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🎙️ Eaze, CEO, Cory Azzalino
Eaze has quietly built the 6th largest footprint in Florida (34) and expects to end the year with 41 locations. We also discuss a potential public listing, payments, private label, CA/CO/MI and more..
As of 10/27/23, Eaze (Green Dragon) has 34 locations in Florida (Source: OMMU). The company will also release both Diamonds and Live Wax products next month. In addition, the Company just completed its 6th harvest, which after dry and cure will introduce an additional 36 high testing strains
California: 13 dispensaries, Colorado: 17 dispensaries, Michigan: 1 dispensary
Background on Eaze’s founding in 2014 as a technology company in California before acquiring Green Dragon and expanding into Colorado, Michigan, and Florida, with plans to focus on retail growth and delivery services in these regions
Expansion plans for the retail stores in California, building more dispensaries in Florida, balancing capital allocations decision but keeping an eye on going deeper in Colorado and Michigan
Importance of private label brands and shift from 40-50% down to 15-20% given purchasing power
Key metrics for delivery and retail
Potential catalysts (Schedule 3 and the Florida ballot initiative) for a future Exchange listing
Impact of payment processing whac-a-mole
Transcript (lightly edited):
@0:17 - Cory Azzalino (Eaze)
I've been with the company since 2020 and held various roles here for us going from VP Finance to Chief Strategy Officer, Chief Operating Officer, then became the CEO back in September of 2022.
Prior to Eaze, I was with a company called DionyMed, which is a publicly listed company in Canada that ultimately was required by Eaze. So I joined the cannabis industry in about mid 2017, just before California went legal. I've been in the legal California market since the inception here. And prior to that, held various roles in technology, accounting, and finance.
@0:44 - Dai Truong (Arlington Capital Advisors)
Yeah, let's go back to mid 2017, because you and I actually know each other prior to our cannabis days, what attracted you to cannabis back around that time, other than of course, the catalyst of California cannabis going adult use.
@0:57 - Cory Azzalino (Eaze)
Yeah, I mean, it really truly was that. I was wrapping up my prior company, which was a purely technology business, and looking for the next opportunity to dig my heels and spend a long career in.
I've been a cannabis consumer since high school, so certainly interested in the plant and the product. And really, in mid-2017, as the market was so enthusiastic about California, which there still a little bit of this tday, by far the largest market, flipping to Rec..
I thought it was an interesting industry to really be a part of and build. Looking at a very long-term lens, I still firmly believe we'll have 100 billion plus in retail sales a year in cannabis.
Looking out at the next 15, 20 years in my career, I felt like this was a good place to truly plant a flag.
you you I'm I'm sure sure Over the past six years, I think the industry has changed a lot, but I think what's become very clear to me is, especially being an operator in the business, there's so much market level knowledge that you need to have, specifically to the plant, products, the markets, the regulatory structure, that it's as dynamic of an industry as you possibly want to be a part of.
So for career growth and interest, I thought that this was a very interesting and exciting market in place to be.
And I think that's really proven out. iImean, the last six years have been a wild ride, being a very California central company.
Just to be of a quick background on Eaze, Eaze was started in 2014 as a pure play technology company, and really a marketplace connecting licensed retailers with consumers.
That was back in medical days, and it wasn't until Eaze acquired DionyMed that it shifted it's focused to be actually a plant touching business.
And so even within Eaze, this was kind of at the inception of our plant touching days and operations. So Eaze itself at this point is now a technology company, a retailer, a delivery business, a manufacturer, a CPG business, and a cultivation business.
So it's truly a very interesting and widespread business to operate and manage. And I think that's what gives it so interesting on a day to day basis, even when it's been crazy volatile in the markets itself.
@3:38 - Dai Truong (Arlington Capital Advisors)
And given that you operate across four markets: California, Colorado, Michigan, and Florida, give us an idea of how many employees and maybe even employees within those markets.
@3:49 - Cory Azzalino (Eaze)
Yes, we have about 1,400 employees total. Of those 1,400 employees, there's about 80 corporate employees. As a breakdown by market, I would say that we have about 700 employees in California, 300 in Colorado, 300 in Florida, about 15 in Michigan, and then the remainder is our corporate staff.
@4:25 - Dai Truong (Arlington Capital Advisors)
Great, and then tell us a bit more about those markets. Obviously there's been an Eaze acquisition of Green Dragon which got you into the additional markets for Colorado, Michigan, Florida.
Tell us a bit more about why those markets were attractive to Eaze.
@4:42 - Cory Azzalino (Eaze)
Sure, so going kind of West to East, California is still our largest market. We are the #1 delivery operator. We have 13 delivery locations throughout the state of California, and then, of those 13 locations, we have two that include retail stores.
