Editors’ Note: This is the transcript version of the podcast we posted on October 6. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast embedded below, if you need any clarification.
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Look, I think there are two things that brands confuse brands loyalty for that are not brand loyalty. One is a lack of other options in a limited market. That’s not choice, that’s lack of choice. And the other one is, being in a limited category set where people are shopping by the category set and you just happen to be the only brand that people can recall in that category set.
Rena Sherbill:
Hi, again, everybody. Welcome back to the show. It’s great to have you listening with us. Happy October. Hope you enjoyed the episode that we released, I guess, also in October. Monday’s episode with Verano’s (OTCQX:VRNOF) Chief Investment Officer, Aaron Miles. I think Verano is a stock we’ve talked a lot about.
So, I hope people got insight from that interview. I hope you get more insight from today’s interview with Chris Beals who’s CEO of Weedmaps, known otherwise as WM Technology (NASDAQ:MAPS). And I talked to Chris at Benzinga’s Capital Cannabis Conference in Chicago, which we’ve been releasing episodes from those conversations that I had in Chicago. This one with Chris is an interesting one.
He talks about brands, and consumer behavior and what brand loyalty may or may not actually be mistaken for and the importance of data, the kind of way that they’re growing their cannabis marketplace and what an onerous and arduous task that is and how they’re navigating that to grow and scale it even further. What legalization means for the sector primarily for their business model.
Hope everybody has been enjoying these episodes and the insights gleaned from talking to all of these experts and players and analysts and executives from the conference and, kind of gleaning what people are thinking about and how they’re viewing the investment picture. Lots more great conversations to come. Hope you enjoy this one. Well, welcome back to Seeking Alpha. Welcome to the Cannabis Investing Podcast.
We had you soon after the Sprouts acquisition on CEO Interviews, talking to you about that, talking about how Weedmaps comes out of this on the other side with legalization. So, want to get into all that. But first of all, welcome, and I’d love to hear how this conference is going for you, kind of what the goal was for coming?
Chris Beals: Yeah. Well, thanks for having me. And I would say generally with the conference, a big element of why we’re here is, so much has changed with the company over the last two years with the acquisitions we’ve done, the launch of the full SaaS suite of solutions for retailers and brands. So that’s CRM, dispatch, delivery logistics, and [indiscernible], and the ad suite. And so, for us, a big chunk of it is just educating people on all of the new things we have, what’s happening. And I think that’s doubly important. When you look at this conference located in Illinois, you’ve got a 180 new licenses that are about to come out. They’re going to have needs in terms of how do I service reach consumers, the marketplace, and then the SaaS side, but then there’s other new states that are opening. And so really for us, the focus was just on educating people about all the new things we do.
RS: We’re going to have to pass this back and forth. Sorry for the analog. So, something I wanted to ask is, how you’re dealing with competition. Because for me, Weedmaps is the original that’s, I think what most people know, but now, I think every day I’m hearing at least of a different coming online. Basically, more or less doing what you’re doing. How do you, is it first mover advantage? I know that that’s something, but it’s obviously not enough as competition keeps rolling in? How do you look at competition as the industry evolves?
CB: Well, so I think one thing that’s interesting is there’s nobody who competes with us across really more than one or at most two of our verticals. So, somebody competes on Marketplace. They don’t compete on CRM. If somebody competes on CRM, they don’t compete on the e-com embeds we do. And so, there’s that that a lot of the value prop, a lot of what we deliver is this is the only end-to-end suite of software that a business can use where they just want to manage consumers regardless of state, regardless of how many store locations they have, and that sort of one-stop shopping, and it all works together is a huge differentiator, as well as the features that exist between those solutions.
It’s not having a, sort of export files across and that sort of thing. I think the other thing is, look, we’re a 15-year old company, and one of the things that comes with time is a really deep understanding of the industry, but more than that, the largest set of first person party transactional data. And so, it’s that data that we have and being able to leverage that, but then because of the breadth of the platform we have, being able to leverage that data whether a person is walking into the store, whether they’re shopping on the retailer brands on website if we power that with our e-com solutions. And so, how do we take the data we have and then pair that with the [suite of software] [ph] that gives us even more scalability and what that translates to for the business is, incredible ease of leveraging those solutions. So, build it once, integrate the POS once, and use it everywhere.
