Архив рубрики: eCommerce

$75M weed giant Caliva ditches Eaze, launches delivery

It’s a brutal time for marijuana startups. I’m hearing some are raising at 1/5th of their 2019 valuation amidst rampant competition, tall taxes, and slow legalization. The struggles for marijuana’s best-known startup, delivery service Eaze, continue as today it’s losing one of its top partners. $75 million-funded weed brand empire Caliva has dropped Eaze in favor of launching its own delivery system.
By partnering with Hypur banking to solve the marijuana payments legality issue, Caliva will be able to accept contactless mobile payments unlike Eaze that it claims usually requires customers pay in cash. [Update: Eaze claims the majority of payments come via debit cards]. Caliva buyers won’t have to worry about trips to the ATM, especially now during COVID-19 shelter-in-place orders, which the startup expects will boost their average order volume. Combined with verticalizing delivery in-house plus its retail and wholesale operations, Caliva hopes it can grow its margins and survive this long winter for weed startups.

“Our mission at Caliva has always been to provide safe and easy access to plant-based solutions for health, happiness and healing,” said Caliva CEO Dennis O’Malley. “Together with Hypur, we are proud to offer our customers safe, compliant and convenient cashless payment options to improve and modernize their purchasing experience.” It hasn’t been so easy for Eaze, though.
Back in January, we reported that Eaze was in trouble, having suffered unannounced layoffs and executive departures. It burned cash on billboards, and never launched the services of a startup it acquired. There were questions about data security, and weed brands dropped Eaze due to delayed payments. It was almost out of money and in danger of vaporizing. It luckily managed to secure a $15 million bridge round to keep it alive plus a $20 million Series D in February just before the COVID hit the fan, though I dread to think of the terms of that funding.

Troubled Eaze finally closes $35M funding to sell its own cannabis

The plan for Eaze was to verticalize, buying and developing brands that it could sell through its existing delivery service to up its margins. Now it’s seeing former partner Caliva do the reverse, launching a delivery service to sell its own Fun Uncle, Deli, and Caliva brands as well as distribute other vape, edible, and flower brands like Dosist and Kiva. Its menu breadth to attract customers and in-house brands to drive profits could be a winning combo. After limited pilots in SoCal, Caliva delivery is launching in LA and the Bay Area.
Unfortunately, traditional payment processors usually refuse to work with marijuana companies for fear of legal repercussions. That’s why most delivery services can’t accept credit or debit cards, or do so through sketchy legal workarounds that have led payment providers to be sued. Others like CanPay only offer ACH transfers, while Square only works with CBD sellers. “We spent time researching and evaluating all platforms that accept cannabis payments in the U.S., and found that Hypur has the best security, compliance and consumer experience” O’Malley tells me.

400-person Caliva is now trying to raise a Series B, but may experience tough headwinds with shelter-in-place orders in effect in states where marijuana is legal. Stiff taxes on marijuana have meanwhile helped the black market continue to thrive, as California’s $3.1 billion in legal 2019 sales were overshadowed by an estimated $8.7 billion in illegal sales. Faster delivery and simpler payments could help. But enthusiasm for the industry has dwindled following the initial flood of entrants sought to exploit the end of prohibition. Is the Green Rush over?

$75M weed giant Caliva ditches Eaze, launches delivery

Robinhood offers $15 discount, blames outage on record trades

It wasn’t the leap year, a coding blip, or a hack that caused Robinhood’s massive outages yesterday and today that left customers unable to trade stocks. Instead, the co-CEOs write that “the cause of the outage was stress on our infrastructure — which struggled with unprecedented load. That in turn led to a “thundering herd” effect — triggering a failure of our DNS system.”
Robinhood was offline from Monday at 6:30am Pacific to 11pm Pacific, then had another outage this morning from 6:30am Pacific until just before 9am Pacific.
The $912 million-funded fintech giant will provide compensation to all customers of its Robinhood Gold premium subscription for borrowing money to trade plus access to Morningstar research reports, Nasdaq data, and bigger instant deposits. It’s offering them three months of service.
A month of Robinhood Gold costs $5 plus 5% yearly interest on borrowing above $1,000, charged daily. Before a pricing change, the flat fee per month could range as high as $200. However, compensated users will only get the $5 off per month, for a total of $15. That could seem woefully insufficient if Robinhood users missed out on buying back into stocks like Apple that went up over 9% on Monday. Robinhood is calling it a “first step”.
Impacted Robinhood users can contact the company here to ask for compensation. Below you can see the email Robinhood sent to custoemrs late last night.
Robinhood’s email to customers late last night
Robinhood is also working to contact impacted customers on a individual basis, and it’s looking into other forms of compensation on a case by case basis, company spokesperson Jack Randall tells me. It’s unclear if that might include cash to offset what traders might have lost by having their money locked in inaccessible Robinhood accounts during the outage.
Compensation could become a significant cost if the startup assesses that many of its 10 million users were impacted. The markets gained a record $1.1 trillion yesterday, but some Robinhood traders may not have been able to buy back in as the rebound occurred following mass selloffs due to fears of coronavirus.