So in the coming years, I would say that we expect to have add an incremental 11 stores. Going forward, in combination with Green Dragon, a lot of the strategy was that we know that we can run delivery profitable, which is kind of unique for the delivery category.
Our California business is profitable. But our most profitable locations are our Delivery+ retail locations. so we are really focused on continuing to build out a retail product in California over the coming years.
And then kind of on the flip side, in Colorado, we have 17 stores. It's all Retail. Delivery is very nascent in Colorado. It’s one of the reasons we acquired Green Dragon and continue to acquire more retail in Colorado is that eventually we will be launching delivery on top of our retail stores. And delivery is pretty much non-existent in Colorado. And that's because there has been broad-based marketing. The marketing is relatively new. But when you look at analogues like alcohol delivery, there's liquor stores on every corner, but we know that alcohol delivery in the Denver Metro Area was one of the biggest markets for companies like Drizly, that were ultimately acquired by Uber.
So we will definitely be looking at every market as a delivery plus retail operation, but Colorado today has 17 stores, five in the mountains, six in the suburbs. And another six in the Denver Metro Area.
And then in Michigan, we have a very kind of small and nascent operation. We have one location in Detroit. We expect in 2024 and 2025 to actually be in able to map the market to grow it. While we've been very cashflow focused and building out our massive Florida footprint, we just have an allocated spend, but we do believe deliberate and retail in Michigan still represents a meaningful opportunity. We just don't need to kind of race into it yet. It's a relatively small operation in Michigan.
And then Florida is really where we've been spending the bulk of our time and effort. We acquired via the Green Dragon acquisition. The license was originally acquired back in 2019. And we really started to operationalize the business over the last 18 months. So as of today, we have 33 stores open, all of which have been open in the last 18 months. We have another three stores that are just waiting for final approval. They have already been inspected and they're ready to open. So that brings us to 36. And then we have, I should just sign our 41st lease. We have another five locations that are in the process of being built out and will be complete. And hopefully open by the end of the first quarter. So we've gone from a business that did not exist to 41 stores in about 18 months. And we have also been scaling up our production.
So Florida is a very unique market. It's fully In there's no concept of wholesale. And so you really have to have kind of the two sides of the seesaw, you know, pretty well balanced. I think a little bit unfortunately for us, we had some things that were outside of our control with regulatory approvals. And during COVID, supply chain delays that caused our production to be behind our retail build out. But we always believe that if the stores are ready to open, we have a very low cost, low overhead model. We should open the stores. And so over the last six months, we started to see our production really scale and ramp. And so our stores do not have the portfolio of products yet that we expect them to be satisfied with our full portfolio.
But our production team has been ramping quality, ramping potency % in Florida quite nicely as we have a very large all indoor facility, which we are actually doubling capacity now.
We have a very large Florida footprint. We're very bullish on the market overall. We expect that in the coming years we'll take our footprint from the 41 locations that we have active up to over 50 and target probably 100 locations in the state of Florida.
@9:24 - Dai Truong (Arlington Capital Advisors)
Thanks for the details on those markets. I actually want to go back and have a question for you on every market.
In California you mentioned having two retail plus stores today, going to 11 in the near future. How exactly does that happen? Is that organic applications that you've won licenses through? Is that M&A? How do you get them to 11 in California?
@9:43 - Cory Azzalino (Eaze)
Yeah, it's largely going to be through M&A. I would say organic license applications have never been a skill set of hours. Unfortunately, I think that that's a very, very valuable muscle to have, especially in certain markets, but because a lot of markets we've operated in have been capped out. It's just not a process that we've pursued. But in California, because of the challenges in operating even retail locations profitably, we do find that there are lots of locations that are now being sold and basically being sold at times just for the full liabilities they carry and working those out.
So I think that as one of the larger operators, we do see opportunities regularly. We've just been very cash focused, so we've not deployed cash to scoop up those assets. But for the coming years, I think we will buy smaller chains or smaller locations at the complement or delivery footprint portfolio. The nice thing about delivery is that people don't really care where it comes from. Oftentimes we can optimize our territories by adding an incremental dispensary. Or, we come up on the end of our lease and we can relocate all that volume to a storefront and make the entire business more possible and more streamlined.
@11:17 - Dai Truong (Arlington Capital Advisors)
So it sounds like a combination of cash and stock for those M&A?
@11:23 - Cory Azzalino (Eaze)
At this point, it's mostly just seller paper . So really just a delayed cash transaction.
