As Cannabis Legalization Expands, the Tech Firms Fueling Its Sales Are Exploding in Value

It would be a dramatic understatement to say cannabis commerce platform Dutchie’s valuation has been growing by leaps and bounds. As recently as August 2020, its estimated worth was $200 million. By March 2021, it was $1.7 billion. A revised estimate for this fall puts it at $3.7 billion. Those eye-popping numbers, coming on the heels of funding rounds totaling $550 million in 2021 alone, show how much faith the investor community has in this particular Oregon-based startup, which recently announced a sweeping rebrand and its first tagline: "Grow together." But they also say something more. The cash infusions highlight the current rush to get a piece of the cannatech companies that are fueling a legal weed industry expected to hit $100 billion in U.S. sales by 2030, per investment banker Cowen. Significant chunks of money, notably, are coming from Wall Street firms and others that previously shied away from the category. Cannatech startups, often called the technological backbone of the cannabis world, may not seem as sexy as the celebrity-branded flower, artisanal edibles and micro-dosed drinks that are dominating the market on the product side. But they’re a vital, if geeky, cog in the cannabis economy that help dispensaries streamline their operations and give consumers better access to legal marijuana in the way that services like Square, Instacart and Shopify help sell more traditional products. 'Big visions' and bullish investors Casa Verde Capital, which includes hip-hop star and cannapreneur Snoop Dogg, was an early investor in Dutchie. Investors there remain “incredibly bullish” on the cannatech space, according to Karan Wadhera, the investment firm's managing partner, because it “touches huge swaths of the industry at a time.” “Every business is becoming a tech business, and cannabis is no different,” Wadhera told Adweek. “Cannabis is at the forefront, leveraging tech out of necessity, not just convenience.” Dutchie’s revamp aims to battle outdated stereotypes and advocate for the industry. Executives at D1 Capital, which led the recent Dutchie funding round of $350 million, have an affinity for “companies with big visions that create significant value for their stakeholders,” said Emily Corning, an investor for the firm. Dutchie fit that bill, she said, “and we’re all in to advance their mission.” According to TechCrunch analysis, cannabis investment has increased 82% in the second half of 2021, up 165% from the prior year. As of this spring, investors had poured $357 million into 29 cannabis companies, per Crunchbase. Though cannatech stats aren’t broken out separately, the firms are reportedly responsible for the bulk of that total. Hollywood cachet and going public The landscape is rife with examples, like the $100 million socked into Jane Technologies last summer and a more recent $19 million added to Flowhub’s now-$50 million war chest, some of which is coming from music mogul and cannapreneur Jay-Z. Weedmaps, an ad platform that connects consumers with brands and dispensaries, went public this year with an initial valuation of $1.4 billion. Leafly—with an estimated worth of $385 million—announced its intention to do an IPO via a special purchase acquisition company. Cannatech players "minimize risks and provide the upside opportunity to participate in one of the fastest-growing industries in the world," Ross Lipson, co-founder and CEO of Dutchie, told Adweek. People used to ask why the industry didn’t just use off-the-shelf tech. But it’s been proven out: We need bespoke tech solutions because cannabis is a unique sector.Emily Paxhia, managing partner at Poseidon Investment Management These companies, and competitors like Fyllo, Treez and others, are attractive to mainstream venture capitalists because they’re non-plant touching, meaning they don’t grow or sell weed, and their products are tailored to a tightly regulated arena. “People used to ask why the industry didn’t just use off-the-shelf tech,” Emily Paxhia, managing partner at Poseidon Investment Management, told Adweek. “But it’s been proven out: We need bespoke tech solutions because cannabis is a unique sector.” Expanding market and domino effect Cannatech firms help retailers with a long list of ecommerce functions and infrastructure demands, such as managing inventory, processing orders, engaging customers and, critically, staying compliant with myriad legal guidelines. By catering to those retail pain points, "it creates positive ripple effects for consumers and the industry at large," Lipson said, noting that customers who stepped up their online buying during the pandemic are increasingly looking for the click-friendly browsing, buying and delivery that cannatech enables. Gallup polls have found that 68% of Americans want cannabis legalized nationally. Though stalled at the moment, many analysts and political observers believe federal legalization is imminent. Meanwhile, the state-by-state march of legalization continues, with a domino effect recently adding New York, New Jersey, Connecticut and Vermont in the Northeast, while even conservative strongholds like Montana have decided to allow recreational sales. Against that backdrop, cannatech is likely to flourish, with investors seeing more pure IPOs in the future—without SPACs—and a wave of mergers and acquisitions, where larger players will gobble up smaller fish. “There’s a real feeling of exuberance coming into the market,” said Paxhia, whose fund invests in Flowhub, data research service Headset and other cannatech businesses. “I’m excited about the inflow of capital, and I hope to see great innovation that can help make the industry run more efficiently.”