RS: What’s some of the things that – I’ve been talking a lot about data with data people, but also with, kind of it’s a nice way to see what’s going on in the industry when there’s not a lot released outside of these data sets? What’s something data driven that has pushed Weedmaps to make a decision or rethink a decision that you’ve come across?
CB: So, I think there’s a couple of things. We’ve, I think two things come to mind. One is, we’ve not really seen strong consumer movement or shopping by brand. And so, we are spending a lot of time and effort into helping consumer shop on the marketplace by clinical effect, by THC or CBD or terpene level, yes, by price point, by going deeper on transactable deals on the website, and then separately easier shopping by product category type.
The other thing is we’re seeing an increase in the number of new cannabis products, not sort of this, you know, narrowing and consolidation that some people predicted. And so again there, it’s, when somebody walks into a store, how do we help them navigate. The fact that just because they’re in the store doesn’t make interacting with a thousand different SKUs any easier.
And so how can we make it easier to browse, look information, compare, price compare, clinical effect compare when you’re within the store? And those are both things that came from the data where we’re seeing consumers doing something that wasn’t exactly what we’re expecting. And what that really underpins is, consumer shopping and servicing consumer shopping online is getting more complex, not less complex.
RS: Let’s say everything is getting more complex, right? Doesn’t it? So, another thing I wanted to ask you about is this, the notion between illicit and legal markets. I found it hard for consumers to navigate what’s legal, what’s illicit. I know that your company has had multiple iterations in terms of, you know, quelling or quashing or ebbing or, kind of what’s happening in the illicit market, it’s obviously like a huge issue, obviously in California, but also as we, like New York come online, it’s also happening there? How do you think about it as CEO of Weedmaps? And how do you think about it also just like in the industry, as it’s evolving, how do you navigate this?
CB: Yeah. Look, I think at our size and just the fact that we are the largest online marketplace for cannabis, we can’t service our customers unless we police the platform and make sure that people coming on the platform go through the license verification process. We have a review and take down process if a licensed business is selling something they shouldn’t be or offering a deal that’s not compliant with the state, right.
There are a lot permutations of noncompliance that are outside of just this business is illegal and a lot of what we see with our notice and takedown and this is why we have a large and growing moderation team is around stuff like businesses offering deals that are not permissible, or, you know, businesses offering for adult use purchase products that are only out for medicinal and things like that.
And so, it’s – there’s no doubt about it. It’s really complex, but it’s something that, kind of comes along with the territory of being the largest marketplace and then getting people to use our suite of SaaS software, there is an expectation that we as their service provider are going to be a good steward to the industry they operate in.
I think it’s a little easier and newer states or states that have more rigorous licensing programs where they have potentially APIs where it’s easy to know what’s the current license status, the renewal cycle, there are some easy ways to verify.
I think also the – one of the areas where we saw issues in the past, and this is not happening as much anymore, thankfully is, and this was California transitioning from a large robust licensed medical market where they did not allow most medical license operators to get into the adult use market. And then they complicated it with a [grandfathering or sunset period] [ph] where those businesses were still allowed to continue to operate for a year afterwards.
It was administratively difficult, and I think it was doubly difficult because the state was promising that everyone would get licensed and that did come to pass. But so, I think on our end, it is, where can we leverage technology to automate the license verification, automate the notice and takedown provision, automate the ability of consumers to flag items, and then separately investing with the moderation team. And it’s not just a business relationship building thing, it’s obviously a consumer trust and safety thing as well.
RS: It’s interesting. It’s not something I, for one, I’m thinking much about. I think how difficult it is for operators to operate with all the challenges, with all the ever changing regulations, but I don’t really think about it from a data perspective or from an ancillary player who’s working with all of these companies, how arduous overwhelming that must be to kind of have to navigate the regulations when it’s not literally a part of your business model, is there a team that’s like, kind of heading that off like making sure you’re in compliance?
CB: We have a trust and safety and moderation team, so that’s what they’re focused on doing. And, yeah, it is really complicated because a lot of the ways that folks can footfall are on nuanced aspects of the regs that are really just truly focused on the retailer. The other thing is we power most of the platform with live menu integrations with the point of sale system. So, there is not a physical human touch on most of those menus being updated.
