Cannacurio Podcast Episode 19 - Cannabis Software Stack Report

In the latest episode of the Cannacurio Podcast from Cannabiz Media, my co-host, Amanda Guerrero, and I discuss the data and insights found in Cannabiz Media's Cannabis Software Stack Report. For more details about each technology sector included in the report, check out my four-part series:

1. Back Office Sector
2. Activity Sector
3. Transactional Sector
4. Advisory Sector

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Cannacurio Podcast Episode 19 Transcript

Announcer: This is the Cannacurio Podcast by Cannabiz Media, your source for cannabis and hemp license updates directly from the data vault. Don't forget to subscribe to the Cannabiz Media newsletter, and follow us on LinkedIn, Instagram, Twitter, and Facebook to stay informed of future episodes and data releases.

‍Amanda Guerrero: Welcome to the Cannacurio Podcast powered by Cannabiz Media. We're your hosts, Amanda Guerrero and Ed Keating. On today's show, I'm joined by my lovely cohost, and our Chief Data Officer, Ed Keating.

Ed and the data team have been hard at work the last few months compiling information for our cannabis software stack report. I'm so excited to dive in deeper with Ed on this report and to learn more and share all the details of the work that we've done over the last few months. Ed, you want to share a summary?

‍Ed Keating: Yeah. So, in terms of the origins of the report, I was always intrigued by the software vendors that connected into the state seed-to-sale vendors like Metrc and Leaf Data Systems, and over time, I realized that those two vendors make the list available of software vendors that have been approved so that people in a state can see who they can connect with. So, I started to gather that data and realized that it was an interesting data set to dig into.

‍Amanda Guerrero: Yeah. And it's been super helpful for a lot of our subscribers to just give a more intimate look in terms of the cannabis software groups that... and what parts of the industry or the license holder cycle that they fit into. Can you tell us a little bit more about the origins of the report? Why did you write this?

‍Ed Keating: Yeah. So, it was really digging into that and starting to see who these vendors were. A lot of them were our customers, which is always interesting, and then as I began to see that if you compile the data, you could see which states each vendor was permissioned in and how many states they had a footprint in. It started to become evident that we might be able to provide some insight to our customers in terms of what the market opportunity might be.

So, that's when it really clicked for me when I realized that, "Hey, there's a way to essentially share this data in a way that was meaningful and could help some of our customers who are just trying to do their own market building and market penetration, et cetera." So, that was really, probably, the big part of the reason that I started building the report out and gathering the data.

‍Amanda Guerrero: Yeah. How kind of you. We love it. So, how long did it take you to compile the data in this report?

‍Ed Keating: Yeah. I think I've probably been working on it for, sadly, close to a year.

‍Amanda Guerrero: Oh my goodness.

‍Ed Keating: Yeah. When I first discovered these state level lists of providers, I started trying to pull the data together, and then more states would come online. And the data changes a lot. I mean, kudos to the state seed-to-sale vendors for permissioning more and more vendors onto their platforms, but it's something that we have to keep up with.

Luckily, our team does this every day with licenses around the globe, so we know how to keep track of that information. But it's a pretty dynamic set of data. There are changes, there's mergers and acquisitions, et cetera, but it really was almost a year long process since I started it, and then starting to compile it against the number of licenses in each state that they could connect to.

‍Amanda Guerrero: Yeah. Absolutely. So, the full report itself is 53 pages here, and you list a number of sectors within the report. Can you tell us a little bit about what you found within those tech sectors and the number of providers per sector?

‍Ed Keating: Part of making this understandable was really to try to figure out a way to tame the data, because there was a lot. In the end, we found 320 unique vendors that connected to a system, or many systems, someplace.

‍Amanda Guerrero: Wow.

‍Ed Keating: Yeah. So, I spent a lot of time trying to figure out, "Well, how do you group these together? Essentially, what does the market map look like?"

So, I boil them down into four main categories that included back office, activity, transactional, and advisory. And then, there were a bunch that none of us could figure out what exactly these companies did, or it appeared they were out of business.

So, of the 320, there was actually a good number that we did not include in the report because we didn't think that they were terribly relevant, and we weren't sure if they were still in business.

‍Amanda Guerrero: Yeah, it's important to stay on top of this. And as we previously discussed, it is quite difficult to obtain all this information, but with you guys in identifying these sectors and the actual vendors, how did you identify the leaders within these groups?

