Press Release
Eaze Inc. has announced $10 million in Series B funding following the acquisition of select assets from Eaze Technologies Inc., a pioneer in cannabis delivery with over $1 billion in completed deliveries across its 10-year history. The investment will fund the reopening of 70 Eaze and Green Dragon locations across California, Colorado, Florida, and Michigan, including 57 retail stores, 11 delivery hubs, and two production facilities.
Eaze Inc. will be led by Cory Azzalino, who emphasized "We are excited to build on the accomplishments of the first 10 years of Eaze Technologies Inc., and expanding our retail, delivery, and private label brands into new markets. We deeply value the contributions of all those who were part of Eaze Technologies Inc.'s journey and remain committed to creating a company that continues to push forward with innovation and care. As we move ahead with this new chapter, Eaze Inc. is focused on sustainable growth and delivering for our customers and communities. The $10 million investment will allow us to strengthen our supply chain, enhance the customer experience, and set the foundation for long-term success."
Key initiatives with the Series B funding include:
Recruiting for more than 1,000 operational positions across four states
Expanding Florida production capacity from 32,000 square feet to 64,000 square feet of flowering canopy
Opening new dispensaries and expanding delivery capacity across Florida, California, Colorado and Michigan
Launching refreshed brand marketing campaigns highlighting Eaze's newly launched scheduled delivery capabilities, and new product innovation at all Green Dragon locations
Building new brand partnerships across all territories and developing new market-specific product offerings
Eaze Inc. is committed to a seamless operational transition that will minimize any potential disruptions for Eaze and Green Dragon's loyal customers, patients, and vendors. With this new funding, Eaze will begin hiring to support expanded operations and ensure continued growth across all markets.
Summary
$10M Series B Raise. Eaze has raised a $10 million Series B round to recapitalize the company after the previous Eaze Technologies Inc. entity was foreclosed on by its lenders. The new company, Eaze Inc., will be standing up operations on January 1st with $10 million in fresh capital, plus remaining cash and assets from the previous company.
Corporate Transition and Restructuring. The need for a new entity was driven by the previous company's inability to raise additional equity capital due to its complex voting structure, leading the lenders to foreclose on the assets, leading to a public auction process.
Hiring and Staffing Plans. Eaze plans to hire back up to 1,100 of its previous 1,200 employees across its four states (California, Colorado, Florida, Michigan) over the next 45 days. The corporate team of 80 employees has already transitioned to the new company as of November 4th.
Operational Structure and Capabilities. Eaze has a lean corporate team focused on technology, engineering, analytics, and back-office functions. Operationally, they have 1-2 people managing each state, supported by depot and retail managers. Eaze also has production and manufacturing capabilities in Colorado and Florida, and outsources some back-office functions to Mexico and Guatemala.
Florida. Florida is currently Eaze's only unprofitable market, with California and Colorado subsidizing the losses. Eaze is focused on doubling its cultivation capacity in Florida to 64,000 sq ft of canopy, which should allow it to reach profitability in the state. Eaze is not planning to open additional retail locations in Florida, but will expand its delivery service area.
Approach in Other States. Eaze sees California and Colorado as mature markets, and is focused on expanding its delivery service areas and selectively adding retail locations in those states. In Michigan, Eaze plans to focus on delivery rather than opening additional retail locations, given the competitive and price-compressed nature of the market.
Long-Term Strategy and Potential M&A. Eaze is focused on near-term profitability, particularly in Florida, before considering any potential M&A or expansion into new markets. The company is open to opportunistic M&A in the future, but its immediate priority is executing on its existing operations and growth plans.
Transcript
@0:01 - Dai Truong (Arlington Capital Advisors)
Hey Cory, thanks again for coming back to Highly Objective. Obviously, big news this week with Eaze raising a $10 million Series B. So a very timely discussion. What does this announcement mean and catch us up on the last year or so.
@0:24 - Cory Azzalino (Eaze)
Yeah, so the announcement means we have raised $10 million dollars for what is kind of new, truly a new company, obviously sharing the same Eaze, brand name.
But this is a new company called Eaze Inc. Which means that we're closing down the old company, Eaze Technologies Inc. on December 31st. And so we are planning for and executing on the transition.
And to rewind the clock and kind of how we got here is probably some of a long and winding story, but I'll try and keep it fairly succinct.
So Eaze started 10 years ago. We raised five different rounds of capital. Our latest round was our Series E, which was closed concurrently with the close of the Green Dragon acquisition. And that closed in early 2022. That Series E round, which was publicized at a $700 million valuation, was actually priced in January 2021.
And so if you look at the MSOS, which is at least a good basket of shares of stocks across the industry, similar to many industry participants' valuations have been down 80%, 90% since that time.
