Leafly Stock: Will it Become the Amazon of Weed?

Once upon a time, cannabis was part of the counterculture and not a target of venture capitalists. Cheech and Chong, the Fabulous Furry Freak Brothers, and High Times represented the extent of its media reach through the 1960s and into the 1980s. Today, Cheech is one of a number of ganjapreneurs, while the Freak Brothers have their own cartoon series voiced by Woody Harrelson and John Goodman. On the other hand, High Times has hit upon hard times as it tries to evolve with the times to attract investors to an ill-fated IPO. Digital disruption has hit the cannabis space, and companies like Leafly and Weedmaps offer consumers more of what they want from a weed website – reviews and online shopping – and business access to a sprawling e-commerce marketplace. Weedmaps (MAPS) went public earlier this summer and a Leafly stock offering isn’t far behind.

About Leafly Stock

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Not surprisingly, Leafly has opted to merge with a special purpose acquisition company (SPAC) to go public, a strategy that’s been largely reserved for startups that would prefer to be less-than-transparent with retail investors. It’s like book stores that offer brown bag mystery bargains, and you end up with a stack of titles by Danielle Steel. We’ve hit on the plentiful pitfalls of these backdoor blank check company deals more times than Chong hits the bong before noon, so we won’t spend too much time on our soapbox here as we review the Leafly stock offering

The SPAC in this case is Merida Merger Corp. (MCMJ), which is backed by Merida Capital, a private equity firm that specializes in the cannabis industry, with more than $500 million in managed assets and 55 portfolio companies. So at least the folks at Merida are rolling what they’re smoking. The transaction is expected to generate up to $161.5 million, but apparently includes a recent $31.5 million capital raise by Leafly that also involved Merida Capital. Crunchbase says Leafly raised about $41 million through June of this year, so we assume that means total funding is about $72.5 million, but the math is already a bit fuzzy.

Founded in 2010, Seattle-based Leafly offers cannabis content focused on driving sales through its online marketplace. Its main selling point is a database of more than 5,000 strains, which provide details about the bud’s lineage and effects, along with user-generated reviews and more. The company claims more than 125 million annual visitors to its website, which also includes news and educational content through articles, videos, and podcasts.

Leafly statistics
Leafly has become one of the leading cannabis content providers and marketplaces. Credit: Leafly

On the business end, Leafly provides a subscription-based platform for more than 7,800 brands and 4,600 paying retail subscribers. It claims that about 55% of North American retail licensees are currently subscribed to its marketplace and advertising services. It more than doubled its retail accounts between 2018 and 2020, when it reported $36.4 million in revenue to go along with $8.1 million in total losses. More than 80% of its revenue comes from retail clients, with brand marketing accounting for the rest. The company offers three subscription tiers and other marketing services:

Leafly revenue streams.
Leafly is fighting for a fine number of retail and brand subscribers with Weedmaps, a company about four times its size. Credit: Leafly

In 2021, Leafly projects revenue of $43 million, with a corresponding loss of about $15 million.

Leafly Versus Weedmaps

Meanwhile, Leafly’s main competitor, Weedmaps, reported revenue of nearly $47 million in the second quarter of this year alone. The comparison between Leafly and Weedmaps is inevitable, and it’s kind of like comparing a pinner to a blunt – at least in terms of size. Weedmaps was one of the first cannabis companies to announce its intention to go public through a merger with a SPAC last year. Its current market cap is about $1.8 billion compared to about $530 million when the dust clears from the Leafly SPAC deal. On the surface, Weedmaps is nearly four times bigger than Leafly in terms of revenue and market cap. 

Screen shot of google search.
Leafly consistently tops Weedmaps on Google search, for what that is worth. Credit: Google

However, Leafly seems to hold a slight edge on SEO and Google search results during a very informal test on a few key terms that we tried. Leafly itself is hyper-aware of the rivalry and claims to be outcompeting Weedmaps on the East Coast, where legalization efforts have been heating up.

Leafly vs Weedmaps on the East Coast.
Does the Gambino family know that Leafly is muscling in on its territory? Credit: Leafly

In the end, it may just be a battle of brand awareness, as the two companies appear poised to be the two main marijuana marketplaces for the foreseeable future. No doubt Leafly needs this SPAC deal to go through in order to keep up with Weedmaps, as it tries to build market share while introducing new revenue streams like data analytics services. Nominally, the company is interested in international expansion but any overseas plans have gotten minimal lip service up until now.

Should You Buy Leafly Stock?

The simple answer: No, of course not.

The longer answer is that we simply don’t invest in cannabis companies, except for ones that are non-plant touching, such as those that offer ancillary services like hydroponics. Now, Leafly will say that it falls into this category, but until cannabis becomes legal at the federal level, there is still too much regulatory risk. Weedmaps already found this out the hard way by listing thousands of unlicensed pot shops in both California and Canada. A good way to make investors paranoid, aside from slipping some PCP into their Wedding Cake, is to announce that the Department of Justice has just issued a subpoena for a bunch of financial documents.

Consumer journey on Leafly
Getting high is just a few clicks away. Credit: Leafly

We’re also a little leery of Leafly’s internal turmoil. The company had two rounds of layoffs last year, TechCrunch reported. In January, it cut 54 employees, which represented 18% of its workforce at the time. Two months later, another 91 people joined the unemployment line, which represented 39% of the remaining workforce. That all happened before COVID-19 really hit. It also closed its operation in Germany last February – so much for those international expansion plans.

Profile of a strain of weed.
Leafly has built its brand on its strain database. Credit: Leafly

The original founders left for greener pastures and founded a cannabis data analytics firm called Headset back in 2015. Former CEO Tim Leslie lasted less than two years before turning over the reins to Yoko Miyashita (no, not that Yoko), an attorney who previously served as Leafly’s general counsel since 2019. Before that, she last worked for more than a dozen years at Getty Images, as a senior vice president and general counsel. In theory, she should at least be able to keep the company out of legal hot water. Miyashita is also focused on improving Leafly’s e-commerce tools, including a recent partnership with Jane Technology, a cannabis retail tech company that has raised $127 million for powering online dispensary sales.

Conclusion

If we could predict the next Amazon, or even the next Amazon for cannabis, we probably wouldn’t be spending our days hammering out content for our lovely readers but smoking Mimosa on a tropical beach somewhere. But our sense is that it will be a few more years before the cannabis regulatory landscape clears and the e-commerce end of the industry consolidates. Until then, it’s way too early to make a bet on Leafly, Weedmaps, or Jane (when the time comes).

If the Leafly merger goes ahead as expected, the stock will trade under the ticker symbol LFLY on the Nasdaq.

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