@11:31 - Dai Truong (Arlington Capital Advisors)
Makes sense. That's what I was seeing in the market if you're not using your stock, which to protect dilution, makes sense that do seller notes.
So in Colorado, I think the other thing to note on delivery being very nascent and nonexistent, you guys have compared it to alcohol delivery and with the 17 stores, give us the latest on legislation there. How does that kind of open up delivery more? Because I think it's just been very slow to open up in Denver especially, but also throughout most of Colorado, right?
@12:03 - Cory Azzalino (Eaze)
Correct. I mean, you definitely still have to be partners with some of the collective partners. You know, we just had a momentum program. We had social equity partners that participated in our Momentum program. So that hasn't really been the hindrance. I think with everything in the industry, the way it's been in the last 18 months, everybody has to make very strict capital allocation decisions.
And with Colorado and delivery, it still does require capital. So for us, just to use simple numbers, if the decision is to spend a million dollars standing up delivery in Colorado or build out six or seven stores in Florida for a million bucks, which is the better path? And because we invested so much and believe that, hope that Florida will turn from medical to rec. in 2025 with the vote in 2024. We just made the decision that we'd rather spend the money standing up more retail locations and outlets rather than launching a delivery platform [in Colorado]. Because nobody's running away with the opportunity, there's nobody who's really grabbed that market share or mind share. We're still just watching and monitoring the situation, but believe that we are probably the best suited to do it because it's just not a core skill set.
@13:33 - Dai Truong (Arlington Capital Advisors)
I think the same probably applies to Michigan for the company, right? You have Detroit, so if you choose to make that delivery heavy and go after marketing and add a few more locations, it's a capital allocation question, but you can very quickly ramp up if need be in Michigan.
@13:46 - Cory Azzalino (Eaze)
Yeah, that's correct. I mean, delivery can gain a lot of traction quickly, but it is using a lot of the marketing tactics that were first seen by Uber and DoorDash and Postmates, which means you have to give away a lot of free products to get traction and retention. So there's just that initial capital outlay. It's very inexpensive to set up a delivery depot, but you spend money on customer acquisition and marketing.
So because we've been constrained on our budgets, we just have decided the best return on our dollars will be seen in Florida where we've got the vertical operating margins. And it is a more protected market with the upside of rec hopefully to come in the coming years.
@14:36 - Dai Truong (Arlington Capital Advisors)
Yeah, it's great that you mentioned that for Florida. It's interesting that Eaze has gone from this asset light model when it started in 2014, more so powering transactions, being a technology company first, to now in Florida, you’re a vertical integrator, very different business. How's that kind of adoption been to grow this, really, tech company into a vertically integrated player?
@15:30 - Cory Azzalino (Eaze)
We recognized our shortcoming in not having any of that skill set so we had to go out and buy it. What we liked in buying Green Dragon was that it was a very lean, very profitable business. We believe in California, we have mountains of data,we’ve done more than $10M of deliveries. We think that California and Colorado represent the natural end state of all markets, which is cheap pricing. And so that they could operate profitably when prices were cheap, we thought that was the model we wanted to stand behind. They were already a vertically integrated operator and we probably widened the product portfolio to use more third-party because we also have data that shows a more robust menu leads to higher transaction values. And because we have enough scale in the market, it's a fairly even trade-off of margins selling third-party products with very healthy margins versus our other manufactured products. So I think we're able to kind of pair the two together.
So what makes us a unique company is that we have a lot of technology infused throughout the company that allows us to run what I believe to be very lean at a corporate staff because we have so much automation and so much automated reporting and the technical chops to integrate systems.
That allows us to run much more lean on the OpEx side. So it had to come through acquisition. And then the question was how can we use technology to enhance what is a labor-intensive and capital-intensive model of retail, a vertical retail. And so that's what we've been focusing on is making sure that our tech team is not only focused on the commerce and delivery, but actually goes through the supply chain and says, okay, here's the connection points. Here's how we can run even more lean with good data and visibility throughout any market we operate.
We're able to take a bit of both companies and it definitely took some pain in getting the teams aligned and restructured for a bit. But now we've been operating together for two and a half years. It's really starting to bear fruit and it has allowed us to stand up the retail stores and Florida with 40 on-stores with basically a team of four people.
So it was truly incredible work by the team, but also because we relied on technology and process to allow us to do it that quickly.
@17:46 - Dai Truong (Arlington Capital Advisors)
How were you able to do that? Because as of today, you guys have, you're tied for the sixth most stores in Florida.
So truly, again, as of October 12 from OMMU. Trulieve has 128, Verano (MUV) has 70, Ayr Wellness 62, Curaleaf has 60, Surterra has 45, you're tied with Fluent and Sunnyside at 33.