And so when Eaze needed additional capital post the close of the Green Dragon merger to invest in our Florida cultivation facility and the build out of our Florida store footprint, we had a fairly complicated legal structure and voting structure. We had five different classes of shares and each were able to vote independently.
And so while it was clear that valuations had declined significantly since the peak in January 2021, we were in a situation where it was basically impossible to effectively take our medicine and do a down round on the equity side.
And so instead, a group of our investors decided to step up to the plate and put in place a senior secured debt round that was secured by all assets of the company.
And so what happened with that debt round was that it included covenants, covenants that we did miss. I was put in place as CEO a couple months after that debt round was put in place.
And so flash forward about 18 months and the owners of that debt decided to actually foreclose on the assets. Management and the Board objected to that, but what a lender has a right to do under the Article 9 of the Uniform Commercial Code (UCC) in Delaware is that they have the ability to publicly auction the assets of the company.
And so the lenders went through that public auction process and ultimately credit bid on the assets of the company.
They didn't buy everything, just the assets. And that's what ultimately gets transferred to the new company. And then they were able to recapitalize the new company, which will have the $10 million of fresh capital plus the remaining cash from OpCo, plus the series of assets, including all the licensed entities in the operating business will be kind of stood back up on January 1 of next year.
@4:00 - Dai Truong (Arlington Capital Advisors)
I didn’t realize any cash came from that process.
@4:04 - Cory Azzalino (Eaze)
There's still cash in the old company and part of the assets that they acquired were cash from the old company.
So the company still has plenty of liquidity, that wasn't necessarily the issue at hand here. The issue was, could we pay back the $54 million of debt or would any other buyer want to step in and pay the full $54 million worth of outstanding liabilities.
That's what would be required to have purchased the business. Instead, the lender should have bid that. And so that kind of $54 million becomes our series A preferred of the new company.
And then this fresh capital raise was kind of the $10 million of fresh capital, which will be used for operations and happy to discuss that further.
@5:00 - Dai Truong (Arlington Capital Advisors)
And from a valuation standpoint is this $10 million Series B a priced round? Is it a small step up given the $54 million? The way I look at this today is that you guys have raised $64 million total. What's the assumed valuation on that and I know you may not be able to speak to that.
But what’s the mechanics of the valuation on the Series B. I think that when you're looking at the $54 million that was the face value of the debt, they're the Series A investors and did have a certain liquidation preference.
@5:38 - Cory Azzalino (Eaze)
So the implied valuation is quite higher actually. But, the simplest way to think about it would be a $54 million kind of face value of the debt + $10 million dollars of equity, gives you a $64 million dollar post money. There's more nuance that than involved in the legal structuring of that round
@6:01 - Dai Truong (Arlington Capital Advisors)
And I'm just going to go through the press release that was put out, there were five main bullet points.
The first one being that the company is going to recruit for a thousand jobs across the four states (California, Colorado, Florida, and Michigan) that you operate in today.
I think you guys may have had about 1,200 employees. I think it seems like you're hiring back a majority of them.
Explain to us how quickly that can happen in terms of hiring those people back.
And if there's additional costs or a lot of costs associated with that, or if it's just as simple as “Hey, used to work at Eaze Technology, Inc., Eaze Inc. is now hiring, would you like to apply for the same job you had?”
@6:38 - Cory Azzalino (Eaze)
Yeah, I mean, we have a HR team. As you said, the whole company had about 1,200 employees. We'll be hiring many of the old employees back, not all, but many of the employees in each kind of state has a different hiring process.
But we are actually kind of opening up and starting the hiring process for our operational team. Starting tomorrow and over the next 45 days between now and the end of the year, we will be able to onboard, you know, call it 1,100 operational employees and we have already just recently transitioned the corporate employees over to the new company as of November 4th.
@7:19 - Dai Truong (Arlington Capital Advisors)
And I know on the last podcast, we talked about corporate employees being actually pretty lean. They help us understand what that looks like in terms of the operations from the poor states from an employee's standpoint and what the corporate employee structures look like.
@7:34 - Cory Azzalino (Eaze)
Yeah, so, know, I think one of the things that we're very focused on is having a functional organization where, you know, all of our corporate team works across the entire organization.
And so when you look at our corporate team, you know, we still are probably heavier on technology and engineering as, you know, e-commerce and delivery leader.
So we probably overindexed on product engineering and analytics, which represents, you know, 35 employees of the 80 corporate employees.
Then you have your typical kind of back office staff, everybody from accounting and finance. We do have a meaningful HR team to deal with the day-to-day operational challenges of having 1,200 employees across four states.
We've just revamped our marketing team and look forward to what they'll be able to bring to the organization in the year to come.
