Episode 93

Equity Gains Momentum: Eaze and the Underrepresented

Jan 27, 2020 | Length: 0h 26m

In legal cannabis, atoning to Black and Latino communities for the excesses of the War on Drugs is a recurring and complicated issue. This fall, California-based delivery platform Eaze unveiled Momentum, a 10-week business accelerator for entrepreneurs from underrepresented communities. WeedWeek co-host Donnell Alexander was at Eaze headquarters for the initial gathering of entrepreneurs from Momentum’s 10 nascent companies. He followed one start-up — the sleep-focused Los Angeles brand Dreamt — from its webinar sessions with Eaze experts, to the young company’s preparation for investor pitch sessions in L.A, next month. Also on the Eaze beat, Alex and Donny discuss fallout from a new report on the company’s finances.

Eaze on Twitter
twitter.com/eaze
Eaze’s Momentum
www.eaze.com/momentum
Dreamt
youdreamt.com
“Delivery Giant Eaze May Go Up in Smoke” TechCrunch
techcrunch.com/2020/01/16/eaze-o…-of-cash-to-burn/
92. Matt Barnes & Al Harrington: NBA Weed Leaders
Weedweeknews – 92nbaweedleadersfinal
Los Lobos The Valley
www.youtube.com/watch?v=-9_UNHB-Gfw

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This transcript has been lightly edited for clarity.

 

Podcast transcript

Alex Halperin (00:13):
Welcome to WeedWeek. I’m Alex Halperin.

Donnell Alexander (00:14):
And I’m Donnell Alexander. This is the WeedWeek podcast. You can subscribe to our free newsletters. Alex’s WeedWeek the original, the nearly five-year-old original WeedWeek newsletter, my WeedWeek California and WeedWeek Canada, featuring next week’s guest, Jesse Staniforth, all available at weedweek.net. And you can find us on Twitter and Instagram @weedweeknews. If you have any feedback, email us we’re hello@weedweek.net.

Alex Halperin (00:41):
This episode of WeedWeek is brought to you by Dama Financial. Get access to a secure, transparent banking solution with Dama Financial secure your cash, make and receive away electronic payments and stop worrying your account will be shut down for being a cannabis business. Schedule a consultation at damafinancial.com today or call (877) 401-3262.

Donnell Alexander (01:01):
So, this week we’re doing an episode that’s a little bit different from our usual approach. We talk a lot about social equity and economic justice, and we talk about how it’s a boom time for lawyers and accountants and multi-state operators and local tax coffers, but we don’t get much of a chance to see what Raycon Penn’s from those backgrounds criminalized for cannabis looks like. This week we take a look at the Momentum program, a business accelerator that seeks to uplift the marginalized and one specific company, a sleep brand in LA called Dreamt.

Alex Halperin (01:31):
The momentum program is sponsored by a company called Eaze, which is a major delivery app in California and Oregon, but they’re one of the best-known brands.

Donnell Alexander (01:43):
Well, they were the first company to get tech money, weren’t they?

Alex Halperin (01:46):
Yeah. I don’t know if the first company, but they got a lot.

Donnell Alexander (01:49):
Significant money.

Alex (01:50):
They raised about $166 million. And they’re a sponsor of this Momentum program. And it’s a little bit awkward because as TechCrunch reported last week, Eaze is in a bit of a cash crunch.

Donnell Alexander (02:03):
I don’t necessarily find it awkward because part of what I learned in hanging out with this group, with all the different fellows in the accelerator and this specific company in LA is that they’re learning about the ups and downs of cannabis and how they’re unlike any new industry. And it’s almost been a teachable moment to see them watch their benefactors have a rough moment.

Alex Halperin (02:25):
Yeah. This industry is hard for everybody, no matter how much money you have, clearly.

Donnell Alexander (02:30):
Well, if you want another example of that, let’s talk about that open letter from Adam Bierman.

Alex Halperin (02:34):
Yeah.

Donnell Alexander (02:35):
We should probably say who Adam Bierman is.

Alex Halperin (02:37):
Bierman is the CEO of MedMen, which is another big company based in California, arguably the best-known cannabis brand in the United States.

Donnell Alexander (02:47):
But can I say that they’re also the one cruising closest to infamy at this point in terms of their business surveils?

Alex Halperin (02:53):
Well, they’re also having surveils, they laid off 40% of their staff at the end of 2019. They’ve exited several markets. They exited Arizona, they broke a merger agreement with PharmaCann, which is a big Illinois company. Their stock is in the tank and they are struggling to recover.