So, if product is mis-tagged or it’s outside of allowable limits or it’s expired, we can start to attack that with technology solutions, but at the crux of it, these retailers while still licensed, sometimes are carrying products they’re not supposed to, or products that with a regulatory change are still on the shelf. And so, when you’re automatically integrating with the point of sale system, that burden then falls on our trust and safety team.
RS: That’s a big job. I mean, what you guys – I, the headline I think we used for the CEO interview was Amazon Meets Shopify Meets Cannabis. And that’s, you guys are really kind of overview – a lot – handling a lot of different aspects of the industry and have to be aware of a lot of different aspects of the industry. Does it ever, do you ever rethink that or kind of, like, tweak it or outsource some of the things?
CB: Well, I think one thing that’s really nice about having the marketplace and the SaaS suite under – all under one roof is, yeah, it’s easier for businesses to adopt it. It’s easier for them to sign up once and leverage all of it, but for us on the back-end, it’s easier for us to build in a regulatory change once and have it mirror across the software. It’s easier for our trust and safety team to monitor what’s happening across the full suite of software. And so, I think, yeah, wherever can.
As a tech company, we’re looking for efficiency. We’re looking for, how can we take the manual human intervention out of the process and automate it. And, you know, for instance, Amazon often has had an issue with reviews and review padding and bogus reviews and all that, and I think it’s a good sign that the system’s working in that we have a lot of systems that we use to automatically guard against review padding, review bashing, you know, mechanized review systems. And so, yeah, we have all the problems Amazon has, but then we have this added layer of all these states regulating.
And I think, as much as I’d love to say, oh, if there was something we could do where we didn’t have to deal with it, I can’t. And that’s probably one of the larger modes and barriers to entry for anyone looking to enter the spaces, the price of entry to provide software and marketplace solutions and cannabis is a deep, deep, deep level of integration with a bunch of laws and rags that got built into the software. And so, while arduous to trudge through, I’ll take it.
RS: A quick question that I was curious about was the decision to go by WM Technology deliberate over going by Weedmaps?
CB: Yeah. So, I think part of that is the reflection of, we as a company have changed so much over the – so Weedmaps, you know, it’s a 15 year old company. And when Weedmaps was first started, it was more of a listing business that – look, at the time the idea of online transactability, checkout, add to cart, that didn’t really exist. It was a map for businesses. And so, what’s happened over time is, we’ve expanded the marketplace.
We’ve added consumer shopping and discovery journeys, product suggestions, the ability to transact, check out. And then this suite of software that is, again, the only end-to-end SaaS suite for a business acquiring new consumers, retaining those consumers, servicing those consumers, analyzing them, and so I think part of the decision to go with WM Technology is that when we go out there, we have these two halves to the business.
One part is, the Weedmaps marketplace and the other is, the SaaS suite for business, which is, let’s be honest, any individual one of those would be an entire business for somebody else. And so, it really had more to do with this is the parent company that oversees that incredibly, you know, focused spectrum of solutions for the consumer life cycle versus it just being the marketplace side.
RS: So, how are you looking at the path to federal legalization? A, are you, is it something that for the most part excites you? Do you think that’s going to be good for business? And b, as you talk about or as we talk about federal legalization, interstate commerce opening up? I mean, I know it’s a very protracted process even from day one, it’s a protracted process, but how do you think about that evolution?
CB: Yeah. So, for us, Federal Legalization is an incredibly exciting prospect. Many states and local jurisdictions, they either do not license cannabis businesses or do not license enough cannabis businesses. The number one issue that they raise for why they do that is, well, the Feds have not legalized it yet. And so, Federal Legalization, I very strongly believe, would be a huge boon in terms of the number of businesses producing or selling cannabis, which is how we make money.
Separately, these states have wildly desperate regulations. They continue to make those regulations more complex and frankly more disharmonized from neighboring states. And when I think, well, how is a business going to scale its operations? Federal Legalization has come. We can raise money. We want to go from two stores to 20 stores or we want to go from stores in one state to stores in five states.