‍Ed Keating: Well, we really tried to look at it two ways. One was using the data from Metrc and Leaf Data Systems to just compile how many states is each vendor permission to work in? Because that gives you an idea of what their market footprint is, where are they focusing their efforts. And I think, in some cases, we probably found a few companies that might have been in all 14 or 15 of the states we tracked, others were simply in one.

So, that was one side of it. But the flip side was, how many licenses could they reach in those states? And that's really where Cannabiz Media comes in. Right?

So, we know that data, and let's say if somebody was a grow software company, the only licenses that they'd really be trying to reach are growers or cultivators. So, that helped us narrow that down, and it gave us a chance to essentially create leaderboards that said, "Well, how many licenses can Amanda's company reach?" for example.

And we did our best to, essentially, compute what might be a possible market share, or at least a market opportunity is a better way to describe that.

‍Amanda Guerrero: Yeah, I mean, it really is, from a sales perspective, it's a very competitive analysis of who are the leaders within each sector of cannabis software stack, and from there, being able to give them an idea of where their company could potentially fill in a gap.

Now, I'm super excited to dive into that a little bit later on in the show, but I wanted to check in and see what are some of the common uses of this report?

‍Ed Keating: Well, as we were compiling it, I was trying to look at, essentially, who are all the stakeholders that we know of that utilize this kind of information and try to look broadly...

One group I thought was the regulators because it provides the size and scope of the software landscape and probably introduces them to many of the companies they may be working with, especially states that are, let's say, bringing on a new seed to sale system, or like in Oklahoma, they don't have one yet, but they're demoing them.

So, this is a chance to see who's out there. We also think it's good for existing vendors – a lot of our customers – to see who their potential competitors are. I heard from... Oh, I'm sorry, go on.

‍Amanda Guerrero: Oh, no, I was just agreeing. I think that is very useful from a competitive and business intelligence perspective. You guys have done a great job.

‍Ed Keating: Yeah, I think for some people that I spoke to after the report came out, they were surprised that there were so many companies out there. Some of them they'd never heard of, so I thought that was good in terms of just a business intelligence side.

A third, quite obviously, are investors. If you're trying to figure out how crowded the marketplace is, and you see that, "Jeez, Cannabiz Media says that the back office sector has 95 providers. What does that mean for my investment? Is it too crowded?" Et cetera.

And then, finally, there's people who hold these licenses. They need to make choices as to which vendors and which software tools they're going to use, and this helps them see, at least one lens, of how widely established these companies are.

Do you want to sign up with a one-state wonder who maybe knows your state really well? Or do you want to sign up with somebody who perhaps has software installed across many states and has probably had to deal with a lot of different regulatory schemes?

So, it puts the power in the reader to figure this out and hopefully use it in a way that's enlightening for them.

‍Amanda Guerrero: Wanted to learn a little bit more about some of the other states. We see the mature markets like Colorado, Washington, and Oregon have some tech groups headquartered within their state. I was just wondering, do you have any new predictions for up and coming markets or future tech leaders?

‍Ed Keating: No, I don't. I think that the ones that we see are probably where they're going to be based out of. If you look at the report, California has the lion's share of vendors. 34%, or 114, are based out of California, another 45 in Colorado, 28 in Oregon. Already, that puts you up to 56% or more than half the vendors are in three states, and almost 80% are in eight states.

So, I think we may see some vendors popping up here and there as new states come on board, but I think there's a lot of reasons that tech companies and software companies are based in California, because that's where most of them are located for all the other industries that have software underpinning their markets.

‍Amanda Guerrero: Now, do you think that based on where they're headquartered and where they're doing business, do you think that that will impact their expansion into other states or their ability to expand into other states like those that are based in California?

‍Ed Keating: That's a good question. I think that it depends on what they're trying to do. I was just looking at that transactional financial companies recently for one of our clients and noticed that they did not go into a lot of states. They did not try and get into 10, 12 or 14 states because I think in order to be successful on the financial side, you need to get a lot of transactions, and to do that, you probably need to pick a state, make a lot of connections, and go deep.

So, I think it's going to vary. Whereas in other places like point of sale, and we've interviewed some point of sale executives on the pod in the past, for them it's simply, and I mean that with air quotes, simply adding another set of business rules for that state into their software. And chances are, it's going to be analogous to other states, so maybe it's easier for them to cross state lines.

‍Amanda Guerrero: Yeah. That's a really, really good point there. Now, bringing it back to the pack leaders here, in some of the report, you'll see that there are one state wonders, if you will, local favorites in terms of the tech groups that are coming out of markets like Michigan or Maryland. Do you think that this local favorites, if you will, is going to be a trend moving forward, or do you think they're going to try and reinvent the cannabis tech wheel?