Down again, Robinhood will offer ‘case-by-case’ compensation for its outage on the day markets gained $1.1 trillion

Now the startup, valued at $7.6 billion, will have to try to regain users’ trust. “When it comes to your money, we know how important it is for you to have answers. The outages you have experienced over the last two days are not acceptable and we want to share an update on the current situation . . . We worked as quickly as possible to restore service, but it took us a while. Too long” wrote co-founders and co-CEO Baiju Bhatt and Vlad Tenev [disclosure: who I know from college].
As for exactly what triggered the downtime, the founders write that “Multiple factors contributed to the unprecedented load that ultimately led to the outages. The factors included, among others, highly volatile and historic market conditions; record volume; and record account sign-ups.” There’s been a frenzy of retail trading activity in the wake of coronavirus. There’s also been sudden spikes in stocks like Tesla amidst mainstream media attention. 

Going forward, Robinhood promises to “work to improve the resilience of our infrastructure to meet the heightened load we have been experiencing. We’re simultaneously working to reduce the interdependencies in our overall infrastructure. We’re also investing in additional redundancies in our infrastructure.” However, they warn that “we may experience additional brief outages, but we’re now better positioned to more quickly resolve them.”
The outage comes at a vulnerable time for Robinhood as oldschool brokerages like Charles Schwab, Ameritrade, and Etrade all recently moved to eliminate per-trade fees to match Robinhood’s pioneering zero-comission trades. Though some of those brokerages experienced infrastructure troubles recently, Robinhood massive outages could push users towards those incumbents that they might perceive as more stable. 

Robinhood offers $15 discount, blames outage on record trades

Venmo prototypes a debit card for teenagers

Allowance is going digital. Venmo has been spotted prototyping a new feature that would allow adult users to create for their teenage children a debit card connected to their account. That could potentially let parents set spending notifications and limits while giving kids more flexibility in urgent situations than a few dollars stuffed in a pocket.
Delving into children’s banking could establish a new reason for adults to sign up for Venmo, get them saving more in Venmo debit accounts where the company can earn interest on the cash and drive purchase frequency that racks up interchange fees for Venmo’s owner PayPal .

But Venmo is arriving late to the teen debit card market. Startups like Greenlight and Step let parents manage teen spending on dedicated debit cards. More companies like Kard and neo banking giant Revolut have announced plans to launch their own versions. And Venmo’s prototype uses very similar terminology to that of Current, a frontrunner in the children’s banking space with over 500,000 accounts that raised a $20 million Series B late last year.
The first signs of Venmo’s debit card were spotted by reverse engineering specialist Jane Manchun Wong, who has provided slews of accurate tips to TechCrunch in the past. Hidden in Venmo’s Android app is code revealing a “delegate card” feature, designed to let users create a debit card that’s connected to their account but has limited privileges.
A screenshot generated from hidden code in Venmo’s app, via Jane Manchun Wong
A set-up screen Wong was able to generate from the code shows the option to “Enter your teen’s info,” because “We’ll use this to set up the debit card.” It asks parents to enter their child’s name, birth date and “What does your teen call you?” That’s almost identical to the “What does [your child’s name] call you?” set-up screen for Current’s teen debit card.

When TechCrunch asked about the teen debit feature and when it might launch, a Venmo spokesperson gave a cagey response that implies it’s indeed internally testing the option, writing “Venmo is constantly working to identify ways to refine and enhance the user experience. We frequently test product offerings to understand the value it could have for our users, and I don’t have anything further to share right now.”
Typically, the tech company product development flow sees them come up with ideas, mock them up, prototype them in their real apps as internal-only features, test them externally with small percentages of real users, then launch them officially if feedback and data is positive throughout. It’s unclear when Venmo might launch teen debit cards, though the product could always be scrapped. It’d need to move fast to beat Revolut and Kard to market.
Current’s teen debit card
The launch would build upon the June 2018 launch of Venmo’s branded Mastercard debit card that’s monetized through interchange fees and interest on savings. It offers payment receipts with options to split charges with friends within Venmo, free withdrawls at MoneyPass ATMs, rewards and in-app features for reseting your PIN or disabling a stolen card. Venmo also plans to launch a credit card issued by Synchrony this year.
Venmo might look to equip its teen debit card with popular features from competitors, like automatic weekly allowance deposits, notifications of all purchases or the ability to block spending at certain merchants. It’s unclear if it will charge a fee like the $36 per year subscription for Current.
Current offers these features for parents who set up a teen debit card
Tech startups are increasingly pushing to offer a broad range of financial services where margins are high. It’s an easy way to earn cheap money at a time when unit economics are coming under scrutiny in the wake of the WeWork implosion. Investors are pinning their hopes on efficient financial services too, pouring $34 billion into fintech startups during 2019.
Venmo’s already become a popular way for younger people to split the bill for Uber rides or dinner. Bringing social banking to a teen demographic probably should have been its plan all along.