Donnell Alexander (03:18):
Oh, okay. I don’t want to make this just about MedMen, and certainly not just about Eaze, but when you have these big companies with such recognition and so much money behind them, what does it mean to the ecosystem of legal weed when they have struggles? I have to say the layoff numbers always seem really low and it seems like it’s not a huge problem in the grand scheme of legal weed. And are there effects?

Alex Halperin (03:39):
The numbers aren’t that well, when you consider that there really aren’t that many people working in this industry and especially aren’t that many people working full time for sort of full on legitimate companies.

Donnell Alexander (03:54):
What is the impact on the ecosystem? Just fear?

Alex (03:56):
I mean, it certainly doesn’t impact the desire for cannabis and there’s no pressing need for people to get their weed from Eaze or MedMen, but it sends a signal that this market isn’t a “give me”, you need to play it right. And that some of the companies that haven’t been spending quite as much money to get their name out there may be somewhat better prepared for the marketplace, which still remains challenging because the taxes are high. The regulations are complex. There are all these issues that just make it really hard to run a successful cannabis business.

Donnell Alexander (04:33):
Yeah. You need a class and some mentors to navigate these waters. That’s for sure. Especially if you’re from a marginalized community. So, you’re going to enjoy this episode. I love the fact that the participants in this program have their perspective on what Eaze is going through. I want to shift just a little bit because this conversation is about economic justice and social equity. I know that you have opinions of a social equity and you seem like you kind of like this approach. Why does it stand out for you as something that seems worthwhile? Or am I wrong here? Do I have misread your expression as I’ve updated you on my story.

Alex Halperin (05:08):
I certainly commend Eaze for the effort and money they’re putting into it. Ultimately, I think it’s a little too early to see if it’s going to work out and if these ideas of equity are going to work out.

Donnell Alexander (05:22):
Yeah, I should be clear when we say it’s Eaze. It’s not just Eaze that’s behind the funding of momentum. They partnered with Ultranative and Bain Capital to make this thing happen. Each member of this class, the original class of Momentum received a $50,000 check just to get started.

Alex Halperin (05:39):
It’s a really interesting story to see how it works out and Eaze with its large footprint is probably in a good position to promote these companies. And it could probably, if it wanted to, sell them through its platform and it’s in a really good position to lift these companies up, the question is whether it will work.

Donnell Alexander (06:03):
We’re not going to see immediately. So, let’s have a listen and see what it’s like inside a program like Momentum.

Song (06:09):
Bread on the table. Work through the day. For as long as we are able. Green is the valley. Blue is the night. Out of the darkness. Into the light.

Donnell Alexander (06:24):

Back in November, I caught up with a couple of Momentum program fellows at Eaze San Francisco headquarters.

Carolina Vazquez (06:29):
I’m Catalina Vasquez Mitchell, I’m 34 years sold. And I’m originally from Guadalajara, Mexico. I came here 10 years ago and right now I’m a resident in Los Angeles, California. I see my cousins that they had so much potential, but they lost interest and they have a lot of interest in cannabis. And I see that a lot of these kids and people in minority, Mexicans, Latinos, African Americans, and other minorities, I find this such an appealing environment. And if we can professionalize this environment and really give them a career where they don’t feel like they are drug dealers, where they’re actually using these exciting cannabis industry as a career and they will, they can do something better. They can be scientists. They can be managers.

Speaker 4 (07:25):
My name is (inaudible):
I’m 30 years old and I live in Los Angeles, California, and my own cousin who lost two years of his life, he was having his baby girl born, got caught growing. And maybe not in licensed facility, he was staring down 10 years and he ended up serving two of those years right as he was having his baby girl. So, he lost out the first two years of her life, serving time for something that people are making so much money off of right now, doing nothing harmful. I mean, yeah, maybe he wasn’t licensed, he should have gotten a ticket, pay your fine, whatever, but you should never have to go to jail for something like that.

Carolina Vazquez (08:05):
After I was studying a PhD and then I decided to start working in the cannabis industry, developing products for the cannabis industry.

Donnell Alexander (08:14):
In addition to being a chemist, Carolina is an insomniac. She tried various formulations to get herself rest that other vapes and flour couldn’t deliver.

Carolina Vazquez (08:23):
And then I started playing around with different formulations to find something that can alleviate my insomnia, kind of improve my sleep disorder. And I tried flour, I tried vapes, tried gummies, and I finally come up with a formulation that combined, different molecules that help you to fall asleep, including cannabis CBD, melatonin and valerian root plus another terpenes. I combined them all in a vape and I started into smoking that to fall sleep. It started to help a lot of people. I did several blind tests to make sure that it is safe and pharmacologically effective.

