Eaze: Leveraging Data Analytics in the Cannabis Industry
Eaze is a cannabis marketplace and delivery service that has enabled data-driven decisions in a nascent yet rising industry. While the industry still faces a lot of challenges, Eaze is helping alleviate some of these challenges
Overview of Eaze
Eaze is a software platform and marketplace that connects eligible customers to licensed cannabis dispensaries in California. It also provides delivery services to customers – so it also identifies as a logistics company.
So far, the company has raised ~200 Mn USD in 10 rounds of funding since its launch in 2014. The company has between 150 – 250 employees. As of Jan 2020, the company has completed more than 5 million deliveries serving 600,000 customers with an average transaction value of 85$.
The value proposition for customers is convenience and fast delivery in buying a wide variety of cannabis products from a wide variety of producers while maintaining privacy. For producers, the platform offers access to a larger customer base and larger transaction volume. Like many other platforms, Eaze acts as a middleman between end customers and producers.
Broadly, the Cannabis industry has been shifting very quickly in recent years. Multiple challenges still face the industry: it is very fragmented with highly shifting regulations. This results in limited access to aggregated data on customers’ preferences as well as any feedback from the customers and to customers. The traditional supply chain makes it hard for producers to have any interactions with customers. Enter Eaze!
Data Analytics As a Solution
In 2016, Eaze launched its Brand Insights Program (BIP). After 2 years of operations, the company was sitting on a wealth of data relating to customer interactions done on its platform (customer demographics, buying habits, product preferences, feedback, etc.). The data was harnessed to derive customer insights that can be useful for producers. Understanding customer demographic trends, customer preferences changes, and adoption rates of new products can help producers better plan the production and innovation around products.
On the other hand, Eaze also allows producers to publish educational content for customers to also understand all innovative products and how to utilize them – something that was previously not possible given the nature of how the business worked.
To enable these capabilities, Eaze hired a team of data scientists. Eaze already used AWS for data storage. Once data scientists were hired, the rest was relatively easy to complete.
These insights were taken from the BIP report in 2018 that was derived based on the 450000 customer base that Eaze had back then along with the responses from 4000 survey respondents :
Sample 1: New buyers are powering the wellness trend
Sample 2: Baby boomers spend the most each month on average – could be used for identifying high-value customers for targeted higher-end products
Sample 3: Women are steadily gaining ground in the cannabis market – understanding demographic shifts of customers, and potentially focus innovation efforts on the most growing demographic
Sample 4: Regional analysis – identifying under-represented regions and potentially increasing ads spending in those regions to grow the customer base
Sample 5: Winning products analysis – helping producers identify winning products for future innovation
Challenges & Opportunities
The company still faces multiple challenges
- Profitability: while Eaze has been netting up to 800k – 1Mn in daily revenues, most of this revenue is going to producers and other overhead costs. The company has struggled with its profitability formula and is experimenting with verticalization and other initiatives
- Scalability/ Regulations: scaling beyond California has been particularly challenging given that not all states have legalized cannabis yet. Regulations will always be a big hurdle for the company
- Funding/ Loans/ Working Capital: given the nature of the company, banks typically do not offer loans to cannabis companies. As such, Eaze had to rely mainly on funding from VCs. This has put pressure on its working capital which drove some of its manufactures out of the platform – namely Caliva, a well-known producer in the cannabis industry – due to late payments from the platform to the producers
In terms of opportunities, the company can consider a different set of options:
- Expanding beyond Cannabis alone: as an example, the company could start delivering food or buy a food delivery company and realize synergies on that end
- Expanding geographies: with cannabis getting legalized in more states, the company should definitely look into expanding into these states
- Verticalization: the company is already experimenting in selling its own brand of cannabis-related products to realize some additional profitability – the power of data insights will help it prioritize certain product categories, etc.
Despite the different challenges, Eaze was able to raise a series D round of 35 Mn USD in 2020. Regardless of whether the company manages to move beyond its short-term problems, Big Data has definitely shaped the rising Cannabis industry and Eaze enabled that.
“EAZE INSIGHTS | State of Cannabis: Consumers diversified in 2018”. 2019. Eaze.com
“Marijuana delivery giant Eaze may go up in smoke”. 2020. Techcrunch.com. https://techcrunch.com/2020/01/16/eaze-out-of-cash-to-burn/
“Eaze Leverages Data to Provide Insight to Leading Cannabis Brands”. 2016. New Cannabis Ventures
Student comments on Eaze: Leveraging Data Analytics in the Cannabis Industry
This article if fascinating, I had never heard about Eaze. The legalization of Cannabis is still very controversial and highly politicized, specially as it relates to bad social behaviors or health-related concerns. These data insights and customer inputs could be a very effective tools for lobbying both within the U.S. and around the world. Is Eaze currently considering making the data available to government institutions?
+1 on whether or not they are considering making data available to government institutions. I also wonder if data sharing is occurring with farmers/manufacturers to manage demand or if they are keeping this internally to manage their distribution.
Thanks Karl! Very interesting read. Regarding the challenges of working with banks, I read that the ex-CEO recently plead guilty to a $100 MM cannabis payment scheme, where he and other co-conspirators “created phony online merchants that sold carbonated drinks, green tea, face creams and other products to disguise marijuana payments between 2016 and 2019, therefore circumventing cannabis banking restrictions.” While it doesn’t excuse breaking the law, it certainly must be very frustrating to have such a great idea while in regulatory limbo! As Juan Carlos mentioned in his comment, hopefully the data insights being generated by the company can help with lobbying to ease regulations, so that legitimate companies can operate properly (as opposed to the black market alternative).
Interesting article, Karl. I’m curious about the first-mover advantage here and if they’ve created a formula for another company to copy them in a different state where they are not yet known. While they are yet to break the code for the economics of the business, it seems that gaining market share could be the most important task in this volatile but growing industry.
Fascinating space! How does this big data help them lobby for additional legalization on a state-by-state basis?