And then on the operational and state level, we typically are retail businesses, one to two people managing each state, and then they're supported by their kind of depot or retail managers to manage the line employees at all of our locations.
Then we actually have production and manufacturing and two of the four states being Colorado and Florida, and so our production team manages both of those sites.
So yeah, we try and have a lot of fun. Then we also outsource and have a lot of our back office processes enabled in both Mexico and Guatemala.
And so we've got kind of a large customer support staff and some of our accounting and back office in Mexico.
@9:18 - Dai Truong (Arlington Capital Advisors)
And walk me through the four states, where are you guys prioritizing now, know, give us a state of the market on each of the four and sort of, you know, you can help us understand where are you the most excited of the four from one to four.
@9:33 - Cory Azzalino (Eaze)
Yeah. So California and are clearly mature states, you know, both states at a total market level are, you know, have been in decline for, you know, probably 12 quarters consecutively now.
You know, I would say we're not immune to those declines, but we've been really focused on kind of cost efficiencies.
And so both California and Colorado are profitable states. They pay for all the corporate overhead, and then they almost pay for all of Florida.
business as well which is the only place where we are in fact losing money and so the company overall is very near cash flow break even which you know for a company of our size and when you look at a 10 million dollar capital raise it's not a sizable capital raise and the reason why it's not you know that large is because we really need that much capital you know we are operating very close to cash flow break even and we've already invested a lot of the you know Florida's a very very expensive state to operate in and we invested most of the infrastructure capex not only for the store built out but also for a cultivation facility and our our storefront relative to our cultivation is clearly out of balance and has been out of balance for a while because we've been waiting for a power upgrade at our cultivation facility the cultivation facility is effectively built for you know 12 kind of larger format rooms we have a slightly different method of cultivation it's all indoor but
It's a slightly different method of cultivation there. And so we've basically built the infrastructure for a 12-bedroom house, if you will.
And we have two of the 12 rooms active. We have another four rooms that are built out, two of which are for actual canopy and cultivation, two of which are for post harvesting.
But we can't turn on those additional four rooms until this power upgrade occurs. And then the power upgrade will be sufficient power for all 12 rooms, ultimately.
So in terms of what is ready to go, we have, right now, we have 32,000 square feet of canopy.
We've had that for a while. We've more than doubled the yields from that initial 32,000 square feet. And so we're in a very good position to take that from 32 to 64,000 square feet of canopy.
But that is just waiting for the power upgrade, which is actually for next Thursday, but has been about 90 days delayed on this based on a lot of hurricanes and then just floor to power and lights schedule actually kind of connect to power if you will.
So we've been out of balance for quite some time and we were kind of very good at opening stores and we've been opening them very lean.
So there's still a lot of work to do in terms of reformatting and refreshing the stores. Our store footprint is kind of the express model, right?
So we just have 40 basically express stores. i think some other people actually categorize them as that. For us that's just kind of like the way in which we build stores.
They're lower costs, built for efficiency, built for kind of rapid transactions in and out. But we're also working on continuing to improve them over time.
And so with Amendment 3 failing, obviously that we would have welcomed Amendment 3. But with Amendment 3 failing, we really don't have to rush to build out the remainder.
rooms in the north part of our facility. We'll just continue to build them out as needed, but it starts with turning on that additional 32,000 square feet of canopy, and then making sure we sell through all of that product.
And, you know, we've got all the production capacity for everything kind of plus harvest and manufacturing, you know, already in place.
So, you know, the incremental costs to either start up those rooms, hire, you know, few additional people. It's, you know, we're hiring 25 additional people for harvesting.
It's not, you know, it's not a meaningful lift to go from 32 to 64,000 square feet of canopy, which should be able to double our, you know, sales footprint at our stores.
@13:47 - Dai Truong (Arlington Capital Advisors)
Yeah, if I look at just Florida, going back to, you know, that being a key market for you guys, I would have assumed it certainly was, you know, you have, and may, we're a bit behind some referencing November, some data.
39 dispensing locations, but then just looking at sort of the milligrams THC of medical marijuana around that range. You guys are actually called 4.6 million fluid and sunnyside, which have 35 and 33 locations are closer to 14.9 milligrams and 11.9 milligrams.
So let's just assume that once you increase the two acts on the cultivation, you'll be pretty comparable to that in terms of how much you can.
@14:30 - Cory Azzalino (Eaze)
Yeah, I still think we'll be, I think we will still be less if we're just purely too exciting, we will still be less.
But I think the question becomes, what is your old red? Like, you know, there's a lot more to the operating costs of running a business than just, you know, store accounts.
For us, we run the storage area, lean, you know, we come from competitive markets, we're very used to that, you know, making sure every labor hour is accounted for, and making sure that our, you know, rent and fixed costs per store is quite
low because we did expect Amendment 3 to pass, even if it wasn't, I think we were expecting competition to continue to increase.