‍Ed Keating: That's an interesting point. In a lot of these states, as you said, I noticed these "one state wonders" where they're only in one state, and quite honestly, I don't know how they survive. I mean, in places like Michigan, you've got a lot of licenses coming on board. That's a good thing.

So, okay, lots of licenses coming on. But these more established vendors, the ones that we all know, like Brytemap and Flowhub, BioTrack, Akerna, they've got sales forces. They've got a lot of experience. They've got a lot of transactions they've already run through their systems.

So, if you're trying to be a compliant license holder and you realize that your license is an asset, and you don't want to get in trouble for Metrc violations, do you go with somebody who's just started doing this six months ago, or maybe somebody who did it six years ago and has a long track record of success?

Part of it may come down to price. Maybe the local person is cheaper and they're nearby so they can come and do onsite trainings, but over time, I don't know if that's going to be a winning strategy. We'll see. We'll see.

‍Amanda Guerrero: Yeah. I'm curious to see what that looks like in the next coming months, especially come November with some of these states voting on adding medical and adult use programs and what that actually does to the tech sector here.

Now that we've dived into some of the, as I mentioned earlier, some of the generalities of this report, but I wanted to break it down with you, Ed, as to what does each sector mean? We've listed four of them within the report itself, but one being the back office, can you tell us a little bit more about who is in the back office and why?

‍Ed Keating: Yeah. So, as I was struggling to understand how all these 320 vendors fit together or didn't, it became clear to me, as I looked at what these software companies were trying to do, that some had a really broad mandate. They were trying to do a lot of things.

So, by that I mean, their systems were seed to sale, like really encompassing, or they were an ERP, which is almost even broader. Some of them did a lot of supply chain logistics, and by that, in my mind, it meant they were touching many points in the value chain.

So, the back office had a lot of vendors that fit in there because it's a robust area and it calls for complex solutions, and it turned out, a little bit to my surprise, to be the largest part of the market. I think, as we said, we found about 95 vendors that, in my opinion, fit into this back office spot.

‍Amanda Guerrero: Yeah. And was there any crossover other sectors from the back office? I would assume so.

‍Ed Keating: Yeah. It's a great point. So, part of the beauty and pain of building a report like this is sometimes you've got to make choices and stick companies into boxes. So, in this case, I did not let anybody exist in two places.

So, some of the companies that I mentioned before, well-known names like BioTrack and Akerna, they have a point-of-sale solution that everybody knows, but I made the decision that they're really a back office provider that happens to have a point-of-sale solution.

So, there are those kinds of things where, occasionally, those companies may have offerings in the activity sector where we get down into the specific license types.

‍Amanda Guerrero: Okay. Yeah. I mean, it seems like the back office is those organizations that have a multi-pronged approach to providing technological solutions to these license holders, and that's where their strong point is, is being a Jack or Jill of all trades. And so, I think it was smart of you guys to limit that to just one sector, because we do cover three more.

So, another sector that we cover is transactional. Can you tell us a little bit more about what did you mean by transactional and who comprises of this data?

‍Ed Keating: Yep. When you look at a lot of markets and do a market analysis, the transaction is always an interesting place to be because that's where money changes hands. A lot of people are trying to own that space because that's where money moves, et cetera, and obviously, in our highly regulated cannabis space, it's a complex area, too.

So, we put in several categories of vendors there that are centered around transaction, so they include a couple of financial institutions, which we think is interesting. I think there were two and they each connected only to the one state that they were located, and which made sense, payment processors, also financial compliance companies, and finally marketplaces, people who are trying to, as they say, bring buyers and sellers together.

Maybe they had one group on one side and wholesalers in others, and they were trying to make that transaction happen. So, all these companies in this sector are really involved with, essentially, the movement of money through the value chain.

‍Amanda Guerrero: Okay. And so, do you think the number of financial groups depends on the state's take on cannabis or in the number of private banking institutions that are available?

‍Ed Keating: Yeah. I mean, it's tough because we know that the whole financial side of cannabis is murky, and all the challenges that the license holders have in terms of management of cash and banking and taxes and all that make it a pretty challenging space to be in.

So, the one thing that I did find as I was going through this was the fact that a lot of these companies don't jump into a lot of states, as I said earlier. They really do seem to have to, perhaps need to, focus on a market and do a great job there. And jumping market to market, I think, is way harder than it might be for, let's say, a point-of-sale vendor or some of the other activity type vendors.

