is cannabis startup might be a game-changer.
Marijuana is one of the most controversial investments out there. Not necessarily because of the plant itself, but because it has the potential to make you incredibly rich… if you can time it right. The U.S. has held marijuana illegal for decades because the same people that started the failed War on Drugs are the same ones still in office and refuse to swallow their pride and admit they were wrong. I am also guessing private prisons are paying big money to make sure it doesn’t go away because it helps their bottom line.
Fortunately, many states have been slowly rebelling. Nearly every state allows CBD use and Marijuana for medicinal purposes. We’re also nearing about half the states allowing it for recreational use and slowly creeping towards sanity.
Personally, I don’t plan to use CBD or marijuana products, but I work in the legal field, so I have lots of issues with the failed war on drugs and issues with mass incarceration. However, if it’s something that can change lots of people's lives for the better AND make me some money, all the better.
With that out of the way, let’s talk about WebJoint.
What is WebJoint?
WebJoint launched in 2017 and is already a leader in the cannabis delivery software field. One thing I like about them is they have several different platforms, which means they can capitalize on several markets within the cannabis industry. They have a “direct-to-consumer” platform making them similar to an “Uber Eats” for Cannabis while maintaining compliance. They also have their logistics “e-commerce and inventory management” that is focused on the business side of things and allows individuals to get sales reports, ensure compliance, manage inventory, track drivers, and more.
Industry - 2/10
As I briefly implied earlier, they are in one of the worst markets I can possibly think of. While the CBD and Marijuana markets are surely poised for growth, the regulatory hassles vastly outweigh that. Marijuana is heavily taxed, heavily regulated, and constantly changing, and given the current political environment, it’s unclear when any of that will change. Even if it is legalized across the country, it will likely be subject to initial heavy regulation and taxes at both the state and federal levels. Further, some states regulate marijuana but grant limited licenses and monopolies to certain governments and a host of other issues in the space.
It’s incredibly unprofitable, and the regulatory landscape makes this a nightmare. The only reason this gets a ‘2’ instead of a ‘1’ is that WebJoint isn’t directly affected by the taxes or lack
of profitability aspect of this. They provide software for delivery, logistics, and management, so their products aren’t getting directly taxed. There are still lots of issues, but one of the reasons I like them is they can profit from the massive growth of the weed and CBD markets without having to worry about many of the issues that come from the heavy regulation.
On the bright side, many states are just recently legalized marijuana, and the government is slowly coming around to it. Over 20 states have fully legalized marijuana for recreational uses, and only 4 states have it completely banned, including CBD and THC products. Only 7 states have it banned but allow CBD only, and the rest are somewhere in between it being decriminalized, medicinal only, or varying levels of legality. This includes New York’s recent full legalization, which presents a similarly massive market like that of California to capitalize on.
As well, there are countries across the world with full legalization potentially marking other opportunities should the U.S. market stall as well. So, there are some bull cases but the market, in general, is pretty rough. This is especially true when many other markets are completely unregulated AND being provided things like tax breaks, less regulation, and paid incentives to conduct business in those states.
Market Differentiation — (20/30)
All around, they’re pretty solid. Over 33% of California’s licensed deliveries use WebJoint making them the largest in one of the most prominent markets in the U.S. They have expanded into several more markets across the U.S. which will allow continued growth after they nearly doubled revenue from the year prior. Further, as many states and some of the largest markets in the U.S. begin to come around to legalization, they have a good lead to start capturing that growth.
Business Model & Product (9/10)
This scores pretty high for a few reasons. First, relative to the rest of the industry, it’s easily one of the best business models to capture the growth of the industry. If you’re bullish on the cannabis market and want to capture that growth without the taxes and most of the regulation involved, this is the way to do it. It’s a high-margin, relatively straightforward business model and captures growth and demand on both the consumer and business side of things.
One of the most important aspects of this is the fact that it benefits everyone. As they explain on their page, most businesses in the cannabis industry have tons of issues with selling direct to consumers simply due to regulation. With WebJoint, they are the biggest, and one of the only, players in the game that let people go DTC which increases that company's revenue and sales, and WebJoint just takes a cut.
IP & Branding (5/10)
Admittedly, this is pretty weak all around. They note that they do have 1 pending patent, but rarely is that enough to create that moat that most companies like to have. Other than that, I have no complaints about their branding as they have done well to create a massively recognizable brand with hundreds of millions in product volume.
Another aspect I will be adding to this section will be social media presence. For some companies, that will matter more than others but can be a great indicator of traction and brand recognition, especially if they have a massive social media presence. As for WebJoint, it’s not bad. They have Instagram and YT with 1000+, and the rest are sitting at around 500. They have good reviews all around, so again not the best but not bad either.
One good thing about heavy regulation is it does create incredibly high barriers to entry. This means companies that get in can get a big head start and easily snowball their lead. Obviously, the downside is it significantly hinders everyone's growth and can make investing super risky in the unfortunate event the company gets caught in a multi-state crackdown. Fortunately, WebJoint does pretty well stacked next to its competition.
WebJoint lists two companies as their main competition: IndicaOnline and Meadow
They likely have a few others or slant competitors (like alcohol, non-delivery purchases, etc), but these seem to be the leaders in the space. While they are the smallest of the 3, it’s not a total blowout. Here’s how they stack up:
It seems they all offer slightly different services, and the other two might operate in Canada as well. It’s also important to note that web traffic doesn’t translate to market share, sales, GMV, or really anything necessarily. However, it’s the only real way to get an idea of the size of all of the companies with the lack of public information. None of these companies have IPO’d, but they have all raised money at some point in their career. Meadow raised $2m in 2016, and Indica raised undisclosed amounts in 2018 and 2017.