And therefore, ultimately, sales per store would come down. I think we're kind of converging from the other side. Our stores will continue to perform better.
think some people's stores will perform worse. But yeah, even if it doubles, we still will have substantial room to do.
But in doubling our sales per store, that brings Florida the profitability overall, which once again, California, Colorado pays for corporate already.
It's really just a matter of getting from being a loss leader to actually being profitable. And this doubling cultivation will get us there.
And then we can build out rooms 7 and 8, 9, 10, 11 and 12 as needed, because we've already done the vast majority of the capex in building all the infrastructure and the foundational levels for the grow.
@15:57 - Dai Truong (Arlington Capital Advisors)
Yeah, that makes sense in terms of having Less products than some of your competitors who may have similar ish store counts again to your point of your stores being much smaller More focused on delivery versus maybe a retail experience and that's that's one of the things that is unique and interesting about Florida That's actually truly the only state I believe today where the shelves are actually different right because of the forest Vergization so you guys would have different selection than truly different than Toronto than air So it is actually really interesting from a product standpoint So let's just don't click on this market and then we'll go back to some of the other markets But it was a winning in Florida.
What does that look like? Is it a lot of the product innovation that's coming in is it partnerships where you're bringing in brands that may not be in Florida today?
How do you become profitable and stay with profit and some of your competitors and just win market share given the dynamics?
@16:52 - Cory Azzalino (Eaze)
Yeah, so I think that You know, I think it's quality relative to price You is really one of the key differentiating factors.
do think brands, brands matter. If you look at a brand like Sunburn, think Sunburn's an incredible job and that the results show and their personal numbers that they've done an incredible job on brand.
And so I do think brand matters, but I'm not going to say that our brand position right now is incredibly strong.
I think we get high marks for our retail experience. We obviously look at Google reviews and everything else. I think we have a very positive customer engagement, but our product quality is probably lagging.
The reputation of it is lagging where I actually think the quality stands today. because Florida also takes a long time for approvals, oftentimes changing hardware or changing packaging just takes much longer than what you'd like in another state.
So some of these small tweaks that you make and you file to make can still take three, four, or five months just to get approved, which makes that iterative cycle more challenging. We are looking at brand partnerships. You know, you mentioned brand partnerships, and I think a lot of the other operators, you know, look at flowery does an incredible job, I think, truly has benefited from, you know, Alien Labs and Connected.
We're definitely looking at brand partnerships, and, you know, but for us, historically, you know, as pathetic as the numbers might look like we are selling everything that we make.
And we are selling everything we make on the flower side. We sell everything within 90 days. We have a freshness policy that we've carried over from California and Colorado, where, you know, everything is basically sold within 90 days of the package date.
And so, you you definitely need to focus on quality, you need to focus on price. And then what determines price ultimately, you know, to do with a lot of, you know, like legacy decisions for us, know, I think one of the big questions going forward will be how much price competition is there, because how much.
capacity that was built for amendments three is actually going to come online. Truly, I believe it has like an entire separate facility that is currently dormant, that if they elect to bring that online, it'll be significant in price competition.
For us, we have a single facility. We actually did use equity dollars to basically build out the entire facility.
And so our lEaze and overhead rates are very competitive, literally one-tenth of some of the other operators of our same size.
So I think we will actually have a fundamental cost advantage, but we also just need to absorb more and more of our facility, meaning that we just need to grow more product, some more weed.
And then I think we'll be in a good place to have, at the end of the day, products that are very competitive from a pricing standpoint, but also there from a quality perspective.
So ultimately, I think that's the way in which you win. when we look at our California menu, and California has very high regulatory costs all throughout from from sea to sail, we sell $12, some of which we probably will manufacture or Coman or Copac, and we sell $15, know, half-garan vapes and one-dollar full-gram vapes at 60 plus percent product margins, so you definitely can get retail prices, especially when you're in percent vertical, you know, down to that, you know, $15 to $20 an eighth level, and I think that we are priced to go there.
So even if Florida gets to the point where it's basically rec level prices, I think that we are well positioned to be quite profitable, should we be able to, you know, even just double our sales at our stores, and that will get us actually flip us to profitability.
@20:54 - Dai Truong (Arlington Capital Advisors)
And, you know, my guess is truly tha some of these other MSOs don't turn on additional capacity given what happened with Amendment 3. But is there some fear for you that there's potentially price compression in your term just because of all this excess capacity that was supposed to support and don't use the market that now isn't going to be there?
@21:16 - Cory Azzalino (Eaze)
Yeah, I think you ought to prepare for them. If you're not preparing for that, then you're doing yourself a disservice.
