it).

“We’re really proud of it being an innovative flavor profile and really interesting with the microdose on THC,” says Anderson.  

Cash came in from tNavy Capital, a cannabis-focused hedge fund, and strategic angel investors like Bonobos co-founder, Brian Spaly, and Elizabeth Spaulding, the head of Bain & Co.’s digital practice.

For Eaze, which has stayed away from cannabis beverages, Cann seems to be a literal gateway for consumers who have been unwilling to try higher dosage drinks.

Screen Shot 2019 07 23 at 6.26.59 PM

Cann co-founders Luke Anderson and Jake Bullock. Image courtesy of Cann

“They see this big blue ocean of future cannabis users that they haven’t accessed yet,” says Bullock. 

Younger consumers seem more willing to experiment with intoxicants other than traditional spirits these days and venture capital firms are buzzed by the possibility of returns like the ones reaped by the George Clooney-founded spirit company Casamigos (which sold for $1 billion).

Kin Euphorics, backed by KBW Ventures, Canaan, and Fifty Years is using chemicals other than cannabis to get that buzz, but most investors are looking at cannabis for the high and euphoria of intoxicating returns.

Cann, did a soft launch in June with a limited release across four MedMen stores in Los Angeles. “You start really small and notice what people are purchasing and what’s driving repurchasing,” says Anderson. “We had this fortunate problem of it flying off of the shelf with its packaging and flavor differentiation.”

And the company’s founders are also aware of the blatant injustice inherent in their ability to launch a drug distribution and delivery business in 2019 in Los Angeles when the city’s minority communities have been ravaged the criminal justice system for doing the same thing.

So far, the company has taken the step of reaching out to 4thMVMT, the organization founded by Karim Webb to bring entrepreneurialism and investment to communities that have been damaged by the “War on Drugs”.

“We talk to them pretty frequently,” says Bullock. “We’re hoping that their first class will take over all their dispensaries… But we have a standing offer for anyone who they send over to us.”

For both Bullock and Anderson their involvement in the cannabis industry also ties in to their own identities as gay men. “The role that cannabis played in the AIDS crisis, when the process to decriminalize was driven by the real need for that medicine,” says Anderson. “We’re early and it’s young, but part of the reason we launched the business was to make an impact in communities with our company.”

Pax Labs CEO Bharat Vassan and serial founder Keith McCarty are coming to Disrupt SF

The legalization of cannabis and hemp for medicinal and recreational use in states across the U.S. and in Canada has opened up a huge vein of green, green cash for startups.

Two entrepreneurs tantalized early on by the smell of dank profits are Pax Labs CEO Bharat Vassan and Eaze and Wayv founder Keith McCarty. They will join us on stage at Disrupt SF to hash out the opportunities for investors and help founders avoid seeing their vision go up in smoke.

Bharat Vassan took over as Chief Executive at Pax Labs in February 2018. Before that, he served as President and COO at August Home, which sold to Assa Abloy in 2017. Prior to August Home, Vassan was cofounder and COO at Basis Science, which sold to Intel in 2018 for a reported $100 million. Vassan was also at Electronic Arts from 2002 to 2010, where he went from Senior Manager of Mergers & Acquisitions to serving as CFO and COO.

Pax Labs’ valuation, as of its latest $420 million funding round in April of this year, was at $1.7 billion. The company, which makes cannabis vaporizers, has plans to use the funding for international expansion and new products, but Vassan also hinted at a data play in this new market.

“People know about different kinds of alcohol,” said Vasan, in an interview in April. “They may know that they’re a beer person or a wine person. But none of that exists within cannabis. They see names like ‘Lemon Haze’ and ‘Cherry Fizz’ and they don’t know what that is. These are all really awesome names for a band but not great to let you know what you’re consuming. We want to provide more clarity around what that means.”

How Pax Labs plans to do this is unclear, but we’re hoping to learn more about it in October.

Keith McCarty, founder and CEO of Wayv, has a rich history in the tech space and as an entrepreneur. After spending five years at Yammer, and then Microsoft following the acquisition, McCarty went on to found Eaze, a legal cannabis delivery platform.

And while Eaze has continued to grow alongside the cannabis market itself, it put a new problem on McCarty’s radar. The supply chain logistics of the cannabis industry, combined with the fast-changing regulatory market, presents an opportunity for one startup to solve for this problem. McCarty wants that to be Wayv, a new venture that has raised $5 million in funding.

Wayv wants to be the Eaze of the enterprise, connecting licensed cannabis companies to licensed brands to provide next-day delivery of Cannabis products.

These two titans will join us at Disrupt SF in October to discuss the changes in this market and the opportunities appearing before the tech world as a result of those changes.

Disrupt SF runs October 2 – October 4 at the Moscone Center in San Francisco. Tickets are available here.