This week’s Power Player interview is with Ryan G. Smith, co-founder and CEO of online wholesale marketplace LeafLink. The company now handles about 20% of the legal cannabis wholesale market, more than $175M month.
Among much else, Smith discussed the future of dispensaries, how LeafLink plans to stay competitive and when he’ll be be ready to go public.
This interview has been edited for length and clarity.
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WeedWeek: Can you give us an overview of LeafLink’s business?
Ryan Smith: We’ve created, over the last four years, a B2B marketplace for wholesale transactions, connecting retailers to brands. We now have on the platform, over 4,500 shops and 1,500 brands across 25 states. We’re moving just north of $175M in transactions a month. We think that’s roughly 20% of all U.S. wholesale transactions on LeafLink’s platform.
WW: How does that work exactly? In a state like California, where distributors are required, are you the connection point between distributors and retailers?
RS: That’s right. If you’re a brand that’s distributed by a third-party company or you self-distribute, it doesn’t really matter on LeafLink. We’re just about promoting brand identity. If you have ABC brand distributed by DEF Company, that brand has a page that can be shopped by retailers, dispensaries. It will say, “Distributed by DEF Company.” We work with pretty much all the large distributors in California.
WW: What do you see as your competitive advantage?
RS: One of the things we noticed when we were first doing research is that people were really running their sales process through text messages, emails, phone calls. Sales reps were spending a lot of time in the field, effectively collecting reorders on existing relationships.
Everyone in the space is effectively some form of a start-up. There’s constantly new brands, new products, new pricing, so many different lab test results, things that are in-flux and changing. What we wanted to do is create transparency and communication around that and bring it all together in one platform. Instead of, if you’re a purchasing manager, having a call or text or email, 30 different reps at 25 different companies, you could go on LeafLink and really create one unified cart. Bringing that all together in a compliant, clear way, was the goal.
“Very interesting times”
WW: How has the pandemic changed your business?
RS: Very interesting times. The week of March 16th was when everything really got quite serious. It’s also in the lead up to 420, when we start to see a lot of wholesale ordering. Before a lot of the markets were deemed essential, we saw a lot of panic buying, is the best way to describe it. We saw an almost 36% increase in orders week over week.
People had stocked up, and so the week after, there was definitely a significant drop in ordering. This was highly unusual. What was really interesting is once that drop occurred, after that huge original spike in the panic buying, there was an increase again, but more or less to the same seasonal patterns that we’d seen previously.
There’s definitely challenges we see from clients in manufacturing and growing and respecting social distancing and all that. Generally speaking, the industry has bounced back in an even stronger way. Sales continue to be higher than even we projected heading into and through 420. Now we’re seeing a lot of re-ordering post 420 as people restock their shelves.
WW: To be clear, you’re not a plant-touching company, you’re a digital marketplace.
RS: That’s right. We are not a plant-touching company. We connect all the companies who are. We are not a participant in any of these transactions.
WW: How are you paid?
RS: There’s a number of different revenue streams to the company. The baseline one is a monthly flat fee for sell-side companies. So brands and distributors, pay by brand to be on the platform, $200 bucks a month. We also have advertising, data opportunities, as well as integrations, and also a financial product that allows them to pay. It all really starts with that SAAS marketplace fee to be present on the platform.
WW: You must have a lot of data. What can you tell us about the market that we don’t already know?
RS: Yes, we definitely have a lot of data. We’ve moved now almost $2.5B in transactions since the marketplace went live back in 2016.
I think one of the more interesting things that we’ve seen is the progression of each of the different states and territories. While each of the different [states] is effectively walled off from each other, we’re starting to see similar maturing happening from raw plant material to branded products.
As a supply chain matures and efficiencies are built in, people are beginning to, basically, create margin through heavy branding. That’s great for the industry because it shows we’re mainstreaming. I think it’s also a reflection of some of the people entering the space from Kraft, and Starbucks and the liquor industry.
WW: What’s something you’re excited about?
RS: There’s a number of states that have allowed temporary use of curbside pickup and delivery. A handful of them were really holding off on it. I think what could be interesting is whether regulators and governors will be able to keep it temporary. Once people have experienced the convenience of that, the simplicity, efficiency of purchasing in that way, it will become a more common theme. [Here and in other ways] I wonder if the coronavirus forced the space to progress faster [about things that would have otherwise] taken a couple of years.
Can retail survive?
WW: Does that spell the end of traditional retail in cannabis?
RS: No, I don’t think so. Retail is struggling generally, outside of cannabis. One thing that makes cannabis different is there’s still a majority of the population that needs to be educated on how to use these products in an intelligent way. It’s really hard to do that virtually. I think it’s really hard to do that through delivery.
Retail and budtenders and that whole experience, it may not be forever, but I could definitely, for at least the next 5 to 10 years, see retail as a really important part to that’s how people get educated. I feel like that is a nice differentiator for cannabis retail.
WW: Is there anything I didn’t think to ask that you’d like to talk about or you think is interesting?
RS: Before the Covid recession, the industry was in a largely self-inflicted recession for six to nine months. I think a lot of the challenges now facing the larger economy — all these public companies were in the dumpster, supply constraints tied to China — there were a lot of similarities with the situation we’re all currently going through.
I think it’s interesting how resilient our space is. That, coupled with the “essential” categorization of what we’re all doing, shows the lasting power here. We haven’t seen any decrease in companies signing up on the platform. It just seems like people are really digging in. There’s surely still challenges but it’s going to be a brighter world at the end. It’s just a matter of pushing through and waiting it out.
Surviving and thriving
WW: How do you ensure you’re part of that future and that brighter world? I ask as somebody who has only a very basic concept of what you do or the immediate competitive landscape you operate in.
RS: I think there’s a regulatory answer to that question. There’s also just a general making sure our solution, as a marketplace with all the additional tools tied in there, aligns with the goals of empowering brands and retailers to grow.
One of the unique things that we’re really excited about is we’re a startup, many of our clients are and the space itself is. We compete but at the end of the day we have this unique centralized goal of pushing the space forward.
I think as we learn more about our clients and become more interested in how they’re operating, we can make sure we continue to build and launch tools that create efficiencies for them. Not just right now, but the challenges they will have in six or 12 months.
Frankly, some people in the space may not even know. But we spend time looking at other industries to make sure we’re building those things before they need them. Or we take learnings from state one and apply them to state two and three that might be two or three years younger, so that they don’t have to make the same mistakes.
WW:It sounds like you’ve got a real business and you’re not plant-touching. How do you think about going public?
RS: We’re just over a hundred people now and we’ve raised a few big rounds of capital from some awesome partners. We look at going public as any other tech company would. When there’s a need to access capital in that way, we’ll do it, but we’ll do it through the New York Stock Exchange or NASDAQ. We’re not looking to list on markets we hadn’t heard of.
We’ll do those things as needed when the company grows to that point. But we’re not looking to just find liquidity just because. For us, it’s really a long-term build that we’re excited about. If and when the time comes, I’d be happy to explore [going public]. I think we’d still have a lot more to build and accomplish before we get there.