Now I have heard a lot of projects that were in flight have been immediately stopped. You know, we were kind of already built waiting to bring capacity online, but we also said, okay, well, instead of building those six additional rooms, we're not going to build those.
So I think a lot of people like hit pause basically immediately, but there's still, you know, I still think that there's more capacity coming online, and then there's just the big kind of truly variable of, you know, they already produce so much product and they're, you know, such a larger share that if they go to war on, you know, and truly, you know, take the
on their own margin. I think there will be lot of price compression in the market. But naturally, think with demand being probably stuck in a 3%ish growth rate, think you'll start to see units continue to go up and you'll see prices come down and you'll still probably get slight market level growth.
there's going to be a lot of trading share as well amongst those who are able to stay in the market and stay competitive.
You know, I think there's a lot of thought to, hey, there's additional licenses being issued as well. Is that going to increase competition? I would say it is incredibly expensive to stand up Florida. You have to, because you have to be fully vertical, I would probably bet that if anything, you know, some of these smaller players just kind of can't make it with, you know, a single, you know, you have left.
in five locations. I still think you're going to have a hard time kind of making it if you don't have another business if Florida is your only state, right?
Like for us, it's getting California Colorado, you know, almost pay for Florida all the way, not quite. But if we didn't have that, then it would be challenging to stay at the market.
@23:20 - Dai Truong (Arlington Capital Advisors)
Yeah, because if I just look at the patient count, let's take January 5th, there were roughly 867,000 patients. As of November 8th, there were roughly 882,000.
So you're talking about 15,000 patients in the last 10 months. That's not enough to your point to support some of these smaller sub, you know, five locations of which I think a few are listed on this OMMU, you know, sheet here that I have, but most of them aren't even operational on to your point.
Some of these licenses now may need to rethink their strategy. And yeah, referenced this on another podcast that I was on, but the sort of acquisition of, I guess it was, like Cannabist Company for their operations, was really like a $5 million purchase.
I don't know if they just got lucky in terms of the buyers and you got the other one, but the Mint x SHANGO JV, that essentially now looks like not that bad of a purchase, even though Amendment 3 was a no.
But I would even maybe say some of these with less than 10 to 15 locations may struggle, right?
@24:35 - Cory Azzalino (Eaze)
There's also a $1.5 million licensing fee that you have to pay every two years and I believe its coming up on that again.
So, like there's, you know, pretty meaningful costs that you have to encourage us to stay open, which, you know, it's a challenge to, you know, for an entire grow and everything else fully vertical when you only have a limited number of stores.
So like, while I'm certainly not happy with our sales performance store because of, you know, a lack of product and being to continue to improve brand perception and always improving product quality.
You know, I think we at least have the, we have the pieces lined up pending this power upgrade to, you know, start to move the needle and inflect positively to get us to the point where, you know, Florida is, you know, breaking even and then, you know, positive cash flow.
@25:30 - Dai Truong (Arlington Capital Advisors)
And I guess what market we didn't really speak about here in terms of what it means for you guys and you have made comments that California and Colorado are mature.
I would also assume Michigan is mature. I mean, I look at just revenue in September, October, this year versus 2023, it looks pretty flat year over year.
So I would characterize that as also mature. So what does that mean for Eaze in Michigan, because I know from the press release that you guys plan to open additional dispensaries pretty much across all four states.
Does it still make sense?
@26:01 - Cory Azzalino (Eaze)
Yeah, we're not expecting to open new locations in Florida. are opening up more territory for delivery. I think one of the recent releases in California was that we've now released scheduled delivery, which is a regulated market where you have to make sure that the person you're delivering to is 21 or over, is a major convenience for you know, for any delivery customers.
But the way Eaze was originally built was, you know, more in the kind of ASAP, you know, one hour on demand, on demand model.
And so, you know, we recently released scheduled delivery, scheduled delivery, you know, with various service areas allows you to significantly increase the radius by which you're delivering and still be able to do that profitably.
And so, you know, in Michigan, we'll be putting up the service area radius and looking to deliver in a more
or product, but I think when you look at a mature market like Michigan, I agree Michigan is mature, but as a retailer exclusively, that's often actually when you can get the best margins, margin and product margin really does matter.
A ton for a delivery business, delivery business is effectively 15% worse than a retail business. Now, you do make it up in volume, but it costs you an extra 15% to deliver the product to an end customer.
And so, when we compare California versus Colorado, a purely retail business is quite a bit easier to manage, is higher margin, at least based on our scale, is higher margin from a gross margin perspective because you don't have to pay the drivers to get product.
But when you look at a market like Michigan, all of a sudden price compression can lead to higher margin.
It's for retailers, which means you have more money available for marketing and for growth. You know, I think Michigan is going to be, you know, probably in for quite a, you know, quite a reversal.
