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Meadow is the Amazon of weed

Marijuana legalization is sweeping the nation, and The Green Rush is upon us. As pot sellers scramble to comply with complex regulations, one startup has built the full-stack of specialized commerce software they need. Meadow offers everything from an eye-catching digital storefront for teasing tasty plants, to automated patient records management for which you’ll go to jail if you screw up.

That’s why Meadow is emerging as the Amazon of weed. But it’s not just the website where you go to buy the best buds from a variety of top local shops. It’s the AWS powering the back end of the THC trade.

  • Online and mobile ordering
  • Delivery logistics
  • In-store point of sale
  • Inventory management
  • Returns and discounts
  • Patient intake and registration
  • Analytics
  • Security

Today Meadow launches that final piece of its marijuana dispensary software suite: loyalty. It lets ganja buyers earn points for shopping at the same place, which they can redeem for cash back, discounts, free products and prizes. Customers can earn and apply points in-store or online, and track how many they’ve racked up at all of Meadow’s vendors. It could be especially helpful for sellers who want to get rid of pot before it goes stale or another shipment comes in, without screwing with their public pricing.

“The ability to accrue points gives the dispensary a tool to build a deeper relationship with the customer,” says Meadow co-founder David Hua. “We’ve seen a lot of dispensaries fail at managing a loyalty program. Creating one is easy, tracking it with inventory and your reporting often can be super onerous for the operator.”

Meadow co-founder, CEO and smoker David Hua

Hua is a stoner, no doubt. But Meadow’s CEO is also a shrewd businessman who won it TechCrunch’s 2015 Crunchies award for best bootstrapped startup, led it through Y Combinator and raised its $2.1 million seed round last year. Operating out of a warehouse in San Francisco’s Mission District, pungent smoke often wafts in from the courtyard of Meadow HQ. Its willingness to serve as a community hub and event space has established Meadow as the commerce layer connecting players in the burgeoning legal pot business.

Meadow frequently gets compared to fellow weed software startup Eaze . While both run a virtual doctor’s office where you can get prescribed marijuana over video chat, and both offer an aggregated online storefront and delivery logistics service, that’s where the similarities end.

Eaze has aggressively raised more than $24 million for marketing in a bid to become the Uber for weed, organizing deliveries without formally employing the couriers. But Hua sees that as a more generic piece of the marijuana commerce puzzle that could get commoditized. It’s the hardcore back-end office software for navigating heavy regulation that’s harder to copy, but critical for running an upstanding pot business.

Meadow’s point of sale software lets marijuana dispensaries offer loyalty programs

Meadow’s vision is that if a dispensary relies on it for everything from scanning bar codes on jars of weed in their store to securely storing patient medical data, they’ll tack on its online storefront and delivery logistics for convenience sake.

That plot is panning out. Despite having raised just $2.1 million in April 2016, Hua says “We still have plenty of runway. We’re good on funding.” In fact, now that the 10-person startup can serve 70 percent of California counties that allow medical marijuana, Hua tells me Meadow is “getting close to profitability.”

The pot market is poised to get much more exciting as marijuana becomes legal for all adults in California at the start of 2018. “Looking at Colorado, Washington, Nevada [where weed recently became recreationally legal], those markets tripled, quadrupled, 5Xed over night. We expect to have a nice multiplier.” While only focused on California for now, Meadow has enormous growth potential as more states decriminalize.

A customer checks out using Meadow’s tablet-based point-of-sale software

Legalization brings challenges too, though, as regulations change, competition increases and more established businesses try to muscle in on the weed trade. That’s why Hua has raced to bring in best practices from outside of the pot world, watching how Square, Belly, FiveStars and other commerce platforms handle point-of-sale and loyalty.

With the end of any prohibition comes massive opportunities for new ventures. Some jumped into holding and selling weed themselves. Others like Eaze have vied to handle how it gets to your door. But Meadow has taken the unsexy path of building serious commerce software. As weed finally becomes a serious business in 2018, all that time coding could blossom into a very sticky service.

Marijuana legalization is sweeping the nation, and The Green Rush is upon us. As pot sellers scramble to comply with complex regulations, one startup has built the full-stack of specialized commerce software they need. Meadow offers everything from an eye-catching digital storefront for teasing tasty plants, to automated patient records management for which you'll go to jail if you screw up.

Please Stop Comparing Marijuana Stocks to Amazon

With the exception of early-stage losses and plenty of reinvestment, Amazon and pot stocks are nothing alike.

Right now there’s arguably no hotter industry on the planet than cannabis, and it’s been reflected in the valuations of nearly all marijuana stocks. Since the year began, well over a dozen of the most popular pot stocks are up more than 50%.

A quick overview of the industry provides evidence of why marijuana stocks have been unstoppable. In just the past six months, Canada became the first industrialized country in the world to legalize recreational weed; additional U.S. states gave the green light to medical marijuana, pushing the number of states to have legalized in some capacity to 33; and Wall Street analyst coverage has commenced with some lofty price targets.