How have you been able to come into Florida and go so quickly to build up these stores when other MSOs have kind of been in the state for many more years?
@18:22 - Cory Azzalino (Eaze)
Yeah, for us, the reason we were able to move so quickly, one is that we were able to sign leases at a fairly advantageous crime, it was coming out of COVID when a lot of retail was impacted. So, we were able to grab a lot of leases really quickly. We have a very low overhead model, and so we kind of took the software approach to kind of ship and iterate.
So, we have basically the same flooring, the same signage, the same cases, everything is kind of cookie cutter together across every single dispensary. And so, that allows us to move quite quickly. We use, you know, we're very diligent in our task management software and making sure that, you know, people are
A fair ownership of every step of the process, but we were able to basically concurrently build out 10-15 stores at a time and do it for what is probably the lowest cost per store to build out.
And then we're able to kind of, by saving money on store build outs and operating expenses, we're able to ultimately produce at a very low price and ultimately offer that to customers. And so I would say where we sit today. I'm certainly not happy with our per store volume, yet, but that has been due to production constraints. As I mentioned, our production was probably nine months behind schedule. So we're actually opening a lot of the stores without our new facility actually open, which meant that we were relying on, you know, older flower from a temporary facility. It wasn't the quality stamp that we'd want to put on it when we opened the stores, but we were wanting to make sure that we actually had the retail sell-through to make sure that we can as our production scale that we weren't sitting on old-age inventory.
So now basically everything that gets stores, you know, sells in, you know, 45 days or less. So we believe as we continue to scale up we'll have really fresh, really high quality products, but can offer them at a very low price point.
Because our operating costs are still lean within the state. And like I said from California, Colorado ultimately I think especially in a rec market just attractive prices and price for quality is the best formula you can have as a retailer in Cannabis. So that's what we're driving towards, but we're able to scale those stores so quickly because we have a very repeatable model and it's low cost. So we're not spending a million bucks a store. Our 33 stores certainly did not cost us $33 million to build out. As I said, you know, we're trying to land the opening costs for $150,000.
@21:00 - Dai Truong (Arlington Capital Advisors)
Walk me through the retail banner, so why is it Green Dragon in Florida but it's Eaze in California. Why the decision?
Would you choose one retail banner in the future or kind of keep it separate with those two?
@21:12 - Cory Azzalino (Eaze)
Yeah, in California, you know, we had two issues. I think if we could have named the stores Green Dragon in California, we would have, however, there was another Green Dragon operating in California. And so we elected to call it an Eaze dispensary. However, our philosophy overall is that Eaze should really stand for delivery and convenient delivery and should have the widest menu and selection possible.
You know, as an eCommerce store, you kind of have the benefit of the end of the aisle. Now, there is a point where there's returns. But that's the true benefit of, you know, Amazon or any other e-commerce stores that you can have a much broader selection than you can have when you're physically constrained in a store.
We really want Eaze to stand for convenient quick delivery with a broad menu in selection and attractive prices. so when we're looking at Florida, it's a retail led strategy.
And what we don't necessarily want is when we introduce the Eaze brand, which we spend a lot of money on our mobile app and technology and seamless shopping experience, we didn't want that to be a constrained menu.
And the same thing in Colorado. We want to have in our retail stores, we find that maybe 350 SKUs is kind of like a happy medium on our delivery menu, it's seven or eight hundred SKUs.
And so we want to make sure that when we introduce an e-com menu that we have that really, really broad menu, and it's not just restricted to our in-house brands, which is what Green Dragon is really our retail brand. And then Eaze will be a differentiated delivery brand on top of our retail footprint because the customers are ultimately quite a bit different. We will still offer delivery from the storefront, but it feeds into the same order management system. And to customers who don’t necessarily know that it’s coming from the same place. And we don’t have to have the exact same menu. So in Florida, we don’t need all 41 delivery locations, we probably just need 10.
That is also the way we think about the good model in the market, is that we will selectively choose locations that are best suited for high-volume delivery because concentration for delivery matters more.
@23:48 - Dai Truong (Arlington Capital Advisors)
That makes sense. Tell us about the CPG component of the business. What brands do you have today?
What brands are you sticking with going forward? You mentioned having a broader menu of brands to choose from in Florida? How does that look like today and how would that look like in 12 months?
@24:02 - Cory Azzalino (Eaze)
Yes. So, expanding our brands nationally.
So, in California, we have Circles, Every Day, Lost Lotus, Cloud, and Anarchy.
And then in Colorado, we also have Fuel and Magnus.