I think you'll start to see retail sales in Michigan go down pretty precipitously. So I think it's going to get even, way more competitive and you're going see a lot of even further price destruction.
I know it's got the cheapest product per gram, but you just can't have neighboring states open up. You know, Colorado has seen that, right?
When we saw when New Mexico opened up, all of sudden, all the border traffic, you know, starts to come out of the market.
And all of a sudden you have a supply demand imbalance and, you know, the markets work shockingly effectively and efficiently in price correcting for oversupplies.
And so I think Michigan you're going to see, you know, probably sales decline overall. But, you know, with our focus and delivery, they're still, you know, kind of a wedge in a way to service territories and, you know, suburban.
areas where there's just not a lot of density around, around dispensaries. so still a more convenient way for customers to get products.
And, you know, the advantages of technology is, you know, you spend a lot of money on R&D, you spend a lot of money on engineering, but running a location like Michigan is very, very low overhead for us.
It just doesn't cost a lot of money to have running, which means it doesn't cost a lot money to make that kind of profitable because it's going to have the kind of membership of California that incurred all the R&D spend to get the technology platform, right?
@29:37 - Dai Truong (Arlington Capital Advisors)
And is it just depots in Michigan or do you guys have some of these express display locations?
@29:43 - Cory Azzalino (Eaze)
Michigan is just one depot.
@29:46 - Dai Truong (Arlington Capital Advisors)
And no plans to have additional depots because Michigan is still a pretty big state, depending on where you're trying to increase that delivery capacity area.
@29:56 - Cory Azzalino (Eaze)
The population center is really in the Detroit Metro Southeast corner as well, maybe Ann Arbor, which I think that's actually where you can service from our location.
So in Ann Arbor, it's a pretty competitive market, there's lots of dispensaries in Ann Arbor as well.
@30:16 - Dai Truong (Arlington Capital Advisors)
So, yeah, we're really focused on kind of like the Detroit metro area, they're not Great Lakes and it's a Ypsilanti and some of these like smaller territory.
@30:24 - Cory Azzalino (Eaze)
No, when we originally launched Michigan, we did have a location in Grand Rapids that was doing pretty well.
So, you know, that's a market we could look at, but I don't think there's any, there's no main plans for it.
@30:38 - Dai Truong (Arlington Capital Advisors)
Got it. And what about, you know, California, since I know, you know, that's where you started, you see all the negative headlines. Eaze is able to be profitable there.
@30:55 - Cory Azzalino (Eaze)
Just not with Florida also.
@30:57 - Dai Truong (Arlington Capital Advisors)
We certainly have seen some of the MSOs exit the last few years. We've seen some that I call California Single State Operators (SSOs) continuing to open up new stores. What does winning or winning relative to competitors in California look like for Eaze?
Are you guys going to get back to opening more dispensaries or is it just like what we talked about so far, which is having this capability for scheduled delivery. Is that helping you win more market share in California?
@31:31 - Cory Azzalino (Eaze)
Yeah, I mean, so unequivocally our, you know, our most profitable locations are retail plus delivery. So right now we've got 12 locations total, two of them are retail plus delivery, 10 are delivery only.
So, you know, we'll definitely look for the opportunity to convert those 10 deliveries only to delivery plus retail. In addition to that, we are looking to open two more locations, one servicing, you know, an empire, one servicing kind of the central.
Valley and Fresno area. So we are looking to expand more territory via just new depot openings. And then we're also increasing the radius by which we deliver via our scheduled delivery offering.
So for the first time, really for the last couple of years, we've been just shrinking to focus on very profitable areas.
Now we'll be able to re-expand the radius because we can do that more properly with scheduled delivery. So we are definitely back in expansion mode in California.
Now California has been and is still a challenged market. You know, think it's, you know, Q2 22 to Q2 2024.
I think it's down like 15-16 overalls of the overall market. And that's with new pockets of the state opening up.
So I think if you were looking at just, you know, the big metro areas would be down further than that.
In comparison, I think Colorado is down about 20% from that. same kind of Q2, 22 to Q4, 2022. So both these markets have followed the similar kind of price compression trends.
But for us, we have seen virtually all the other delivery competitors have unfortunately kind of not made it.
So we're, you know, one of the, there are still a few others that are more regional competitors, but we're really kind of the last, you know, statewide delivery platform.
I do think that you are seeing a lot of successful retail chains, because retail, you know, I still would quibble with things like security requirements.
And you know, there are other things that don't exist in other states that make it far more unprofitable in California to run retail, but you can still run retail profitably.
So there are a number of chains, like a chain, like in a mark that's done really well and opened up new locations.