Donnell Alexander (09:04):
Last fall. She began a business with a small group of friends down in Los Angeles.

Speaker 4 (09:10):
When she started talking about this pen she had, we started using it and it was working. It was like, there’s something here. We got to pursue this. And next thing that was about eight months ago. And now we’re here doing our first production run as a company.

Donnell Alexander (09:26):
In November (inaudible) and Carolina’s company Dreamt was named part of Eaze’s inaugural momentum program.

Audio (09:32):
I’m excited and honored to walk in the first class of Momentum program.

Donnell Alexander (09:39):
Momentum is the delivery service for building meaningful relationships that work on behalf of those two often shut out of the legal cannabis market. In addition to a $50,000 grant, Eaze is connecting founders of cannabis companies with executives and investors among other legal industry leaders being the only ones based in Los Angeles. Carolyn and (inaudible) miss out on a good chunk of the Momentum comradery. On this Tuesday’s gatherings, a bit of community news gets shared.

Audio Speaker 5 (10:07):
By the way, we’re having a tax info session this Friday at Fruitvale, in Oakland. So, we’ll be telling everybody what this new tax structure means to you and your business, and also how you can get tax rebates, if you participate in certain activities in Oakland. So, a lot of folks don’t know about that piece of the new tax structure. So, I would encourage you all to come out and check it out If you do have a business that’s in Oakland. And then I’ll do a bingo night bingo night, every couple of months coming up on Saturday. So, if you want to come and smoke weed and play some bingo and try to win some prizes, some weedy prizes, it starts at five, it goes until nine and there’s going to be food and lots of free weed smoking.

Donnell Alexander (11:06):
Local goings on are hardly the guts of these webinars though.

Audio Speaker 6 (11:10):
We have a question online. So, Adrian, go for it.

Audio Speaker 7 (11:13):
Yes. I have a question. Considering fundraising and me as CEO and the owner paying myself. Does it look better to investors if I’m paying myself collecting a salary or do I continue to not pay myself in fundraising?

Audio Speaker 6 (11:31):
It depends on where you are as a business. And again, what your milestones are. 70, 80% of businesses I’ve seen the founder takes money, right? Like they take a salary, they need to sustain themselves. It has to be a modest amount. You’re not really taking six figures typically. And then as you get through the different stages. So, I’ll just tell you my example in my first million dollar I was taking a $70,000 salary. When we raised the next round, I went to 110, right? So, I think investors expect you to not be completely living on ramen noodles. And that being said, like if you raise $250,000 you guys are the founders, you have to decide, do I want to spend that money on paying myself or do I think I could use that in other ways to be able to accelerate the business such that the next time it’s going to be worth multiples of that.

Donnell Alexander (12:16):
$50,000 is fantastic, especially in this epic of vape, panic, recovery, and tight everything legal, but mentoring may be the heartbeat of Eaze’s accelerator. And much of that comes in the form of Tuesday webinars with the fellows and the veterans all together online,

Audio Speaker 6 (12:34):
We bought a very old HPLC machine and I haven’t been able to make it work, but we saved about $10,000 on it. So is a treble shoot, then I really need this in order to start testing. They (inaudible) that’s kind of personal, So we prepared a pitch for five different investors and the pitch didn’t go as we prepared which probably is expected, but the peak is three out of the five investors are investing in the company.

Donnell Alexander (13:23):
Entrepreneurial opposites of the Harvard MBA, these emerging market players need every advantage that they are getting on these calls and in face to face meetings, mostly experts explain both the basics and share hacks. Here’s the suggestion to use Cooley GO, a resource by a law firm that handles venture capital deals. The equalizing basics are all right there.

Audio Speaker 6 (13:47):
I was looking for the next thing that could be the next door to action cannabis. As you guys, I think all kind of believe that this is a consumer market that already has billions of revenue and millions of consumers. There’s a very few, I would say consumer markets that are sort of already established but are starting to be built right now. So, I think that for me, got me excited about cannabis in general. Then as I look across kind of the ecosystem of where did I think the best opportunities will arise? I got this concept of the door dash for cannabis or the Amazon for cannabis, if you will, was an idea that ought to be gold. So that’s why I joined Eaze. So that’s a little bit about me. I thought, I’d love to just spend this time with questions, answers, I’m sure you have a lot of them. I thought maybe there’s a few things I’d like to cover in the next kind of 10 minutes or so, and then we can just of hold it up. So, a few things I would say, I think what I’ve got up here is, so, Cooley is a law firm that does a lot of early stage, venture deals. They have those great resources called Cooley Go, where every quarter they basically update recent transactions they’ve done and share kind of that data on what types of valuations are they seeing. What is the average valuation for a C company versus a serious D company? What types of rights are they seeing in terms of things like liquidation preferences or drag-along rights? So, it’s, I think a fantastic resource.