There’s a huge amount of logistical translation issues of products from state to state of [disparate] [ph] inventory management systems of now you needing scale of how can I control pricing, monitor margin? How can I monitor my delivery fleet centrally? That’s exactly what we’re building now to some degree as an anticipation of federal legalization when more money flows into the industry and the logistical challenges, the translation challenges, and the scaling challenges these business face are going to grow a lot. That’s really where we’re going with the software is, when you go from being a SMB to being a large scale business because now you can get institutional investment. We want to have software that helps you.
RS: So, is that mostly what you’re focused on as you look towards the future, like legalization and what that looks like for Weedmaps for WM Technology, or there are other things that you’re focused on that we’re going to surprised that you’re rolling out to market?
CB: Yeah. So, I think a lot of the nice thing is a certain amount of that problem set exists now, and so the solutions we’re building now serve businesses in the current environment where they’re, yes, crossing different states without federal legalization, not interstate commerce, but having retail footprint that covers multiple states, a vertically integrated operation in multiple states. And so, a lot of the value set of what we’re building is for right now. I think we’re seeing an increase in the number of products that people are shopping for.
So, how do we make it easier for businesses to merchandise, easier for businesses to statistically accurately recommend products to people, and how we make it easier for consumers to go from browsing to placing an order, and then how can we let brands put themselves in front of mind within that cycle? Because these brands as they come out want to help have a say.
What are you buying? Because we have a great new product for that. And so, I think when you take the confidence of those three points, retailer ease brand presence and just consumer shopping journey, that’s really where a lot of the thrust of our work is going right now around, yeah, how you take what I think is maybe the most complex consumer good. You can just buy over the counter and make it actually transactable in the way people want, which is online and with delivery.
RS: I’m curious, kind of harkening back to the data question, how much you track the data? I mean, I imagine this is something that you track, like, people looking in for a deal or looking for something, but they’re not buying it on Weedmaps? Is that something that you track and how do you, kind of encourage people to do the whole transaction and Weedmaps?
CB: Yes. So, we’re very active in looking at shopping funnels, looking at where, how people shop? Like, what is the – where do their shopping journey start? That’s why we’re working on some stuff around product category pages that goes in more rigor. We’re looking at where they fall out of the process. If they choose not to transact online, well, what can we do differently? We still see an elevated number of people who despite choosing the products they want to buy on the marketplace still aren’t comfortable buying online because of the federal prohibition, so they go buy in store.
We have ways that we can track them as they go into the store to know that that happens, but then the question becomes, well, what could we do that would make them feel more comfortable, safer, shopping online? And then, you know, when we look at that, a lot of what we’re doing is, taking consumer feedback around how did this product affect you, and we’re turning that into data that we can help guide other consumers with, because that’s one of the hardest things.
Somebody’s saying, I want to use a product for certain clinical factor. I want a product that’s not going to make me feel paranoid. And I wanted it a great price point. That’s a really hard thing to shop for in cannabis. And so, we’re taking the analysis we’re doing on where consumers go in their shopping journey, what they actually buy, and then the reasons why they chose not to buy, and trying to turn that into [iterative] [ph] improvement that increases the conversion rate for people coming to the marketplace.
RS: Do you share that data with other bodies?
CB: We do an [in-sites] [ph] report annually that, kind of surfaces some of that data at a broad macro level. Certain of the data in a cleansed anonymized way is used to help influence recommendation carousels in the site and things like that. You know, we don’t show a consumer what other similar consumers bought, but that influences what the recommendation carousel says.
We have the beginning of what is a growing suite of analytics software for brands and retailers where we help them understand, well, these products are selling really fast or these are the types of products that consumers are gravitating towards in your region, but we’re very mindful of, I think, consumer privacy and consumer safety because there is still both federal legalization and then a carried stigma around people being a little leery of being identified as a cannabis consumer.
So, when that data comes out the other end where a retailer, a regulator, a brand can see it, it’s in an aggregated, anonymized, de-identified set where we’re really pulling up trends and the things that they should be actioning on as opposed to individual consumer behavior.
RS: I found it interesting something you said earlier about that people don’t buy according to the brands. And yet so much of the conversation is you got to be a strong brand in cannabis to survive. How do you look at that? And how do you – I guess, how are you thinking about that? And if you’re talking to CEOs or other executives at different companies, how is that, kind of brought up in conversation or how is that something that you talk about in terms of building a brand or are you building the experience, kind of like how do you think about that?
