Weedmaps parent WM Holding Co. going public via merger with Silver Spike Acquisition Corp.
Weedmaps is dominant cannabis SaaS player and consumer marketplace
Revenue quadrupled to $160 million in 2020 from $43 million in 2015
Revenue forecast to grow at annualized 40%, Ebitda at annualized 55% through 2023
Weedmaps operates high-margin marketplace services and never “touches the plant”
Weedmaps generates $1.5 billion in gross merchandise volume (GMV)
Stock trades at enterprise value of 5.6x 2022 sales, well below SaaS comps
For cannabis retailers, the complex world of e-commerce presents both an enormous opportunity and a challenge to navigate. Fortunately, there is a platform offering a one stop shop with everything from consumer leads to software enabling the last mile of delivery.
Meet Weedmaps, whose parent WM Holding Co. is going public through a merger with Silver Spike Acquisition Corp. (ticker: SSPK), a special purpose acquisition company or SPAC that raised cash to find a target. After the deal closes, shares of SSPK will automatically convert to shares of the newly-formed company on a one-to-one basis.
Weedmaps boasts an impressive 12-year track record and has over 10 million monthly active users spread across nine countries on its propriety marketplace. Those users purchase a variety of cannabis products and also get help from detailed descriptions, reviews, and simple ways to place orders and get deliveries.
In turn, dispensaries flock to Weedmaps. The company’s clients include 55% of retail licenses across all markets where it operates. Weedmaps, whose CEO Chris Beals was formerly a technology transaction attorney at elite law firm Davis Polk & Wardwell, continues to invest in engineers to improve its use of data for both consumers and retail clients.
Weedmaps can also help retailers avoid seeing their licenses being revoked for simple missteps. A delivery of cannabis, for instance, is a far cry from a restaurant meal. The product must be tracked carefully with confirmation of receipt and returned with meticulous care if the customer can’t take delivery.
It’s important to remember that state regulations are likely to be a key issue for retailers even if cannabis becomes federally legal, as it is in Canada. States will want to keep tax revenue and economic activity within their own borders, meaning products won’t likely ever cross state lines and local laws will remain crucial.
Altogether, Weedmaps collects approximately $3000 per month per retailer. That begins with a monthly charge of $500 to get the “Business-in-a-Box” package that includes a listing page, a place in the Weedmaps store, a stock and price management system, and fulfillment services. Retailer clients can add on services like a boost on weedmaps.com to attract extra customer eyeballs. Over time, Weedmaps clients steadily spend more per month, indicating the additional services are in high demand.
There is plenty of room to offer retailers even more. Weedmaps currently charges an effective rate of 50 cents per click per cannabis consumer. That compares with mainstream marketing choices like Google Ads, which costs a few dollars per click with a much lower conversion rate.
What’s more, Weedmaps estimates that many of its clients have a marketing budget that is only a few percentage points of their revenue. If that budget increases to normal levels, the upside for Weedmaps is tremendous.
And there simply aren’t that many other places to spend effectively on cannabis marketing. Indeed, it is hard for cannabis retailers to place ads on a national basis at all due to regulations and resistance from major media owners like Facebook. That leaves them bound to rely on billboards, t-shirts, and influencers – all of which are very difficult to monitor for effectiveness.
End users have also used Weedmaps much more through the pandemic. The company says that monthly active user engagements (e.g. clicks, reviews, or cart actions) have jumped to 80 million in September from 50 million in January. Users have also increased their average spend in recent months. Given the non-standardized nature of cannabis products, it is likely those customers will stick with Weedmaps to get their favorite items – even if Covid worries subside in coming months.
Investors should also take into account significant structural tailwinds behind cannabis retail. While a few states have shifted to recreational use and several to medical use, there is a long way to go.
And even within states where cannabis is legal, the number of dispensaries generally has plenty of room to grow. California, for instance, might be seen by outsiders as a place where retailers are plentiful. But there is only one retailer license per 40,000 people, meaning many consumers still have to drive hours to make a purchase.
At the moment, very few cannabis retailers have created brand power, meaning they will continue to work to build it. That makes a presence on Weedmaps virtually essential.
How should investors value Weedmaps? A good comparison might be GoodRx Holdings, Inc., which offers customers choices on prescription purchases. But the cannabis landscape is much harder to navigate, given the lack of MSPRs, tear sheets, and other standards.
Even after the recent rally, Weedmaps trades at an enterprise value of 5.6 times 2022 sales. GoodRx trades at 16.7 times, according to Sentieo, an AI-enabled research platform. Shopify Inc. trades at 26.9 times and Chegg, Inc. trades at 12.3 times.
Viewed differently, Weedmaps generates $1.5 billion in gross merchandise volume (GMV). Put on a typical multiple of GMV, the valuation could be even higher than what’s implied by sales multiples at comparable companies.
A fair question for investors to ask is why e-commerce behemoths won’t step into cannabis and try to steal business from Weedmaps. But Google doesn’t even get involved in regular pharmaceuticals, let alone cannabis. And Amazon has a long track record of staying away from products with complex regulatory issues.
Choosing the right cannabis stock can be tricky. But with Weedmaps, there is an opportunity to own the dominant SaaS player before much of the market has taken notice. Investors who act early should taste some sweet rewards.
IPO Edge Contact:
John Jannarone, Editor-in-Chief