Donnell Alexander (15:35):
I dropped in on a meeting with Carolina and (inaudible) and their partners in downtown Los Angeles, their partners, Ross Gardner and Jannise Babbush are in the room, but Carolina’s husband Benjamin is not. If the relationship seems collegial, but that’s because she and Jannise studied chemistry at USC together. And Ross is related to Carolina through marriage.

Audio Speaker 5 (15:56):
Well, we talked with a group of angels investors the other week, actually for them, they’ve never really even tried cannabis. It’s a new world for them. They kind of just see the market opportunity there for them. And it really comes down to the fact that we have the scientific backbone to it, where there are concerns about the widespread. So, what’s going on here? Like I saw in the Wall Street Journal that this one editorial column, not even a real column was calling us all out. And it’s like, well, here’s the seven other articles really showing that it’s vitamin and it’s not as widespread as you’re worried about and really going back to reaffirming the safety, the science and the research that we went into it. So really keying in on that with them. And quite honestly, I think Carolina has been and Jannise has been such a big figure in reaffirming that.

Audio Donnell Alexander (16:50):
You mean on these calls or these meetings?

Audio Speaker 5 (16:51):
In the meeting, this was in person.

Audio Donnell Alexander (16:53):
And how do they focus on you too?

Speaker 9 (16:57):
Well, every time they have a question about the safety of the vape or the ingredients or what if someone smoked too much? What if, why is this different from anything else? Is it addictive? Can I develop tolerance? Like any question that is about the device. I mean, the vape itself, the technology, how is different? Why is it safe? How is absorbed? Why works? We have a graph for example in the packaging. And they asked like, what is that? And how come different ingredients absorb at different times? And then they have to go through pharmacology and pharmacokinetics and how it works in your body, how it affects sleep in many different ways and how it meets in try to make them understand that this works not because we say so, but because science say so.
Donnell Alexander (18:05):
The team used an initial family and friends’ round of funding to get the first pens to market. (inaudible) tells me that they’ve beaten their first month’s projection by a 100% and are now attempting to help dispensary partners sell through. As demand has been proven, he says, Dreamt is raising a $2.5 million seed round, working primarily with angel investors. So far, nearly $750,000 of that $250 million has been raised. In broad terms Team Dreamt’s challenges are not so different from many small businesses. In some ways though, there’s never been anything like what a young cannabis business must go through.
Audio Speaker 9 (18:42):
Most venture capital firms that are successful and already have things that they’ve invested in, especially tech, have something called a morality clause, or vice clause. So that basically it’s a clause that when they invest in something gets signed between the two and it basically says they won’t participate in any illegal activity. And so, a lot of venture capitals, traditional venture capital firms that are investing in these companies just won’t touch cannabis, because it’s still considered a gray legal area. So that’s why we find most success with private equity. Those are generally started by like a family, like somebody who’s inherited wealth. And it’s sort of like now figuring out how to take that inherited wealth and maximize on returns. They’re more inclined to take the risk of participating because of the legal.

Donnell Alexander (19:33):
This week’s episode of the WeedWeek podcast has been brought to you by Dama Financial, get access to a secure, transparent banking solution with Dama Financial, secure your cash, make and receive electronic payments and stop worrying your account will be shut down for being a cannabis business. Schedule a consultation at damofinancial.com today, or call (877) 401-3262. On the afternoon when Eeaze unveiled its opening Momentum class, Matt Barnes was there, the cannabis entrepreneur and former NBA champion talked to me about what it takes to get started in cannabis.

Matt Barne (20:11):
I think there’s a misconception of how hard it is to really get going in this space. Everyone thinks, okay, they’re handing out permits, so just grab these permits, we’re going to start these businesses, but there’s so many more layers to it. So that’s why I think continued education in this space is important. Continuing the platform that Eaze is giving the winners to just soak up and ask as many questions as you possibly can, really try to educate yourself because this is a business. There’s several verticals in this space that you could really make a good living off of.

Speaker 5 (20:41):
Taking the company that we’re at right now at early stages, and actually growing at an exponential rate, essentially. So, taking not only are we doing one product right now, which hey, one product is difficult, but we want to do seven products. And then throw another brand on that. And so being able to secure the funding that we need to do so from investors and then actually get all the resources, hiring up a team and doing the strategy that we want. I feel confident we have the team to do that, but that’s something that’s always on top of mine. Okay. The next steps were, we love the success, we’re seeing, but this is just the start. There’s a lot, a lot of work to do out of this and scaling this, going across the licensing out to other states. It’s just the very tip of the iceberg for us.