And in Florida, we've recently introduced our everyday brand, which is currently our top-of-line brand and Circles, which is our low end of the menu. And we'll continue to roll out and differentiate all of our private label brands. They stand for different price points in different categories. But we are definitely, our fundamental viewpoint is that our private label sales probably should not represent more than 15 to 20% of sales. A lot of MSOs target north of 50% of the shelf. Ultimately, that's not really our belief. I think customers, in order to have a very sticky and loyal customer base, I think customers want to just choose the best products out there.
We are definitely planning to introduce third-party products in Florida. The gating factor there is really just the compliance, approval, and then the manufacturing control piece that everything you make has to be made from your own facilities. We're first scaling up the production of our own products, and then we'll hopefully introduce some of the best brands from both Colorado and Florida into, sorry, Colorado and California into the Florida market.
We were also talking to partners who are in Michigan. We already work with a lot of the top brands nationally and would love to be one of their manufacturing partners or dedicate space for them to manufacture their own products in Florida once that's allowed.
@25:55 - Dai Truong (Arlington Capital Advisors)
That makes sense, and given that you already have a relationship with them in those key markets. Being a partner in Florida should be an easy sell.
@26:03 - Cory Azzalino (Eaze)
Yeah, exactly. And we don't view it as an end game because in California, because of our size and scale, once you're one of the larger providers, you're typically getting markups that are fairly equivalent to your own, you know, to your own, if you were to do it, you know, Berkeley and the, you know, parts of the supply chain.
So in California, we don't have any grows. We don't have any manufacturing. We make private labels through partners.
But that means that we've been protected from a lot of the supply chain volatility. It's actually made our business substantially more profitable over the past 24 months.
But yeah, ultimately, we want to make sure that, you know, we have a great selection for customers. And, you know, we just believe that, you know, when a brand, if they're sole focus and existence, they don't have to run seven businesses at once.
They will do a better job at building that brand. We are ultimately a retailer, so we need to make sure that we offer the best product customers.
@27:06 - Dai Truong (Arlington Capital Advisors)
I want to go back to that comment you made about private labels not being more than 15% of the business. Is that a shift in thinking from prior? Because I also thought Eaze at one point was trying to, because you control the menu, can have better gross margins, have that similar 50–60% of private label as a percentage of sales.
@27:29 - Cory Azzalino (Eaze)
Yeah, I think that what happened in what developed over that time is that because the input pricing compressed, we were able to leverage our scale and go from what used to be, we probably picked up 20 points of gross margin even from our third-party brands, just by having purchasing power in the market.
So we were able to basically bring up our third-party margins to the point where we think more of our private label of filling holes in the menu.
So being the cheapest vape or being the cheapest flower, then filling out the broader spectrum because, ultimately the time, energy, effort for us to get that next 20% of the menu is a whole other team and a lot of operating expenses. Instead, we can just rely on our partners who, basically only have varying degrees of verticality in their own business. They're vertical up until the distribution point. There's really only two parties in that. So there's the brand in us and because of that, there's enough margin for both parties to be profitable and have a great relationship and still be profitable enough to cover taxes and all the other regulatory costs in the business.
Yes, our shift in thinking went from, you know, we want to be 40% and that was really when we were not able to achieve those third party margins. Now that we're able to achieve those third party margins, it's more about how do we fill the gaps in our menu and make sure that we're delivering the product selection and price points for customers.
@29:05 - Dai Truong (Arlington Capital Advisors)
That makes sense. So I know you mentioned price and having low prices being sort of something you pay attention to, you want Eaze to kind of be known for. What other KPIs or metrics are you paying attention to?
@29:20 - Cory Azzalino (Eaze)
On the delivery side, so we think about our business really in terms of business line, so delivery and in retail. On the delivery side, you have to be very conscious of cost for delivery and maximizing the efficiency of your delivery network. So we monitor things like cost per delivery and deliveries for driver hour. Those are kind of typically key indicators. We are very conscious of discount rates as well. So we have a concept called total discount percentage that we monitor and set a hard cap on every month. And that is a key driver of volume. As an e-commerce company, we have to measure all of our activation and retention metrics, we have to measure all of our funnel conversion, at every step along the way. And so those are the technology businesses, incredibly metrics driven.
And then retail by comparison, you know, it's just the kind of blocking and tackling of your transaction count, average ticket size. We've measured the conversion rate of customers through the door. We look at the cost side, so making sure that our operating expense metrics relative to the sales of the main individual location is properly scaled.
So it's very much a cost management and then inventory terms business. So making sure that we use our discounting strategy in retail to make sure that our product is staying fresh and that we're moving the older aging product. We try to sell everything within 90 days of the package date. We're making sure that everything is sold in the 90 days of package dates, so customers are getting a really good fresh product.
