WM Technology Inc. is facing a reckoning both on Wall Street and from businesses in the cannabis industry.
WM’s sales are expected to fall 10% this year to $193.5 million, according to the average estimate of three analysts.
“It is no secret that the [cannabis] industry is struggling with growth,” Doug Francis, WM executive chair, told analysts on an August conference call.
“Change is never easy.”
Before the party ended, the Irvine-based provider of software for retailers and brands in the cannabis industry, which also operates under the Weedmaps name, was on a rocket, with revenue soaring 323% to $198.6 million for the two-year period ended June 30.
That growth gave it the No. 3 ranking on the Business Journal’s annual list of the fastest-growing publicly traded companies with revenue between $100 million and $500 million (see list, page 30).
After it went public in 2021, raising $579 million, the stock almost reached $28 each and the company’s market cap soared as high as $2.6 billion.
The company’s CEO at the time, Chris Beals, told the Business Journal that going public was a “watershed moment” for the cannabis industry and “a significant moment of pride.”
Downward Slope
Since then, WM has been on a steady downward slope.
Its stock dropped more than 20% each on two separate trading days last year after missing analysts’ expectations. After trading as low as 60 cents last April, it’s rebounded to about $1.19 and a $195 million market cap at press time.
In the past year, its chief executive, chief financial officer and chief marketing officer have been replaced, as well as its auditor. This year, it’s slashed its workforce almost 13% to 530 employees.
Furthermore, a movement to widen legalization appears to have stalled and a regulatory mess has emerged among states that have legalized cannabis. In July, Mastercard announced it wouldn’t permit cannabis-related transactions on its debit cards, citing a lack of uniform state laws and the fact that cannabis is still federally illegal.
“We remain concerned about the lack of political support in our industry and the near-term outlook in many states,” WM’s Francis said on the August call.
“While we hope for regulatory support from all levels of government, history tells us not to hold our breath, so we need to focus on areas we control.”
Elevating Stoners
Francis and Justin Hartfield began Weedmaps in 2008 to help medicinal users find dispensaries and post reviews of products and stores.
The company says that since its founding, Weedmaps “has been committed to elevating stoner culture everywhere.”
It became known as a “Yelp” of the marijuana industry by permitting its users to review their purchases. Marijuana shops can use Weedmaps to provide menus of their products, complete with daily discounts.
The company estimated that the state-legal cannabis industry to be as much as $30 billion in 2022 with some estimates for growth to $70 billion by 2030.
Profit Loss
Before it went public, Weedmaps was profitable for its entire 13-year history and its revenue grew at a 35% annual rate from 2014 to 2020.
In 2022, its first full year as a publicly traded company, it reported a net loss from continuing operations of $116 million.
Last November, Beals departed after three years as CEO; no reason was given. At that time, it also hired a new chief marketing officer, Randa McMinn, and promoted Duncan Grazier to chief technology officer.
In July, it hired Mary Hoitt as interim chief financial officer.
Baker Tilly US LLP, the company’s auditor, resigned in August, citing staffing constraints. It was replaced by Moss Adams LLP.
Stoner Comics
WM Technology’s been trying to improve cannabis’ reputation. In April, it launched a “Power of Weed” marketing campaign with “20 Days of Deals” ahead of the infamous 420 quasi-holiday on April 20 that celebrates marijuana.
In August, it partnered with WTG Enterprises, the producer of “The Freak Brothers,” a stoner comic series, “to further destigmatize and celebrate weed culture.”
Those promotions haven’t yet borne out. Its average monthly revenue per paying client fell 16% to $3,022 in the second quarter from the same quarter a year ago.
In August, Francis told analysts that the company was still conducting a CEO search and was waiting for a “positive regulatory catalyst.”
“I believe the company is back to operating with a lean and cannabis first philosophy,” he said.
“While there is more to do, I am proud of the progress we have made to date.”
What’s Wrong With the Cannabis Industry?
A couple years ago, it seemed the legalization of cannabis was unstoppable.
While still illegal under federal law, cannabis became legal in some form in 47 states, including 21 for recreational use. In 2020, 68% of U.S. adults favored having legal access to cannabis.
However, the industry is facing growing problems, as outlined by WM Technology Inc.’s annual report:
– Cannabis users, as defined as adults ages 21 and above who have consumed cannabis in the past year, are less than 19% of the U.S. adult population and less than 14% for those that consumed in the past month.
– Regulations governing cannabis are complex and vary state-by-state and by city and county within states.
– Cannabis has wide variance in characteristics that make it complex for consumers to make an informed purchase decision.
– Cannabis is a perishable good with a lack of product homogeneity.
– Brands are only in the early innings of establishing a consumer presence.
– Competition with the illicit market is still an issue, particularly in states like California.
– The industry has experienced periods of price deflation, including over the past year, impacting the financial performance of businesses across the value chain.
– Limited access to capital relative to other industries and tax limitations on deductions or credits for certain expenses.