CB: So, a lot of it is building the shopping pathways where brands have natural injection points. So, one of the things that’s different about a brand advertising in a cannabis marketplace or a brand having its products be well displayed and uniformly indexed in a marketplace is that you’re hitting consumers at a time where they’re saying, I want to shop for cannabis. And that’s fundamentally different than letting them see a billboard when they’re walking down the street.
I mean, for that matter, even showing them a product in a dispensary because they might be there just to buy edibles that are going to help them sleep and you’re showing them a [vape pad] [ph]. Whereas – and that’s the power of a marketplace platform for especially good like ours is we’re letting businesses put their products that they think and we think are going to gravitate for that or have gravitational pull for that consumer in front of that consumer right at that point in the shopping journey. In terms of brands, I think part of that is uniformity. How can they uniformly project their product catalog, their brand information out? We do a lot of that work.
So, if we pull in brand data and we have a large proprietary brand catalog, we syndicate that out to every menu item at every retailer where we’re tagging that item out so that uniformity helps build consumer trust, but then the other thing is, is that, look, I think there are two things that brands confuse brands loyalty for that are not brand loyalty. One is a lack of other options in a limited market. That’s not choice, that’s lack of choice. And the other one is, being in a limited category set where people are shopping by the category set and you just happen to be the only brand that people can recall in that category said beverages, edibles, tinctures, whatever, topicals.
And so, it’s helping these businesses understand and this is why we build-out a suite of [e-com embeds] [ph] and finder tools for brands where they can now basically put on their site an embedded list of retailers who real time actually carry their products right now. An embedded real time list of what of their SKUs are available nearby if a consumer puts in their address and where? And then a synthetic direct-to-consumer embed, where someone says, I want to buy this product. Great. Add this to cart and we will transfer you into a licensed retailer that carries that product.
If you want to keep shopping fine, if you want to check out here, that’s fine, but like letting brands build affinity on their website and then turn it into transactions. There was a pretty large and pretty notable brand that had a huge wave of publicity. I won’t name who it is, and what happened is, consumers go to the website and they couldn’t keep an accurate list of where you could find the products, and it killed.
They killed the momentum they had. They had been on TV and in print and in all these other things and then you couldn’t find a way to buy the products. And now the brand has really declined where nobody’s really talking about anymore, but, you know, with using embeds and taking data and the things that we’re providing, I think about that often. We could have helped make that not a squandered opportunity.
RS: Do you think brands are learning that lesson about how to, you know, it’s like what you said about losing the brand cash. It’s like a TV show. If it gets put on Saturday night at 9:00 P.M. or whatever the, I, you know, Thursday night, that’s going to ruin a show how however good it is. Is that something that brands are paying more attention do you think?
CB: Yeah, I think brands are paying more attention. I’m having an increasing number of conversations with leaders at brands and our brand team is, where they’re saying, you know what, we think we have a really great product here or we’re launching a new product in this category. How do we inventory and merchandise it on Weedmaps? How do we – what is the data that you have? And we have an insights package for brands that are on the brand platform? What’s this data telling me about where I should carry my products? What my competitive landscape looks like? But it’s really changing where before it used to be, we’re going to have a brand, the brand’s going to have a product launch.
We’re going to do this product launch. And then people gravitate towards it, and, you know, the flywheel of growth will continue and that’ll be that. I think brands are realizing that it doesn’t really work. Like, there is somebody doing something and whether in that category you’re trained in or whether it’s by product type, clinical effect type, whatever. So, you need to have a launch and growth strategy and I hear that in the conversations we have where they say, okay, what do we need to do? How do we merchandise on Weedmaps? How do we get the in embed going? Because if we’re going to launch this product, the biggest barrier is, people just don’t know that you’re having that product launched.
RS: We can kind of end here. I’m curious what your thoughts are? I mean, you’re not plant touching per se. So, I’m curious how you’re thinking about this evolution of the industry as we go towards legalization? How are you thinking about it both as a company and also in the industry? Yeah.
CB: I mean, I think for us. It’s getting ready for a period of more rapid scaling, more rapid growth. That’s new states opening, new licenses opening, and I think businesses acquiring other businesses, more M&A activity. I really like where we sit with the depth of the SaaS stack really provides a lot of stickiness with businesses. The new shopping pathways we’re providing to consumers provides a lot of stickiness with consumers, which in turn brings businesses. And so, I think really focusing on delivering on that strategy, making it as easy as possible to shop, using our SaaS suite yield the largest amount of operational improvement or the largest, sort of revenue growth improvement that it can. And that’s really what the metrics of success are.