According to a report from Arcview Market Research and BDS Analytics, the global cannabis industry generated $12.2 billion in sales last year. However, investment bank Cowen Group foresees the industry growing to $75 billion by 2030, with Jefferies seeing an outside opportunity of the industry reeling in $130 billion annually at its peak. At $130 billion, the pot industry would be essentially double the size of the global soda industry. It’s these lofty forecasts, along with triple-digit sales growth, that have investors piling into pot stocks.

Image source: Getty Images.

No, your pot stock isn’t the next Amazon

But there’s just one problem: With the exception of a very small handful of marijuana stocks, they’re nearly all losing money. In some instances, a lot of money. The need to ramp up capacity, build and market recreational or medicinal brands, research new products for adult-use or medical purposes, lay the groundwork to move into overseas markets, or make acquisitions has pretty much doomed every major pot stock to ongoing operating losses. In other words, the industry is a fundamental nightmare.

However, ugly income statements aren’t stopping marijuana stock investors because we’ve supposedly seen this scenario play out before with Amazon.com (NASDAQ:AMZN) . Amazon lost copious amounts of money in the late 1990s and throughout the 2000s as it built itself into an e-commerce giant. It continually reinvested a majority of its operating cash flow back into the business in order to emphasize long-term growth over short-term profits. And, as the results show, it did quite well for itself.

This is an argument I run into often with a company like Aurora Cannabis (NYSE:ACB) . Through the first six months of fiscal 2019, Aurora Cannabis has lost 192 million Canadian dollars on an operating basis. But because the company has been on an acquisition binge for more than a year now, it’s vaulted into the top spot in terms of projected peak annual production. Yours truly estimates that Aurora Cannabis can produce 700,000 kilos annually at its peak. Thus, the company’s lack of profits and its immense dilution are moot points because Amazon succeeded by reinvesting in itself, and so can Aurora.

But the fact of the matter is that Amazon’s growth story is nothing — absolutely nothing — like what’s going on in the cannabis industry, and comparing marijuana stocks like Aurora Cannabis (or any other prominent name, for that matter) to Amazon has got to stop.

Check out the latest earnings call transcript for Amazon and other companies we cover.

Image source: Getty Images.

1. Innovation vs. regulation

To begin with, Amazon was creating something completely new. Prior to the mid-1990s, there was no broad-based internet access of e-commerce. This was an exceptionally fluid space that had avenues that would take time to discover. Even 25 years later we’re witnessing connectivity innovation that’s constantly transforming the internet, cloud-computing, and the face of e-commerce.

By comparison, marijuana has been around, at least as an illicit industry, for a very long time. There’s not much in the way of game-changing innovation going on. It’s merely a tight walk between regulators and retailers of figuring out where the sweet spot exists with regard to taxing legal cannabis in order to drive consumers from the black market into legal channels.

2. There’s a massive gap in market size

Marijuana stock investors who love leaning on the Amazon comparison are also overlooking a huge gap in comparable market size. Even assuming Jefferies’ extremely lofty estimate of $130 billion in annual sales is correct, keep in mind that Amazon is part of a $6 trillion U.S. retail sales industry — and this doesn’t even factor in its cloud-computing service, Amazon Web Services (AWS). According to Gartner, worldwide public cloud service revenue is expected to increase by more than 17% in 2019 to $206.2 billion. And yes, this doesn’t include the sales potential from the private cloud.

So, to summarize, Amazon currently operates in an addressable market of more than $6.2 trillion (not even counting its smaller sales channels), while the marijuana industry can one day hope to maybe hit $130 billion in annual sales.

Image source: Amazon.

3. Most pot stocks don’t have multiple sales channels

To build on the previous point, comparing the two industries ignores the fact that Amazon has numerous channels of revenue. Amazon can make money with e-commerce, with AWS, through its Whole Foods subsidiary, by selling its Prime service, and by offering ad services and co-branded credit cards.

Comparatively, marijuana stocks don’t really have many ancillary revenue channels. They can sell a variety of pot products, or perhaps partner with a brand-name beverage, snack, tobacco, or pharmaceutical company. They won’t, however, have the revenue breadth of a company like Amazon.

4. Initial winners may not have staying power

Lastly, the rise of internet e-commerce reminds us that initial leaders aren’t guaranteed to stay there forever. Remember, there was a time when Netscape Navigator was the preferred internet browser, Yahoo! owned the search landscape, and eBay was the e-commerce destination of choice for online shoppers. Change is commonplace within fast-growing industries, and there’s little guarantee that a company like Aurora Cannabis, which looks to be a leader now, is going to remain near the top of the pack.

Long story short, just because Wall Street tolerated ongoing losses from Amazon doesn’t mean they’ll tolerate them for very long from the pot industry. Caveat emptor, investors.

With the exception of early-stage losses and plenty of reinvestment, Amazon and pot stocks are nothing alike.