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The marijuana space has been booming in recent years, and there’s a lot of attention paid to the billion dollar plant-touching brands that are seemingly going public on stock exchanges overnight — cannabis growers, producers, and dispensaries. The so-called Green Rush. But what about the ecosystem developing around the industry, the proverbial pick and shovel to the modern day Gold Rush? The opportunities for ancillary businesses are ripe, from tech platforms to delivery services and companies offering financial solutions. And some well known investors agree. The legendary investor Danny Moses of The Big Short believes the pot industry being the next “big long” for the market.
I got to sit with James Yi, founder of a tech startup called Leaf Trade, to learn about how they’re blazing trails by building compliant B2B SaaS enterprise software used by many of the leading cannabis companies in North America.
Dan Reich: My understanding is that the marijuana industry is extremely complex and there are significant barriers to entry. How did you get your foot in the door?
James Yi: I was running my previous software company, NextME, when in 2015 Illinois launched the first highly-regulated medical cannabis program in the country. All of a sudden I was getting phone calls from people that had won licenses to operate, seeking help finding tech solutions to solve the massive business inefficiencies they were encountering.
My story began by providing consultative services, and during those early days I quickly realized that the solutions my clients were looking for — just didn’t exist. It was a huge opportunity to step up and help fill the tech gaps in the space, marrying my background building a technology company with the deep regulatory insights I gained into an industry unlike any other.
Reich: What are some of the inefficiencies that Leaf Trade solves?
Yi: The most glaring problem was the way in which wholesale product was bought and sold. If you were a retail dispensary, and you needed to stock up on products to make available to patients that needed their medical cannabis, basic functions like ordering from the licensed cultivators in your state occurred via text messages — I even witnessed some cases where dispensaries were texting photos of their order written on napkins!
Just managing these orders occupied half of our clients’ time, on both sides of the transaction. So step one for Leaf Trade was digitizing this process by centralizing and streamlining their order management.
Reich: Can you walk me through the experience on Leaf Trade, how does it work?
Yi: Leaf Trade helps licensed sellers of wholesale cannabis create an online storefront. Verified dispensaries login to our site and have access to all of the brands they are allowed to purchase in their respective markets. Dispensaries enjoy easily placing orders right from their mobile phones, and the sellers have all the built-in supply chain management tools that help their sales, fulfillment, and accounting teams work together to successfully process and deliver orders smoothly, all while dramatically reducing the amount of time it takes to do so. We don’t touch warehousing or transporting of product — Leaf Trade is purely a software platform that helps cannabis businesses do what they do, better.
Reich: How does Leaf Trade differ from others in the space?
Yi: When it comes to cannatech opportunities, I think the retail POS side is already very saturated. But solving the fundamental inefficiencies inherent to young industries on the wholesale side is a bigger challenge that takes domain expertise, which is why there are only a handful of companies attempting to address it.
Leaf Trade is differentiated in three ways. 1) by offering a platform that’s built to comply with state-by-state regulatory nuances, 2) providing back office software necessary for a complete supply chain management solution, and 3) implementing system of record processes that’s critical to clean and consistent data management that our clients require to make sure all of their software solutions can work together, and generate accurate reporting that’s necessary to grow their business.
Reich: What’s been the market response so far for Leaf Trade?
Yi: Having had industry experience, I knew we were going to solve a big problem. We achieved 30% market adoption within the first month of launching in Illinois, and today practically every licensed cannabis business in Illinois uses Leaf Trade exclusively for wholesale order management.
We’ve since expanded into several states primarily east of Colorado where we are the industry leader, including but not limited to Maryland and Pennsylvania. We expect to be in 14 states by end of 2019.
Reich: What’s in store for the future of Leaf Trade? Do you have any regulatory concerns?
Yi: We’ve found a lot of success in the highly-regulated market segment in the U.S. which has been our primary focus, but there’s definitely huge opportunity for us in the established recreational markets out West, not to mention the international markets as well.
We’re really excited about bringing a fully compliant payment processing solution to our clients this year, along with other inventory and logistics management tools.
As far as regulations go, I think that federal restrictions created a moat around this industry that allowed a company like Leaf Trade to leap ahead of behemoths like Amazon or Oracle. We’ve also crossed a political and cultural tipping point — 33 of 50 states plus D.C. with some form of cannabis legalization, a nearly 80% public approval rating, and the kind of economic impact that commands bipartisan support in Congress. Full legalization at the federal level will be slow but I think the country’s on track towards steady progress, putting Leaf Trade in a great position to thrive (Illinois for example is poised to go recreational soon and is alone projected to be a $1B market, while the U.S. in its entirety is expected to be a $25B market by 2022).
Finally, we can’t forget about the social impact — not only are patients finally getting the access to the medicine they need, but the decriminalization of cannabis will reduce the number of people wrongfully thrown in jail. The U.S. has a long history of racial injustice around marijuana, and the industry has a lot of work ahead to help right those wrongs and make sure that opportunity in this space is equitable. Leaf Trade has committed to actively being a part of that change.
Reich: What advice would you give to aspiring tech founders or anyone wanting to break into the marijuana industry?
Yi: I just listened to a SaaStr podcast episode with Tom Tunguz of Redpoint Ventures that was such a validation — focus on product and your clients’ needs, everything else is noise. Paul Graham of Y-Combinator is also a big proponent of this. There are founders that raise a round before they even have a product and burn through all their cash on marketing. By focusing on product and our clients, we’ve built a company that delivers high value and low churn.
Whether they’re a wholesale seller or retail dispensary group, some of the largest publicly traded cannabis enterprises utilize Leaf Trade — MedMen, Curaleaf, Green Thumb Industries, Cresco Labs, and Harvest Health amongst others. But so do smaller mom and pop organizations, and I think it’s advantageous to have a pricing model that accommodates both.
As for breaking into the industry — Leaf Trade is hiring! We’re rapidly scaling up our sales, client success, and development teams with passionate and talented individuals looking to be a part of this exciting movement.
Disclosure: I am an investor and advisor to LeafTrade
March 14, 2019 at 10:06AM
Forbes – Entrepreneurs