That's never been like our core currency of, you know, the kind of suit nuts of getting a property and titling it.
getting it licensed anew. A lot of those wins have come from probably processes that started years ago. And so that's certainly something that we would look at, but when we're trying to evaluate where to put new locations, it's always been far faster and still lower cost, even with Amendment 3 not passing to do that in Florida.
And so that's been our greater focus for growth. But as we look for 2025, we are expecting to grow by expanding the delivery service areas and then selectively adding retail to our existing network just to make that delivery plus retail even more profitable.
@34:42 - Dai Truong (Arlington Capital Advisors)
And it's good that you brought up being really, it seems like the only game in town in California when it comes to delivery.
Have you just won market share and increased sales purely because Grassdoor and Amuse and some of these other names are going out of business?
Because I would imagine that more people, especially with scheduled delivery, would want the convenience. That gives you the convenience factor of getting your cannabis when you want it. So with that, call it eCommerce, for lack of a better word, increasing in cannabis.
Is Eaze just winning markets here purely by being the only game in town in California today?
@35:21 - Cory Azzalino (Eaze)
Yeah, I think that that is certainly helpful. I think the bigger tension is, I guess, retail versus delivery, right, as still our biggest markets are like the LA metro area, the San Francisco Bay Area are still by far big markets, which are pretty dense with stores.
But where we're seeing a lot of stability and growth is in more suburban markets, which are still brooding retail locations, so like in Orange County or San Diego or Sacramento are very, very healthy markets for us.
So I think the real challenge for us is how do we actually penetrate those markets? from a marketing perspective, given the lack of channels available to us, king of screenshotting all the hemp-derived products on Instagram, and obviously Twitter is a little bit more flexible, or X is a little bit more flexible in terms of allowing marketing, if we could actually get any ability to advertise on the major social platforms that would a long way for us, because it's just really hard to target specific regions, but there's clearly a lot of demand.
occurs slower over time versus if we could actually use digital platforms to target more specific geographic areas. So that's definitely our focus is how do we grow these suburban pockets where we can still do nice high-value deliveries, do a lot of them, and that convenience factor really wins out because there's just nothing all that local to them in terms of dispensary access and because of the
you know, local meanness about a control, it's unlikely that there will be a lot of retail shops that you pop up in those areas.
@37:07 - Dai Truong (Arlington Capital Advisors)
So the customer base is quite sticky. Yeah, because I think California is still 60–65% not serviceable, right? Based on some of these local municipalities saying no to Cannabis dispensaries.
@37:14 - Cory Azzalino (Eaze)
Right. But it's just really a question of usually those same locations also like aren't work really well in like urban metro areas for us like don't necessarily work as well in these more suburban locations just because that type of advertising just isn't available to you.
@37:40 - Dai Truong (Arlington Capital Advisors)
I guess I'll ask you this, now.
Given the old valuation and the amount that Eaze raised at, it probably didn't make sense for a merger or acquisition of any sort. Is that more back on the menu these days because a transaction is more of a possibility with the current valuation?
I guess the liquidity preference is still meaningful, I'm going to assume it's still probably a decent hurdle to clear in terms of three figure millions.
But is that something you guys think about more now?
When I think about it as a venture investment, I know the investors aren't really the same and maybe now the timing is more 5–7 years, but Eaze has been around for 10 years, though, just asking that exit question.
@38:28 - Cory Azzalino (Eaze)
Yeah, I think you have to think very long-term in this industry, think we all want things to happen in a hurry, that's just not the way the world works in this industry.
And so for us, I think as we look at the landscape, I think our main focus is on Florida and Florida Florida profitability.
I think we've got a lot of dollars invested in what is still an underutilized growth. And so, how do we get more sales channel in Florida, paired with that very, at its full scale, it will produce very, very,
low-cost pounds and all indoor, you know, environmentally controlled with your Florida's, you know, massive and important. So I think we are definitely looking to be opportunistic if there are opportunities that present itself.
But I think any, like, immediate six to nine months, it's really just heads down, get our additional cultivation rooms open, get Florida profitability because that makes us, you know, even more of an attractive merger or acquiring party.
So that's, you know, I think the kind of fundamental next steps. You know, as you look out, you know, longer, you know, whether or not Florida is in two years, four years, years, eight years, right?
You know, at some point, I think Florida will flip to being wrecked. And I think most of the parties who are big and successful there will probably still be the big successful parties, you know, over that timeline.
And so, yeah, it's disappointing that, you know, the big pop isn't going to happen this year. But as one of the players who was, you know, a new entrance, right, like we opened our 40 stores over like two years.
