In a historic year for Washington companies going public, Seattle-based Leafly, an online cannabis marketplace, will push the 2021 total even higher.
The company announced Monday it will go public through a special merger with New York-based Merida Merger Corp (Nasdaq: MCMJ). The transaction is expected to value Leafly at $385 million and add approximately $161 million of additional proceeds to the company.
The combined company will adopt Leafly’s name, and is expected to trade on Nasdaq with the ticker symbol “LFLY.” The company said it will list its shares once the merger is complete, likely sometime this fall.
According to PitchBook, 15 companies in Washington have gone public in 2021 so far, five more than last year’s total, and the most the state has seen in the last five years.
“Online retail shopping is in our DNA,” said Yoko Miyashita, CEO of Leafly, in an interview. “What you see is … this realization from consumers that say ‘Oh, (cannabis) is like any other retail product I can order online.”
Leafly earned $36 million in revenue last year, up from $30 million in 2019, according to its investor presentation. This year, revenue is expected to increase to $43 million, and grow roughly 50% annually through 2024.
Still, the company does not expect to be profitable until 2024, predicting it will lose at least $15 million in net income from 2021 to 2023.
The company makes money mostly through subscription fees it charges cannabis retailers who list their menus on Leafly’s platform. Customers place orders with retailers through the online site, but still have to go to the cannabis shop in person to pick up their product. Leafly does not take a commission from each transaction but does make money off ad sales from retailers.
The company said it has 4,600 paying retail subscribers, with approximately 55% of North American retail cannabis licensees on its platform and 125 million annual visitors.
Miyashita said cannabis retailers are “constrained” in their ability to advertise on major social media networks because of federal prohibition laws. Leafly’s platform, giving retailers and consumers an opportunity to reach each other, is “huge,” she said. “We have one of the largest audiences in cannabis.”
Cedric Muldrow, a manager at Thunder Cannabis, a shop in Olympia, estimates 20% of the shop’s sales come from Leafly’s online ordering platform. At the previous shop he worked at, Muldrow estimates approximately 40% of its sales came from Leafly users.
Compared to other online cannabis marketplaces, Leafly is more “prestigious” because it has more dispensaries and product information on its website, Muldrow said. “Leafly is the O.G. … They were first ones to do it like this,” adding it was one of the first cannabis marketplaces online.
The company was originally founded as a website with curated information about different cannabis strains in 2010 by Seattle’s Scott Vickers, Cy Scott and Brian Wansolich. In 2015, the three founders left the company to launch a new cannabis technology business, Headset.
After a tumultuous end to 2019 for the cannabis sector — a time when many cannabis stocks tumbled — the company halved its head count and refocused its business on growing its marketplace, Miyashita said. At the time, the company decided, “our core bet is online ordering” she recalled.
The company now has 164 employees, 75 of which are in Seattle. In 2020, the company said it processed more than $420 million in orders on its platform. (Asked about the number’s coincidence, a spokesperson said “it is amazing.”)
Leafly is banking on more states legalizing cannabis as part of its growth plan, a strategy but also a risk the company highlights in its investor presentation. Miyashita pointed to New Jersey, New York, and Connecticut’s recent adult-use cannabis legalization policies as “dominoes” that have tipped. Vermont and Massachusetts also recently passed similar cannabis legislation.
“Suddenly, you have this massive population on the East Coast that is already very much into cannabis that, in terms of size and scale, can start to eclipse California,” she said.
In July, Senate majority leader Chuck Schumer backed a bill to legalize cannabis federally.
“Every business in the cannabis industry that goes public is one step to it just being legal through the whole United States,” Muldrow said.
Of the Leafly public listing, Muldrow said, “it’s about time.”