‍Amanda Guerrero: Yeah. So, is that why you think that there aren't any vendors listed, for example, in Maryland, Maine, Missouri, and Louisiana?

‍Ed Keating: Yeah, exactly. Because those are markets that right now are smaller, and I think if you're going to try and make a go of it, you're going to want to go to a place where you can get, hopefully, a lot of transactions coming through your system, if that's your model. And some of these other ones where it's a pretty small market, like I'm based in Connecticut and there's only 18 dispensaries here, so I think that's part of how it may play out.

‍Amanda Guerrero: Not like us here in Colorado. We've got quite a few. So, another sector, excuse me, that we covered was activity, and activity is actually one of the terms that we use to describe the license holders within our platform. So, I'm curious, how did you guys break down activity as it relates to the tech sector?

‍Ed Keating: Well, just as you said, we followed the Cannabiz Media model and essentially looked at what activities do we track and which ones did we find software vendors that would meet that? And looking across all those that were in there, there were a lot more laboratory information management systems than I would've thought. That's not a category that I had seen a lot of [inaudible 00:19:28] and whatnot, but there were definitely a number of vendors there.

Point-of-sale, we know that really well. We've been tracking that. Delivery was kind of interesting. There was software that helps with delivery. And then, finally, there was also some consumer facing software.

And one point I think I should make here is that there may be vendors that are in these spaces, LIMS, POS, and all the others, that simply don't connect to Metrc for whatever reason. They may get their data through the license holder independent of Metrc. So, there is that factor to consider as we look at who is on the leaderboard and, really, who's on our market map, too.

‍Amanda Guerrero: Yeah, absolutely. I was also surprised at how many LIMS, or Laboratory Information Management Systems, there were listed within the report here. And my question was, when do you think we're going to see the same type of market consolidation like we've seen with some of these ERP, point-of-sales groups? Within the report, it seems like Confident Cannabis, shout out, is on that path towards market domination.

‍Ed Keating: Well, yeah, that's always an interesting analysis to do. A lot of the ways that I always look at a business when I first start to understand it is you run it through the simple test or this simple set of questions. Is it a feature, is it a product, or is it a business? And trying to understand that skill.

And one of the conclusions I made in the report is might we see some of these back office systems well-established, robust adding - through tuck-in acquisitions - different activities to their suite of offerings so that they can be a more complete solution?And perhaps those are the companies that are going to build really strong relationships with the multi-state operators, who we know have complex compliance challenges and probably want to not have 18 different vendors.

So, that could be a way that at least part of the market goes, and maybe that still leaves room for the one state wonders, and some of those other states, where somebody's just running... A store has one license and doesn't need all the bells, whistles, and gongs that they might get from a really complex solution.

‍Amanda Guerrero: Yeah. I think that's where you're going to start to see some of these point-of-sales groups starting to grab up some of that, that market share, especially in these up and coming markets. Like New Jersey, for example, it is going to be smaller in terms of the licensing that's available, but that could be a good case for a one state wonder tech solution.

I also think, too, the delivery was an interesting point because this is something that we're seeing happening across the licensing in terms of new programs being added. I know delivery's been something we've debated here in Colorado, my home state, but I think that... Or I wanted to ask you, what impact do you think the regulatory bodies will have on the delivery tech groups? And from there, do you think that's something that will be included in that potential acquisition for these larger ERP solutions?

‍Ed Keating: I think the tech and the regulation side is a very interesting piece, and that's one of the reasons why I said, "Hey, regulators may benefit from this," because we've seen some battles and issues with different regulators, like Weedmaps in California arguing over what they should carry on their product in terms of black market. And that resolved for really the regulator, and they came to a good conclusion there.

And also with things like delivery, where delivery can happen. So, I think the regulator is always going to be a factor because they're trying to, essentially, protect their consumers, and they want to make sure that whatever does happen is appropriate.

I mean, another famous case we saw where I think it was a whole chain of dispensaries out Colorado got shut down and sold because they were not using the point-of sale-software in the manner in which it was intended, and let people come in and buy stuff hour after hour after hour and filling up their car with cannabis. So, I think the regulator is never going to be too far away from these technology vendors.

‍Amanda Guerrero: Yeah. I think that's a good point here. Now, I did want to get into a category that we just started tracking within this tech group, but that's the consumer technology that's available right now, because this really isn't something that we've seen or tracked before. But from my interpretation of reading the report, it seemed like these platforms are trying to solve that budtender education gap.