Those are the main things that we measure both on delivery and retail. In retail, we're also trying to be a leader in online sales for retail, so pick up, which will then parlay into delivery.
@31:25 - Dai Truong (Arlington Capital Advisors)
I want to ask you on customer acquisition and weedmaps.We've seen this pushback over the last few months because Weedmaps has increased their prices. Are you guys still using Weedmaps for a customer acquisition, or how do you guys view Weedmaps as a place to gain customers?
@31:39 - Cory Azzalino (Eaze)
I would segment that by business line again. For delivery, I would say one of our great weaknesses is that we actually never had our many properly integrated Weedmaps. I would say actually in California, probably the most gains we've given to our competitors is by far too have been using Weedmaps as a source of traffic.
That we just never did, so instead we kind of compete head-to with Weedmaps for traffic and eyeballs. Now I would hope that that changes in the year to come. We had more to do on our tech stack to make sure that it was better integrated and vice versa as well. So I look forward to a deeper partnership with Weedmaps in the future. On the retail side, we still continue to do our listings and we've always found a good value.
So I would say that the price impacts were a bit neutral for us because some sites went up, sites went down actually in costs, they were some of neutral for us in particular.
And that couldn't be because it's more Colorado and Florida, etc.
@32:44 - Dai Truong (Arlington Capital Advisors)
Got it. And I want to go back to what we talked about at the beginning of this podcast where Eaze was founded in July 2014, so you're about another three quarters away from coming up on being around for 10 years.Typically, investors look for some sort of exit between years 7 through 10, what does an exit for some of those early investors in Eaze looks like?
@33:09 - Cory Azzalino (Eaze)
Yeah, I mean, we are, because we started as a pure play technology company, our cap table probably skews a little bit more to traditional type investors, at least in our early rounds, of the A and B rounds.
Once we got to our series C, actually really at our series D, we pivoted to be plant touching, so that really restricted the types of investors to more family offices and private investors.
So you're right that typically investors are looking for an exit around the 10-year horizon, if not sooner. For us, I think there are two main catalysts that we are watching.
I think the Schedule 3 news was a bit out of, I would say it was earlier that we were expecting our belief was always about come pre-2020 for election, as soon as Biden kind of kicked off the HHS scheduling review, and we actually believed it would go to descheduled, but just from an incremental point of view, it always seemed most logical that would end up on Schedule 3.
And so we're waiting to see what the implications of Schedule 3 are going to be. Obviously, there's the 280e appeal, but the question is really around capital markets and whether or not that will lead to more favorable views from the major exchange.
And then we're also waiting for the Florida ballot initiative decision, whether or not that will make the ballot, and then ultimately, not that will be voted in favor.
If those two catalysts align, probably even if just Schedule 3 and 280e goes away, I would say that we would be eyeing a 2025, or a late 2025 listing. And then the perfect situation from our investor's perspective would be if you get both Florida and a US listing. That would be the ideal two things coming together to create a positive listing event.
However, if we only get Schedule 3 and Florida doesn't go, and US Exchanges don't accept direct listings of plant touching entities, I think we would still look towards the Toronto Stock Exchange, because although there have been listed entities, transitioning to the TSX, there hasn't been a true IPO, and I think our story is definitely differentiated with the technology components to it, and the delivery components to it, that we'd still like to open discussions on whether not that would be a successful listing next year.
We'll start with discussions next year, and then hopefully be in a positional list by late 2025.
@35:51 - Dai Truong (Arlington Capital Advisors)
And then how are you funding growth today for some of the growth initiatives and growth capital that you likely need?
@36:01 - Cory Azzalino (Eaze)
So we are, as an entity, we're very close to cash flow neutral, so we haven't raised capital in a while. We kind of like ebb and flow of cash flow positive, just like a cash flow negative every month. While we've been investing in the build out of our stores.
So California and Colorado are meaningfully profitable and cash flow positive. Florida is still in a growth and development stage. And so we haven't raised capital since August of 2020. We did have, and still have very large family offices that have supported the business. But at this point, we're not expecting to raise incremental capital until we go public.
@36:45 - Dai Truong (Arlington Capital Advisors)
And from last Summer, was that a debt financing then? And would you take on debt financing if needed before some sort of potential listing.
@36:55 - Cory Azzalino (Eaze)
Yeah, it was a, it was a debt financing from some of our existing equity investors, they moved up the capital stack.
So yes, I think at some point we would look to meet finance at debt either in conjunction with or in advance of listing.
