Hey everyone,
Welcome to the first edition of The Green Paper.
In Today’s Issue:
→ Cannabis Software Startups. 💻
→ Legalization In Germany. 🌿
→ The Demand For Pre-Rolls. 🔥
Startups
The Software Startups Raising Millions
Breaking down the latest rounds of funding for cannabis software startups…
The cannabis industry is one of the fastest growing industries in the world.
To support this growth, we are seeing the emergence of several highly successful cannabis companies specifically focused on software.
The land grab…
In the earliest days of the development of the legal cannabis industry, eager investors rushed to provide entrepreneurs with the capital they claimed they needed to build their billion-dollar cannabis cultivation empires.
Unfortunately, a market can only support so many billion-dollar cannabis cultivation companies, and in the months since we have come to realize that many of these companies weren’t exactly deserving of all this cash.
Picks & shovels…
Peter Lynch who is one of the most successful and well-known investors of all time famously said:
“During the gold rush many miners lost money — but the people who sold them picks, shovels, tents, and blue jeans made a nice profit.”
So who are the picks & shovels cannabis investors are betting on during this green rush, and what exactly do they do?
→ Fyllo: recently raised $40 million USD.
→ Flowhub: recently raised $20 million USD.
→ Springbig: recently raised $200 million USD.
Who is Fyllo?
Founded by Chad Bronstein (CEO), Aristotle Loumis (CBO) & Erik Shani (CPO) in 2019 — Fyllo is a B2B cannabis marketing & compliance software startup.
In January of 2020, they acquired CannaRegs — a subscription service that provides access to all cannabis rules and regulations.
In February of this year, they acquired DataOwl, a cannabis retail marketing platform.
They have a very experienced team, and based on the amount of money they have now raised — a public listing looks likely in the next 24 months.
Who is Flowhub?
Founded in 2015 by Kyle Sherman (CEO), Flowhub is a cannabis point of sale platform focused on the U.S market.
Kyle previously worked as the Head Of Compliance for the cannabis brand Neos before founding Flow Hub.
The company has over 82 staff per LinkedIn, and Flowhub works with over 1,000 businesses across 14 states today.
Who is Springbig?
Founded by Jeffrey Harris (CEO) & Natalie Shaul (V.P Marketing) in 2016, Springbig is a customer loyalty platform focused on the cannabis industry.
They work with more than 2,300 cannabis retail locations in the U.S & Canada, with a total database of over 41 million cannabis consumers.
They have announced they are becoming a publicly-traded company, and upon completion, they will have $200 million USD in cash with a $300 million equity valuation.
Our Take
We will likely see a very significant amount of M&A in cannabis software.
Both Weedmaps & Springbig have declared their ambitions to acquire competitors, and we have already seen that Dutchie is interested in acquiring companies with their recent acquisition of Greenbits and LeafLogix in March 2021.
Legalization
Germany's New Cannabis Coalition
Is the political powerhouse of Europe on track to legalize adult-use cannabis?
The world is waking up to the realization that cannabis is good for business.
The legal cannabis industry currently employs over 320,000 people on a full-time basis and several European nations want in on this action.
The political powerhouse….
Germany’s sphere of political influence encompasses all of Europe.
The nation home to over 83 million people has been quite forward-thinking when it comes to medical cannabis as every doctor in the region has been permitted to prescribe medical cannabis since early 2017.
This medical cannabis market in Germany was estimated to be worth $85 million USD in 2018, with over 1 million German patients expected to have access to medical cannabis by 2024.
Now the nation is looking to take this one step further as a new left learning coalition of German parties seems set to take office.
Adult-use cannabis…
It looks likely that the new governing party of Germany will make some big changes when it comes to cannabis.
The three parties that make up this coalition all campaigned on reforming cannabis laws, calling for regulation of the sale and consumption of cannabis.
Assuming this newly formed coalition joins forces, it seems inevitable that Germany would at the very least decriminalize cannabis, however, many in the region are optimistic that full legalization could become a reality.
Germans love cannabis…
Cannabis is the most popular illegal drug in Germany despite the fact that possessing cannabis can result in a fine of up to $30K USD.
The demand for cannabis has been rising with a number of regions in Germany now allowing adults to possess small quantities of cannabis.
(Image credit: Deutscher Hanfverband)
Looking forward…
Canada has a population of 38 million people and total cannabis sales exceeded $2.6 billion USD in 2020 alone.
Germany has twice this population, such that a 20% tax on cannabis sales of $5.2 billion would provide Germany over $1 billion USD in annual taxation revenue.
The negotiations that will take place in the coming weeks will determine if Germany will be the 3rd nation in the world to fully legalize cannabis.
Our Take
I personally think we will see a majority of European nations legalize cannabis for adult-use purposes within the next decade.
If Germany were to legalize cannabis for adult-use purposes it could open the floodgates for the full legalization of cannabis to sweep across Europe.
Industry Data
The Demand For Pre-Rolls
Breaking down the data to understand the increasing demand for pre-rolls…
One of the simplest & most innovative form factors of cannabis is pre-rolls.
While the cannabis industry has seen no shortage of innovation in recent times — cannabis consumers still love pre-rolls.
The numbers…
Per headset, the demand for pre-rolls has been steadily increasing across North America.
In Canada, pre-rolls had an average market share of 18.6% from August 2020 to August 2021, close to 2x the market share pre-rolls have in the U.S where the market share of pre-rolls was an average of 9.5%
The demand for pre-rolls in the U.S has increased from less than 7% in January 2018 to an all-time high of 10.9% in August 2021.
(Image credit: Headset)
Record low…
The demand for pre-rolls significantly declined during the pandemic.
Between March and May 2020, pre-rolls market share in the U.S & Canada decreased to the lowest levels in over 2 years.
Despite reaching record lows in 2020, the demand for pre-rolls is now reaching all-time highs in 2021.
The opportunity…
The second best-selling pre-rolls in the U.S is the connoisseur / infused segment, which makes up 32.4% of sales.
In Canada, it makes up only 0.1% of sales.
This suggests that there is a very big opportunity for brands in Canada to win a significant amount of market share if they can successfully adopt this technology to infuse pre-rolls with cannabis concentrates.
Looking forward…
There’s a growing list of cannabis brands in North America that are infusing pre-rolls to increase their products THC & terpene content.
If this is what cannabis consumers want, then we should not be surprised when the brands who are willing to produce these products succeed.
With this growing demand for infused pre-rolls, I am confident we will also see producers infusing dried cannabis flowers with cannabis concentrates.
Our Take
The continued success of pre-rolls highlights that consumers value simplicity.
Additionally, the success of infused pre-rolls is one of the most interesting innovations we have seen in the cannabis industry in a number of years.
— Talk to you all on Saturday, Matthew O’Brien.
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