As somebody who's a new entrant who didn't have the legacy in the Florida market of building its own patient-based and customer-based, I think we still have a lot of room to win market share, get brand awareness in the market.
then ultimately if it's six years from now or eight years or four years, when a big kind of pop in that reshuffling of how market share will be, I think, reallocated in a wreck market because I do think patients are very loyal because the complexities around MedCards makes it far stickier to just keep going to the same dispenser rather than pick your head up or pick your lemon up and go to a different dispensary.
for us, definitely interested in exploring opportunities in no rush to do so. But I think if we were to look for opportunistic, look opportunistically just where we have this incredible asset that should not fully utilize would be Florida.
And then Colorado, we have a very profitable, very stable business in Colorado and Colorado's a very natural place to continue to add stores, and you can do them cleanly, you can do them in asset purchases, so it's very clean to do them in Colorado.
in California, it's really just about kind of trying to pick off those additional stores where we would like to fold our delivery business onto a storefront.
@41:23 - Dai Truong (Arlington Capital Advisors)
Yeah, it's like excluding Florida and California and Colorado and Michigan, you can pretty much just scoop up dispensaries that are closing that are already built to operate a Cannabis Dispensary for not much.
@41:36 - Cory Azzalino (Eaze)
Correct. Then we have, you know, the portability of our delivery business is very high. switch locations lots and lots of times, it's very low cost to switch locations, you know, it doesn't take very long.
So for us to say, hey, know, there's a new location, you know, you can just carve out territory and oftentimes just saying like, okay, well, we're bringing over, you know, $3 million, $5 million of delivery volume to this location.
Those $3- $5 million of deliveries are going to happen way closer to our location now. And by the way, you also have a retail store front that's doing $2 or $3 million.
It's a good win-win combination because all that overhead can be shared.
@42:15 - Dai Truong (Arlington Capital Advisors)
And I know it seems like the focus from this conversation is really on these four states you operate in today, but what gets you excited then for a fifth market?
Is it just delivery dynamics and how it's structured? If you guys were to consider a fifth market, what would that be, what would need to look like for you to even think about it?
@42:33 - Cory Azzalino (Eaze)
Yeah, I would say our minimum bar is like you have to enter a market and you probably have to enter in a way where the baseline revenue is $50 million or higher.
And so the truth is we are not looking at it at a fifth market. And there's no way I'd say $50 million is that's kind of like a room in which you can, an area in which you can be very profitable on a state level.
You can support all, you know, any necessary additional corporate overhead. it's not too small, that's a distraction. So for us, you know, right now, I think the mission ahead of us is just to keep our heads down, focus on our, you know, really our three core markets of California, Colorado, and Florida.
And then, you know, as we get Florida's profitability, that opens up a lot of additional avenues for us to expand and grow within those markets, because they're big, resizable, and they're, you know, very unconsolidated, right?
They're all highly competitive. They're all, there's no license caps. And so you can, you can continue to expand, but a lot of it has to be through kind of one off acquisitions or, you know, smaller licenses, like new licensing opportunities.
@43:46 - Dai Truong (Arlington Capital Advisors)
That makes sense. You guys are sort of the anti-MSO models where you actually like the uncapped licenses in the attractive multi-billionaire markets, rather than, you know, having some caper-striction and limited license, all the time.
@44:00 - Cory Azzalino (Eaze)
I hear that. It's just you gotta play the cards that you have.
@44:03 - Dai Truong (Arlington Capital Advisors)
No, exactly.
@44:04 - Cory Azzalino (Eaze)
You know, I would love $65 million our borders or that's doing 30 million any, but that sounds really nice to operate.
But that's not the world in which we play. So, you know, I think you have to play though, play the cards that you're dealt.
You know, I think the limited license model is phenomenal. If you have it, I mean, if you were early to it, we were not we were, you know, you know, we've just been in big markets.
And so we're, we created an operating model that is profitable and cash flow positive in those markets. But I would still, I would still gladly take a nice limited life market and $4,000 pounds that you gather selling bulk or, you know, the benefits of retail.
I mean, I was in Illinois for one of the benzene conferences, you know, still just shocked at, you know, one gram heavy hitters vape selling for 90 bucks at retail when you know, that's, you know, it's still the pre
product in California, that's 40 bucks, 45 bucks maybe at the most. So, now, still shocked by what are still, in air quotes, a decently mature market like Illinois and the pricing that is being able there.
I certainly wish I could have that, but it's just not the, not the markets we're in.
@45:17 - Dai Truong (Arlington Capital Advisors)
Yeah, I agree. You got to play the card to your delts and you guys certainly are doing that. Appreciate you coming on and providing us an update. I know there are a lot of questions and speculation, so good to clear things up and excited to follow along on how Eaze continues to get market share in these states.
@45:34 - Cory Azzalino (Eaze)
Yep, thank you so much. Appreciate you and thanks for having me on.
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