It doesn't mature for a little while so we have a lot of room and flexibility still to get another transaction done.
But yeah, I think we would want to introduce a proper kind of third party debt partner into the capital stack in the company.
@37:32 - Dai Truong (Arlington Capital Advisors)
I want to go back to something we've kind of talked about a few times here and you just mentioned sort of the differentiator should you guys be publicly listed. How do you think your tech stacks up against some of the MSOs? Some of them have sort of invested a lot into in-house technology. Some of them have really spent a lot on outsourced development firms. How do you feel you stack up against the MSOs?
@37:54 - Cory Azzalino (Eaze)
I would put our team up against the MSOs and think the team stacks up well vs anybody. I think in terms of the existing architecture and infrastructure, I'd say it's in a period of rapid change.
Starting back in 2014, there are definitely pieces of the tech stack that need to be refreshed and revamped and put on the most modern systems.
We're constantly refactoring and needing to bring the tech stack up for the most part. I think that that also gives us just the flexibility to build things that are custom, that are the most critical pieces to our business.
There are things like routing software, which we believe to be a solved problem because there are lots of companies that have done routing and have incredible amounts of data.
It's better to use a third party. We were thinking about, okay, where does it make sense? It's a sense for us to build intellectual property and differentiation into our tech stack.
Where can we leverage third party technology off the shelf? So, things like e-commerce or headless e-commerce are on the roadmap for us. We don't necessarily need to be building all that internally. For our retail business, we use a Point of Sale, but then work with their engineering team probably more than any other MSO to create custom analytics and data pipelines so we can make sure that we're getting the value and being able to do the analytics and automation that helps us continue to run the business super, super lean.
So, I would say, the value of the technology team is the ability to be nimble, choose which product you're going with off the shelf providers. And then what kind of customization are you doing in your own data and analytics environment to drive decisions and getting that down to the local level
@40:14 - Dai Truong (Arlington Capital Advisors)
How many engineers do you have of that 88 that are corporate employees?
@40:20 - Cory Azzalino (Eaze)
At this point, our product design and engineering org. is probably about 20 people.
@40:27 - Dai Truong (Arlington Capital Advisors)
That seems pretty light versus what I was expecting. I was expecting you to say maybe half given that it's a very tech driven company.
@40:36 - Cory Azzalino (Eaze)
We found that you can do more or less. I think at our peak, there were probably 60 engineers, but we found that the team can actually, oftentimes just be more siloed or more narrow people's focus gets. The team that has been quite lean is truly moving mountains despite having less people. And so we've also, because of COVID, moved to a very remote environment, so we have corporate offices in Denver and in Florida, we do not have any offices in California.
Our Corporate people are spread across 16 states. So we're able to leverage hiring talent and lower cost environments as well. So we've really placed a core focus on that. making sure the business is quite lean. Offshore a lot of our business processes and back office. So we've truly tried to create as low of a cost of an operating model as possible, and that's what's required in this industry where there is no capital and you still have to find ways to grow and deploy capital.
@41:53 - Dai Truong (Arlington Capital Advisors)
Yeah, I was thinking when you told me 88 corporate employees out of about 1,400, I thought that was pretty lean from a corporate standpoint, do you know how that stacks up against your competitors?
@42:07 - Cory Azzalino (Eaze)
I can use some comps in California. There were some companies that were one-fourth the size of us that had two and a half times as many corporate staff as we had. So I do think we're quite good about staying lean. When I'm saying 88 corporate people, that includes operations focused people, so yeah, our VPs of Retail and Supply Chain, our Distribution, the Marketing, Accounting, Finance teams. The teams that do work properly nationally. So, you know, we still have to have a robust back office, but we just try and do more with less and then use our process that can be off shore, we make sure are offshore. So not including the 1400 employees is probably another 50, what are similar to full-time equivalents. The customer support and accounting and some of the cash reconciliations and day-to-day operations that are really, really critical from a financial perspective, but that can be done by highly talented people just to low-cost areas.
@43:16 - Dai Truong (Arlington Capital Advisors)
Yep, that makes sense. Thanks for the clarification. And then the last question for you. Where are the top three problems today or challenges rather, that the company faces that you wake up every day and here's kind of top of mind. Here's the three things. They might change daily or weekly, but roughly what are those challenges that you wake up to every day?
@43:38 - Cory Azzalino (Eaze)
Oh, God. Right now we're having challenges with payment processing, which is a joke every six months with the latest payment processing crisis. As a delivery company, we are far more reliant on payment processing than as a retail business. We see both sides, right?
