Pando

"Uber for pot" app Eaze raises $10 million and a would-be Kalanick gets his wings

By Dan Raile , written on April 14, 2015

From The News Desk

Today, the San Francisco-based cannabis delivery service Eaze announced that it has raised a $10 million Series A round led by DCM Ventures and joined by 500 Startups and Fresh VC. This may well be a watershed moment for the cannabis industry -- or at least the canna-tech industry -- as it is the biggest round invested in a single marijuana startup. Peter Thiel's Founders Fund* helped close a $75 million round in the cannabis-focused Privateer Holdings last week, but that amount will be distributed among multiple companies.

For Eaze this is no lucky accident. 

“Being first to market is huge for our strategy and growth,” Eaze founder and CEO Keith McCarty told me in the company’s SOMA offices back in January, drawing me a bell curve on the white board behind him. Competition over Time.

“We don’t have to make the case that the next wave of tech is on-demand consumer services," McCarty said, whose startup has been called Uber for pot. "This is just another category. But what makes some of those companies winners while others are just mediocre?” McCarty, an early employee at Yammer, went on to explain to me the reasons why. Over the course of an hour-long conversation last winter, he mentioned Uber half a dozen times -- and never once mentioned whether he enjoyed getting high.

Uber came up again yesterday when I talked to McCarty by phone.

“Since launching in July, Eaze has successfully facilitated over 30 thousand deliveries. If you look at where Uber and Lyft were at when they raised their Series A, and the size of those rounds, you’ll see there is a remarkable similarity.”

Indeed, Uber had been operating for about a year in San Francisco and had given mere tens of thousands of rides when it landed an $11 million round in February 2011. 

McCarty and Eaze maintain a similar posture toward regulation as do their ridesharing heroes.

“We want to be seen as a pure technology play,” he told me back in January.

With Eaze, a push of a button and a roughly 15 minute wait are all it takes for Bay Area users to receive an unmarked paper bag with their preferred cannabis products, wherever they might be (except Federal property. My attempts to get Eaze drivers to deliver to me in the Presidio and Ocean Beach failed, as law decrees they should have). In San Francisco, Eaze's competitors have struggled to match its speed and simplicity, in addition its good standing with regulators.

DCM Partner Kyle Lui, who sourced the firm's Eaze investment, said that he was first approached by McCarty last summer. In the time since, Eaze's performance as well as favorable signs in the regulatory environment led him to make the deal.

"We studied the market, specifically around companies like Eaze that are technology enablers, and Eaze just has much more traction and quite a bit of a head start in a potential market that is huge and growing," Lui said.

McCarty told me yesterday that Eaze intends to hire 50 new employees in 50 days, expand next to Southern California and from there to other states by the end of the year. The primary focus, he said, will be on expanding partner development…and partner development is where things get interesting in this weed tech game.

  • ** 

In late February, I got a rare glimpse inside the state-of-the-art cultivation and processing facilities of Sparc, Eaze’s exclusive San Francisco dispensary partner. As I’ve written previously, Sparc is not your run-of-the-mill pot shop. In addition to offering flowers, edibles, tinctures and concentrates, it offers free accupuncture and massages. It has been called, aptly, the Apple Store of dispensaries. Its CEO, Robert Jacob, is a sitting council member in the city of Sebastopol, and continues to run a dispensary there while overseeing what has quickly become, with some help from Eaze, a medical marijuana empire in the plant’s spiritual home town by the Bay.

Jacob gave me a tour one working day through his Potrero Hill facility’s harvesting, curing, trimming, packaging, inventory, and security operations, all bustling with employees and bursting with buds, though every last gram is accounted for by a double-signing process up and down the line.

The facility's 600 lights-worth of fully optimized growing space represents only a fraction of Sparc’s total product. In total, Sparc grows only 30 percent of what it sells.

After the tour, as Jacob and I sat and talked, a number of delivery drivers arrived to begin their shifts. They were swiftly issued an oversized rifle-case full of product, for which they signed, and were shuffled out the door. All of Eaze’s current drivers, except for those in the South Bay, are employed by Sparc and pass through this facility at least twice per day. The whole place is immaculate and runs like clockwork, and a big part of that is Jacob’s doing. Eaze handles all the drivers’ on-the-road logistics, and tracks inventory, performance and all kinds of app usage data, but everything involving the thousands of plants grown here -- and make no mistake, it is a very involved process -- is in Jacob’s hands.

For his part, Jacob’s seems content and completely consumed by his multifarious operations, and with the terms of the Eaze partnership. When Sparc partnered with Eaze last fall, it had 55 employees. By the end of February it had 162.

“You can say what you will about Eaze culturally, operationally ... but technologically they are incredible,” Jacob said.

When I first spoke with Jacob back in January, he hinted at that same ambivalence.

“[With Eaze] There is this hunger and thirst to take over, to make more and more. It’s completely different than we are used to, and it is pushing us to step up and expand and accomplish more. With these technology issues, it’s like Uber or Lyft -- it’s about market share first and repairing public relations, customer relations later. But at the same time it’s working, the patients are loving it. We are getting more cannabis to more patients, so what if its some crazy techie app people that are helping us?”

As Eaze attempts to expand beyond the Bay Area, it may become difficult to find such competent partners. San Francisco is an incredibly mature market relative to the U.S. legal cannabis economy, and Sparc is clearly a favorite of the regulatory regime here -- its conspicuous downtown storefront has survived the waves of closures that doomed many of its contemporaries. The Potrero Hill facility I visited had been inspected and cleared by the Police, Fire, Building Inspection, Public Health, and Water departments and authorities. Sparc continues to be Eaze's biggest partner, and Robert Jacob is clearly an asset. If Eaze continues to grow, and the partnership continues, it will be interesting to see which of these CEO's attains a higher profile – the calculating former enterprise software executive or the effervescent former small-town mayor and cannabis activist.

Regulations regarding dispensaries are set by cities and counties in California, and this could be another crucial factor in Eaze’s growth. In the City of Los Angeles, for example, Eaze’s prospective competitor Nestdrop has suspended its deliveries in response to a lawsuit filed by the City Attorney, who alleges the company is in violation of Proposition D, a local regulatory measure passed in 2014. For Eaze to succeed in LA, it will need to find a partner in at least as good standing as Jacob and Sparc are up north.

When I asked McCarty yesterday whether Nestdrop’s struggles factored in to his expansion plans, he didn’t seem concerned.

“It’s possibly there is a way for Eaze to work within the law [in Los Angeles]. We have a little more strategic way in which we activate these markets and work with city officials.”

Maybe ten million strategic ways?

[illustration by Brad Jonas]

  • Founders Fund is an investor in Pando