And when you look at the landscape of the cannabis industry, you're seeing consumer packaged goods in businesses like Nielsen, or analytics groups like Nielsen, come in here. And I'm wondering, why did you guys start tracking this information, and do you think this particular tech sector will continue to grow?

‍Ed Keating: So, the consumer space is definitely different for us because, if you look at our database, we don't have a consumer activity. I mean, those are customers and they do their own activities. But for us, I think in looking here, we just focused in on, really, the handful of software vendors that chose, for whatever reason, to connect to Metrc or Leaf Data Systems in Washington.

So, a lot of them really seem to be guiding customers, and I wonder if they're trying to get information on product from the state or, really, why they're trying to dig into that because none of them were in a ton of states. Most were in just a couple. Yeah. I think, actually, the most that one was in was in two. Everybody else was in one.

And there were not a lot of licenses. It's not like there were thousands and thousands of, let's say, dispensaries that were going to benefit from this. In some cases, one company was only in Maryland and they could connect with 104 dispensaries. It's kind of hard to build a business on that. 10% market share is 10.

So, I think this is going to be an interesting space, and maybe a lot of these brands that we know simply don't connect to Metrc to try and get that data, but it is interesting to see that the handful or so that they did and how that's helping them, perhaps, achieve their goals or get access to data and information that is hopefully insightful.

‍Amanda Guerrero: Well, on that same thought, we were talking about getting data that's insightful. The advisory sector within this report was really informational because it provided you with consulting groups from an analytics and insights perspective to actually consultants that work with the license holders. Can you tell us a little bit more about the makeup of this sector and the methodology behind it?

‍Ed Keating: Oh, absolutely. So, advisory is pretty interesting because it really has, in my mind, two distinct groups. So, there are, essentially, these market data companies that are known well to many of us, BDSA, formerly known as BDS Analytics, Headset, Cannabis Big Data, and others. So these are ones that, in some cases, do connect through through Metrc.

And then, on the flip side, there's all these other vendors that really, for the most part, seem to be technology shops that can help people connect to Metrc or build cannabis or hemp specific type programs.

So, it's definitely a different group in terms of how they interact with the market, but we included them on the market map because they can provide real insights to their customers in terms of helping them understand the inputs and outputs from the back office, from the transactional, and from the activity software.

So, it's really a nice way to tie it together because there's a lot of data that those systems can generate, and a lot of operators may not have the time or the ability to dig through it. But here you've got some experts and pros who may be able to help you understand it in a way that you couldn't on your own.

‍Amanda Guerrero: Yeah, absolutely. No, I think that's a great point, and when you're looking at the full cannabis tech software stack, it's a great way to wrap everything up here.

Now, given that half of these advisory groups exist within California, do you think that, over time, we'll see these advisory groups shipped to more markets like Illinois and being headquartered out of there? Because when you look at the program, I mean, it is fairly robust and a little bit more well thought out. I'm a little biased because I'm from Chicago, but do you think that that's going to happen?

‍Ed Keating: Well, if you think about it, the inputs that somebody would need as a consultant is simply the data, and being in the state probably doesn't matter all that much. So, I'm not sure if it's necessary going to create a movement of any of these businesses to suddenly be there, because it's really one of those intellectual property businesses and knowledge worker businesses, and you might not necessarily need to be there to be effective, because the data in Illinois, at the end of the day, coming through a system is probably not all that different than what you'll see in Oklahoma, Connecticut, or even California.

‍Amanda Guerrero: Understood, understood. Well, I really have enjoyed speaking with you, Ed, and diving a little bit deeper into our software stack here. It's really given me some great perspectives. I know our current subscribers who got access to this are incredibly happy and satisfied here. Really appreciate you diving in deep with me, and I look forward to our next Cannacurio recording, which should hopefully be within the next few weeks here.

‍Ed Keating: Well, thanks, Amanda. This was a lot of fun. It was good to dig in and get a chance to review it. And great questions. I learned a lot today, as well.

‍Amanda Guerrero: I love it. I love it. Well, everyone, thank you so much for joining us on today's podcast. We're your hosts, Amanda Guerrero and Ed Keating. stay tuned for more updates from the data vaults.

‍Announcer: Thanks for listening to the Cannacurio Podcast by Cannabiz Media. Stay up to date with the latest episodes of the podcast and get alerts on the latest licensing activity in the United States and Canada, as well as exclusive industry insights, by signing up for the Cannabiz Media licensing newsletter at cannabiz.media/newsletter.