And in Cannabis, as payment processors go down. And whether that's debit cards, banking or PIN debit, as you have those challenges as a delivery company, it's a really hard problem because as soon as you turn off debit, your only options are ACH or cash. And while ACH is a great product and we love our ACH offering, people still have hesitancy to attach their bank account to a cannabis purchase.
And so you go from 75% Debit and ACH to kind of 50/50 cash in ACH overnight. And then when people go to check out, they're much less likely to check out if they can only do those two payment options because they may not have cash on them and they may just be hesitant to link their bank account.
So we feel the brunt of any sort of payment processing issues, much heavier on the delivery side of the business, whereas retail, you can always default to just going to be the physical ATM kind of in store as the backup.
So that's a current problem for us and for the industry is that we would love SAFER banking or any equivalent.
That's certainly an issue for us more acutely than most. So that's one major issue.
For us, we constantly have large CapEx problems, or not problems, projects in Florida. I am very focused on making sure the quality continues to improve as it has been for the last three or four months in our Florida operation. And then we go from the 500 pounds a month that we are producing to 1,000 pounds a month, which we are expecting as we complete the build out of the next two rooms. And that product availability to make sure that we still have the channels and the velocity at our stores to sell through the product. So that's our main focus in Florida.
And making sure we continue to build the brand. I think we probably shot off of a toe or two because we hadn't launched the stores without the product quality that we would really stand behind. But I think you can over time rebuild your reputation and that's where we're focused in Florida is making sure that people know that we're more than capable of producing really high quality products and now we're well into that evolution, but we still have to get customers into it.
Probably #3 is that we’re always just focused on cash management, sure that we're truly turning to meaningfully capital positive so that we can be more aggressive in our growth plans. We've been very profitability focused, growth focused the last 18 months, even while we're investing in our single growth market. But there are areas like Colorado delivery, Michigan delivery, as well as, we'd love to continue to do retail acquisitions in Colorado as well. We see a lot of great opportunities and you can do very clean deals there.
So that's just cash management and truly flipping a business to be meaningfully cash flow positive so we can reinvest in growth is the other major focus of mine and the team.
@47:18 - Dai Truong (Arlington Capital Advisors)
Going back to what you mentioned on Cash and ACH and payment processing, has volume gone down since some of those issues have happened? I'm going to assume yes, but I'd love to hear it from you.
@47:29 - Cory Azzalino (Eaze)
You typically see about 10% decline basically overnight because of this. Now that comes back as soon as you turn it back on, but you snap your fingers and 10% of your customers don't want to check out.
You also see 8% decrease in basket size. So people are ordering less and they're ordering smaller because they don't physically have as much cash on them. So it's kind of a too-prong issue and redundancy is really hard. As an e-commerce company, it's just a particularly challenging problem that we have.
@48:08 - Dai Truong (Arlington Capital Advisors)
Is there any way to increase the adoption of ACH, whether that's somehow building more trust with consumers, or how do you get people to adopt ACH?
@48:19 - Cory Azzalino (Eaze)
Yeah, we do use credits and sort of incentive tactics. We're trying to write blog posts, trying to highlight the benefits of ACH. Because ACH truly is also the best delivery experience. So just purely from a delivery perspective, when you prepay for your product, it just makes the delivery experience like lightning, right?
You knock on the door, or you check someone's ID, then you hand them a bag. You don't have to worry about fumbling with a payment terminal. And so it's a much, much better and seamless experience. So we definitely try to encourage customers, and it's nice to see that it goes from 25% of transactions to 50% of transactions overnight, but it's still that drop in overall cashless transactions is still more meaningful than the ACH switching. Truly once you have ACH set up, it is by far the best shopping experience because you just know, it's like one click at purchase. And, you know, then the delivery experience is so much better.
@49:24 - Dai Truong (Arlington Capital Advisors)
And we're not going to see line of sight for Visa or Mastercard to come back and allow payment processing on their rails until SAFER, right? Or is there another mechanism or way for payment processors to come back online?
@49:39 - Cory Azzalino (Eaze)
Yeah, I mean, it's, you know, I can't say that I understand all the underbelly payment processing industry, but it always feels a bit like whack-a-mole. Like we have partners, you know, trying to be as compliant as possible. And ensure that things are coded properly.
But yeah, Visa/Mastercard have differing views on whether or not they want things processed and they change your views quite quickly. So, yeah, it's unlikely it'll be back at a full-full scale until there's some resolution on SAFER banking. And it feels a little bit crazy that, kind of six months before, hopefully things get rescheduled, cracking down on payment processing when customers are buying legal products in their legal markets with their legal tender.
But it's nonetheless a challenging issue for all employees in the space and it's just even that much more acute when you're in a delivery company.