Since these aren’t e-commerce sites, though, it doesn’t really matter how much web traffic they get because they are mainly operating B2B. This means customers might not have to go to their website to get sales. However, I just like using it because, in most instances, it’s at least somewhat indicative of size or otherwise. However, it’s important to note that WebJoint has only recently expanded outside California, so this is a state brand vs. international brands, and their web traffic is up 17% in the past month. So, it is growing pretty fast as compared to Meadows, which is down 38% month over month, and Indica’s, which is down 42% M/M. Again, could mean growth vs. decline, could mean nothing, who knows.
Financials & Valuation — 22/30
Valuation — 6.5/10
Right now, they’re sitting at 53x 2021 revenue and growing rather quickly. 2020 was 300% growth, and 2021 was 75%, so they’re going strong. They’re expanding into several different states, so this growth trajectory will definitely continue for a few more years, but we're in a period of tightening valuations, so these absurdly high valuations aren’t quite as compelling and justified. They’re also not really in a market that VCs and investors are flocking to with all of the regulatory concerns.
So, the valuation is still a bit high here, but it’s also the same valuation as their previous round, which did well. Meaning they grew revenue by 75% but raising at the same valuation, which makes it a bit more justified. Even further, they have things like a 25% bonus shares for returning investors, several early bird bonuses of as much as 50%, and 10% for the owner's bonus, all of which are stacking bonuses.
If you’re able to get some stacking bonuses, then this makes way more sense. Even still, this is a high-growth company with some strong prospects, so I don’t think it’s uninvestable or anything. This is definitely something that I think will “make up for it in the long run” if you like the company.
As well, I could easily see $1.5-$2 million in revenue in 2022 between the several multistate expansions assuming the recession doesn’t hurt demand too hard. This means it’s sitting at that 25–35x future revenues area and, again, pricey, but I’ve seen much worse from even top VC firm's investments.
Momentum — 7.5/10
While 75% YoY revenue growth isn’t bad, it could be better for an early-stage startup. Nonetheless, I am an investor from their previous round, and I am thrilled with the performance and have no complaints all around. However, 9’s and 10’s are reserved for companies that are truly “taking off” and I don’t think WebJoint is there YET. However, given their multi-state expansions and the funding from this round and the next, their profitability, and more, it’s coming.
As they get more resources and continue the current momentum and the market slowly churns in their favor, that’s definitely possible. Especially given the volatility in the cannabis market currently, they’re doing very well.
As you will see below, they went from 468k revenue to 815k revenue, which isn’t bad. The previous year they went from 154k -> 468k, which is about 300% growth, so it has slowed down some, and that would likely hit that “10/10” area because, obviously, 300% growth is phenomenal. All around solid.
Revenue & Financials — 8/10
WebJoint’s financials are actually pretty solid. They have 0 debt, $357k cash on hand, and strong revenue growth. Their margin is sitting at about 85% all around, not bad.
The chart above is actually slightly wrong, however. The chart shows a 434k profit, but it’s actually a widening loss. This shows correctly on their form C. While the loss is pretty big, it’s not widening at the same pace as revenue which likely means they are pointing towards profitability. Meaning their revenue grew 75%, but their loss only grew 42%, which means they are growing towards profitability. If they had to spend 200% more to gain only 75% more revenue, that would be concerning, but this currently looks generally healthy.
Founders & Team — 18/25
All around, the team here is pretty solid. The CEO, Christopher Dellolio, says to have been working on software since the age of 14 and apparently sold a startup soon after high school. It doesn’t seem to be a massive exit, but it’s impressive nonetheless. The guy definitely is no stranger to hustling, as I have found bread crumbs to various other projects he has started or working on. Most recently seems to be his music career, where he goes by “Polymath”. There’s not too much, but it’s still pretty interesting.
So, he definitely has the skills and hustle to make it a success, and he has done well so far. They’re nearing $1m in revenue and nearly doubled YoY. Their operation is at least 11 people, so it’s quickly growing pretty quick as well.
Similarly, Hilart Abrahamian, the co-founder, notes that he is a serial entrepreneur but doesn’t say anything about exits. All around, it’s a pretty solid group, and I haven’t found any ‘red flags’ along the way. All the press associated with them is focused on news about WebJoint, and that’s really become their brand over the past few years. The software skills and general entrepreneurial grind is promising. As well, I give them credit in this for taking WebJoint from nothing to almost $1m in revenue and $244 million in GMV.
Exit Potential & ‘X-Factor’ — 4/5
I think the exit potential here is pretty clear and straightforward. Realistically, I think what’s gonna hold them up is full legalization and the current market conditions. If the market started rebounding and full legalization actually happened, you will see tons of cannabis companies start to IPO as you saw with EV companies IPOing during the Tesla, Nio, etc. run. At that point, it would be a golden era and tons of money for anyone in the industry.
If not, then they would just need to scale revenue to the tens of millions, or $100m+, then IPO and go from there. I think that’s doable for them, but probably 5+ years away, however.
Conclusion — 66/100
All around solid. Personally, I put in a small amount last round and then re-invested this round because they had ~100% stacking bonus shares. Meaning, I re-invested the same as my initial amount but tripled my shares in the company. My bull thesis never changed, so I am happy to re-invest, especially if I can get in at half the valuation. This mainly takes a hit because of the industry they are in, but I think they differentiate well, and this is a good way to capitalize on the growth in this market while not getting bogged down in the heavy taxes.