Donnell Alexander (21:30):
Carolina and (inaudible) company may well be ahead in certain facets, but there’s no apparent disappointment.

Audio Donnell Alexander (21:36):
Even from this most recent one. What was it about on Tuesdays?

Carolina Vazquez (21:41):
It was about how to get the money and how to spend the money. So, for the part of how to get the money, I think we did it. So they gave a lot of advice. How to make your pitch and how to pitch it, how to find investors.

Audio Donnell Alexander (22:09):
And how did you react to all that? Does it just feel like stuff you already know? Because you are a little ahead from it, you contribute? Are you offering stuff? Is that the kind of avenue it is?

Audio Carolina Vazquez (22:18):
If it’s not science, I just don’t contribute because nothing is going to come out right. So, I just don’t say anything.

Audio Speaker 5 (22:27):
I actually couldn’t make those last ones because it’s like this is where the dynamic of like having these teams, like being able to lean on Carolina to participate, helps so much because I’ve been utilizing as much time as I can to make trips out to dispensers, like go and sell. Like, that’s like the lifeblood right now.

Donnell Alexander (22:46):
One day before our meeting, the site TechCrunch reported that Eaze, the first cannabis company to earn serious tech company backing is in significant financial trouble. I asked them about that.

Audio Donnell Alexander (22:58):
Another hard question, I want to get to the hard question. The TechCrunch story about Eaze and its money. How did that impact your morning? What did that make you think? I mean, I know you’ve already got your 50 grand.

Audio Carolina Vazquez (23:17):
They just called me, and they said that we should have worried, it was a very inflammatory publication. That is not really how it happened. I was shocked. He said he is open to speak about whatever’s happening in Eaze. I wasn’t totally unaware, if he doesn’t call me, I wouldn’t ever know that it even happened.
Audio Speaker 5 (23:46):
She got the call, then posted it to us. Hey guys, check this story.
Audio Carolina Vazquez (23:50):

Yeah. But I guess everybody goes through rough paths, every company, more in cannabis. I mean, I don’t worry at all.

Audio Speaker 5 (23:58):
But I think we’re going to look at the end of 2019 to 2020, maybe as the Dot-com era of cannabis.

Donnell Alexander (24:08):
Dreamt is just getting started. There’s little delusion about that in this downtown LA room or at Eaze HQ, or even in the webinars. The whole industry is just getting started. And that’s what makes Momentum significant with this single accelerator is the potential to shift futures.

Carolina Vazquez (24:27):
This young people, including my family, I’m sure they can do better. And if we can motivate them and make these a safe place where they can really feel like they’re doing something better and their mom’s is not like, “you are just a marihuano (marijuana smoker)”. I think this is wonderful, if I can do that.

Donnell Alexander (24:46):
Next month here in Los Angeles, Dreamt along with the nine other companies and Eaze’s Momentum accelerator program, will do their big investor pitch.
And that’s our show for today. Alex has a tweet.

Alex Halperin (25:00):
This comes from Pendarvis H @OGpnen on Twitter: I knew a bit about Matt Barnes’ marijuana advocacy, and didn’t know he was working with churches. And Al Harrington’s story about his granny smoking for the 1st time at age 80, and it making her feel good enough to read her bible again— awww man” and then there’s a green heart, right?

Donnell Alexander (25:20):
A green heart for granny.

Alex (25:23):
Thanks so much. Pendarvis.

Donnell Alexander (25:25):
And that’s episode on 92 last week. So, NBA weed leaders’ episode. Yeah. The grandma’s story was enough to bring a tear to your eye. If you want your grandma to not achy read her Bible. And don’t forget.

Alex Halperin (25:36):
Don’t forget you can buy my book, The Cannabis Dictionary, it’s available for preorder at Amazon, and that you can get a discount on a signed copy of the book. If you preorder it at weedweekreports.com and use the promo code “signed copy.”

Donnell Alexander (25:55):
As always, you can find us on Instagram and Twitter @weedweeknews. A lot of you have been finding us and thanks for that. You can email us hello@weedweek.net. And for more weed news, you can sign up for the WeedWeek newsletter, WeedWeek Canada and WeedWeek California, all 3 at weedweek.net.

Alex Halperin (26:11):
I’m Alex Halperin.

Donnell Alexander (26:12):
And I’m Donnell Alexander.

Alex Halperin (26:14):
Our show is produced by Donny Alexander and engineered by Larry Buhl, Alicia Byer wrote our theme music. We’ll catch you again here next week. Bye.