So, yeah, there’s [indiscernible] right now, but we know if you look at the long enough time horizon, this is well over a hundred billion dollar industry. And so, it’s providing the tools that let businesses operate efficiently and profitably in that growing industry. And so, for us that’s focusing on what help listening and focusing on what helps consumers, what helps businesses, and then turning it into solutions as quickly and efficiently as possible.
RS: I guess my one follow-up question would be, do you feel like there’s a big catalyst coming that, kind of levels the distance between fundamentals and where the share prices are or how investors are thinking about investing in this industry? Do you think there’s one thing that happens or it’s, kind of like a gradual roll-out, safe banking, up listing, what have you?
CB: I think one big catalyst that folks aren’t talking about is still a lot of the investment community is East Coast and New York based and the idea of a truly functioning legal cannabis market, for all intents and purposes, does not really exist on most parts of the East Coast. And so, I think one thing that is a catalyst is people under – we bring an immense amount of value, an immense amount of power.
We dictate an immense amount of consumer demand in states that are more mature and have been around for some time. And I think one thing that could be a real catalyst is people seeing that same effect happen as new markets open on the East Coast and making it more tangible for them in terms of the value that we bring and just how sticky we are and how deep the moats are.
I think new solutions we have will continue to, I think, open eyes. And then I think, yes, something like safe banking or that sort of thing could serve as a catalyst, but I think to [over-lean] [ph] into that is, is risks potentially, I think, over indexing on how soon safe banking may pass. I’m not sure it passes so quickly. And I think it’s under – it under emphasizes just how impactful New York, New Jersey can be. I think the New York New Jersey region likely will be a larger cannabis market than California, absent there being meaningful structural change in the California market?
RS: Yeah, I’ve heard that from a number of people. My hesitation is just, kind of like how they’re rolling out the industry and if that hurts them in the long-end, but do you feel like even if it’s hurt in the short-run, long-term it, kind of works its way out or how are you looking at that region?
CB: You know, I think there’s been a lot of focus on the limited number of licenses in the first pass of the Social Equity Program, but keep in mind, that is a fantastic program. [It puts] [ph] great roots in the ground for where this market’s going to go, but also that’s just the start. Keep in mind, less than 30% of cities in California are open for cannabis licensing now six years on.
Over 50%, I think 55% of New York Cities chose not to opt out of cannabis licensing, and the other 45% can opt back-in at any time they want. Overwhelmingly, those cities have not enacted caps. They’re taking a very open LAISSEZ-FAIRE approach. There are towns that you’d look at say the Napa region in California, somewhat [hoity toity] [ph]. There are very few cannabis licenses there.
How dare they mix that with wine country? If you look out at the Hampton’s in New York, there are cities that are moving forth legalization that look poised to have tens of licenses, dozens of licenses. Same thing, you look at what would be, and again, I don’t mean to over – compare geographies, but if you look at more conservative places, upstate in New York, places that in California, most in-land counties in California have no cannabis licensing. Kern County has essentially no licenses. That’s an area that’s, I think, bigger than State of Rhode Island. And then you look at similarly conservative upstate regions in New York that have moved forward with opening up and saying they’re going to have dozens of delivery licenses.
And so, I think a lot of the doom and gloom about New York has been people over indexing on the initial number of licenses being issued and ignoring how many cities are saying we are going to issue a ton of licenses. And it’s also, I think, reducing a large state to the City of New York versus looking at the fact that there are a lot of people living near Syracuse, near Buffalo, near Albany, all these other fun places, depending on your point of view, where there’s going to be meaningful licensing, and that’s just fundamentally different from California where to be honest outside of the Bay Area in Los Angeles, it’s often pretty slim pickings for how many licenses there are.
RS: Thanks for letting me ask three follow-up questions when I said I’d end it there. Really appreciate you taking the time, Chris, and giving such thoughtful and fine answers. Thank you.
CB: Thank you. I really appreciate it.
RS: And thanks for playing too well with the microphone.
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