Venmo prototypes a debit card for teenagers

FTC votes to review influencer marketing rules & penalties

Undisclosed influencer marketing posts on social media should trigger financial penalties, according to a statement released today by the Federal Trade Commission’s Rohit Chopra. The FTC has voted 5-0 to approve a Federal Register notice calling for public comments on questions related to whether The Endorsement Guides for advertising need to be updated.
“When companies launder advertising by paying an influencer to pretend that their endorsement or review is untainted by a financial relationship, this is illegal payola,” Chopra writes. “The FTC will need to determine whether to create new requirements for social media platforms and advertisers and whether to activate civil penalty liability.”
Currently the non-binding Endorsement Guides stipulate that “when there is a connection between an endorser and a seller of an advertised product that could affect the weight or credibility of the endorsement, the connection must be clearly and conspicuously disclosed.” In the case of social media, that means creators need to note their post is part of an “ad,” “sponsored” content or “paid partnership.”
But Chopra wants the FTC to consider making those rules official by “Codifying elements of the existing endorsement guides into formal rules so that violators can be liable for civil penalties under Section 5(m)(1)(A) and liable for damages under Section 19.” He cites weak enforcement to date, noting that in the case of department store Lord & Taylor not insisting 50 paid influencers specify their posts were sponsored, “the Commission settled the matter for no customer refunds, no forfeiture of ill-gotten gains, no notice to consumers, no deletion of wrongfully obtained personal data, and no findings or admission of liability.”

Strangely, Chopra fixates on Instagram’s Branded Content Ads that let marketers pay to turn posts by influencers tagging brands into ads. However, these ads include a clear “Sponsored. Paid partnership with [brand]” and seem to meet all necessary disclosure requirements. He also mentions concerns about sponcon on YouTube and TikTok.
Additional targets of the FTC’s review will be use of fake or incentivized reviews. It’s seeking public comment on whether free or discounted products influence reviews and should require disclosure, how to handle affiliate links and whether warnings should be posted by advertisers or review sites about incentivized reviews. It also wants to know about how influencer marketing affects and is understood by children.
Chopra wisely suggests the FTC focus on the platforms and advertisers that are earning tons of money from potentially undisclosed influencer marketing, rather than the smaller influencers themselves who might not be as well versed in the law and are just trying to hustle. “When individual influencers are able to post about their interests to earn extra money on the side, this is not a cause for major concern,” he writes, but “when we do not hold lawbreaking companies accountable, this harms every honest business looking to compete fairly.”

While many of the social media platforms have moved to self-police with rules about revealing paid partnerships, there remain gray areas around incentives like free clothes or discount rates. Codifying what constitutes incentivized endorsement, formally demanding social media platforms to implement policies and features for disclosure and making influencer marketing contracts state that participation must be disclosed would all be sensible updates.
Society has enough trouble with misinformation on the internet, from trolls to election meddlers. They should at least be able to trust that if someone says they love their new jacket, they didn’t secretly get paid for it.

FTC votes to review influencer marketing rules & penalties

Marijuana delivery giant Eaze may go up in smoke

The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt a major pivot to “touching the plant” by selling its own marijuana brands through its own depots.
TechCrunch spoke with nine sources with knowledge of Eaze’s struggles to piece together this report. If Eaze fails, it could highlight serious growing pains amid the “green rush” of startups into the marijuana business.
Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple sources. The funding was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues and internal disorganization.
 

An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues, but noted that there have been layoffs at many late-stage startups as investors want to see companies cut costs and become more efficient.
From what we understand, Eaze is currently trying to raise a $35 million Series D round, according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.
Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.
An Eaze spokesperson declined to discuss fundraising efforts, but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.”
Desperate to grow margins
The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire at low prices brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges or edibles.
An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”

The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.
In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85. 

To date, Eaze has only expanded to one other state beyond California (Oregon). Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.
An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business. 
Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Because banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. Another source says late payments have pushed some brands to stop selling through Eaze.

Another drain on its finances has been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot-purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.
Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in “private label” products and has more depot control.
Selling weed isn’t eazy
The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.  
Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.

It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.
Eaze was founded on the premise that the gradual decriminalization of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the U.S. and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it. 
It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment. 
“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”
Eaze CEO Ro Choy
That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialized, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who co-founded the company with Roie Edery (both are now founders at another cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO. 
“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow.”
No ‘Push for Kush’
The quick shifts in strategy were a recurring pattern that started well before the company got into tight financial straits. 
One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favorite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)

Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favorite mix and, at the touch of a button, order it, lowering the procurement barrier even more.
The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line. 
“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (We found the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)
Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”

Something had happened, though: The company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.” 
Eaze’s spokesperson confirmed that “we did acquire Push for Pizza . . but ultimately didn’t choose to pursue [launching Push for Kush].”
Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales. 
Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appears to only take payments via debit cards, ACH transfer and cash, not credit card.
Another incident sheds light on how the company viewed and handled security issues. 
Can Eaze rise from the ashes?
At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.
The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.

Today, the issue is a more pressing financial one: The company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up. 
Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”
As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.
While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups, from Sprig to Munchery, went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.

Marijuana delivery giant Eaze may go up in smoke