“The motion picture you are about to witness may startle you. It would not have been possible, otherwise, to sufficiently emphasize the frightful toll of the new drug menace which is destroying the youth of America in alarmingly increasing numbers. Marihuana [sic] is that drug — a violent narcotic — an unspeakable scourge — The Real Public Enemy Number One!”
That’s the preamble from the 1936 propaganda film Reefer Madness. To this day, that film, along with several other political and racially motivated initiatives and laws, have created a stigma around the cannabis industry that led to pot’s classification as a Schedule 1 drug. However, thanks to the legislatures in 30 states and the District of Columbia, the haze over the industry is lifting, with new laws permitting medicinal and/or recreational use. But with that growing acceptance, there have been some strings attached — lots of strings. That’s where Green Bits comes into play. Founded in 2014 by fintech entrepreneurs Ben Curren, Andrew Katz and Trae Robrock, the company’s point-of-sale software helps dispensaries and other retailers keep track of their inventory, stay compliant with a myriad of rules and regulations and facilitate customer loyalty offerings. Last week, the company’s impressive momentum and the industry in which it operates received a new boost when it was announced that Tiger Global — backer of iconic innovators including Spotify, AirBnb and Warby Parker — led the company’s $17-million Series A. The FR’s Gregg Schoenberg spoke to Curren on the back of his company’s fundraising to find out what’s next for his company in an industry that’s now growing like mad.
The Financial Revolutionist: Ben, it’s great to connect again and congratulations on your recent financing. I usually don’t say that to a CEO who just raised a bunch of money, as you now have more heat on you. However, I’m saying it here because getting an investor like Tiger to commit to a cannabis-related company is a big deal. Did you feel that weight on your shoulders as you were doing this round?
Ben Curren: Absolutely, Gregg. We've had investors talking to us for a very long time, and I've been quite picky on finding the right investor. I’m hoping to propel not just Green Bits but the entire industry forward.
FR: Where does Green Bits go in the next few years?
BC: My goal is to do an IPO on the NASDAQ as a leading tech innovator. To get there, we’re going to need partners, not only team members, but investors that can help us change the status quo.
FR: With respect to the other lead investor candidates, were they of the same caliber as Tiger, or was it Tiger and some of the cannabis VCs?
BC: Actually, we talked to several great firms that were of that caliber.
FR: Well, there aren’t too many others in that category. Was it your aim from the beginning to get a well known investor not from the cannabis space to lead this round? A brand name?
BC: Yes. We’ve been fortunate to have Casa Verde, which focuses on our space, of course. But for this round, I wanted to add a firm that helped take companies with revenue in the millions and took them to a few hundred million or more. That’s what we’re getting with Tiger.
FR: As you talked to mainstream institutional investors, did you have to spend a ton of time on general industry education?
BC: Totally. You call an investor and you say you're a technology-focused company with a lot of opportunity. That’s great, but when you say the word cannabis, some VCs immediately respond with “Oh, we can’t touch that.”
FR: But you managed to get in the door with lots of Tier A folks anyway.
BC: Well, I’ve been through this game before. The last company I co-founded (Outright) raised a Series A from Sequoia and also had First Round and Shasta involved. So with that experience and network, we were able to get in touch with firms of the Andreessen Horowitz caliber. So the meetings weren’t the problem.
FR: But a VC’s investors?
BC: Exactly, it’s not easy for many VCs to get their LPs over the hump.
FR: I assume you weren’t tempted to veer away from your focus on cannabis?
BC: No; we are having trouble keeping up with our current growth already, so there’s lots for us to do in this one industry.
FR: On that note, Green Bits is now servicing approximately 1,000 dispensaries in 12 states, which means you haven't even cracked half of the states where there's an opportunity, right?
BC: Yes; my philosophy has always been to stay very focused and get really good in a particular state. First, it was Washington, and we really nailed it. Then it was Oregon, and then Colorado. Now, we’re onto California, which is the country’s largest market, but we’re new there. However, we're becoming faster in getting up to speed on new markets,
FR: So getting back to the capital raise, what is the single top priority for the money?
BC: The number one thing is helping to provide more robust payments solutions. Really leaning in here is going to be something that you’ll be hearing about from us down the road.
FR: So when you say leaning in, what do you mean specifically?
BC: There is a lack of bank and payment services in the cannabis industry. Our system already helps the banks and credit unions that serve cannabis retailers fulfill their own compliance obligations. This provides a place for retailers to deposit the cash they collect. We now want to reduce the amount of cash collected in the first place by introducing electronic payments right at the point of sale. We are currently testing in this area and will increase our investment to tightly couple Green Bits with the best available payments infrastructure.
FR: Let’s turn to your competition. You're obviously familiar with the names that get mentioned alongside of Green Bits, including Flowhub, BioTrackTHC and MJ Freeway. When dispensaries pick Green Bits, why do they? And when they don't, what is typically the reason? Price?
BC: We have two groups of competitors we deal with. One group is comprised of companies that have been in the industry for a long time. The truth is we don't lose deals to them. We take their business, essentially.
FR: And why are you able to steal their business?
BC Because they started with cannabis roots and built a system around that. Then, all of a sudden, the rules changed on them as legalization spread. At our core, we’re a tax company. It’s in our DNA. The truth is that we just have a more technologically advanced product and one that works better in incorporating the flow of new rules being put into place.
FR: And the other group of competitors?
BC: Then you have the companies who started after us and are watching what we do. Those folks are in the tech world, and so they’ll see how we automated something and then look to mimic us. It’s fine, because we’ll continue to innovate faster. But we lose to them sometimes.
FR: Why is that, Ben?
BC: Because they’re much smaller. They can have a founder go and hang out at a dispensary and get to know everyone. I can’t do that anymore because I’ve got to build scale.
FR: I'm sure you saw that Flowhub recently cut a hardware deal with HP. Would doing something like that make sense for you?
BC: Well, theoretically Amazon is with us because we're on AWS. And our vendor system is based on iPads. So I guess we could technically issue a press release that says, "Apple is now working with us in the cannabis industry."
FR: Sounds like you’re not too worried, then, about the HP-Flowhub deal being transformative.
BC: Well, I don't know the details of the deal, but I think anything that is making the industry more mainstream and legitimate is good.
FR: Speaking of mainstreaming, you’re undoubtedly aware that John Boehner recently joined the advisory board of Acreage. In his statement, he called for the de-scheduling of marijuana.
BC: Yes, that’s right.
FR: So here’s my question: Green Bits has a very specialized solution for a very specialized industry. If Boehner got his wish, would that be a good thing for you or a bad thing?
BC: Well, it's an interesting question, Gregg. I think generally it would be a good thing. The larger the industry, the more mainstream it gets, the better it is for us. Now the flip side is that you’ll have more traditional POS companies come into the sector, but our solution is more than just compliance. It does a lot of things specific for the industry.
FR: Still, this maniacal obsession of regulators to track every single flower is kind of good for you, no? At some point, it’s going to stop.
BC: I think that when governments remove some of their current, very high levels of control, they’re going to be very cautious. You don't want to legalize the market so that it's run by criminal enterprises. That would be a horrible thing. That being said, I've thought through future scenarios, and that's why we are continuing to build solutions that extend beyond inventory tracking.
FR: Have you had dialogues with insurance companies? Is there an angle there for you as well?
BC: Yes, absolutely. Our angle is in the data that we have, which is really interesting to both financial institutions and insurers.
FR: How so?
BC: Because they want proof that dispensaries are following the law. And if a cannabis company brings in $100,000 of cash to a bank, the first thing they’re going to ask is, “Where did that money come from?”
FR: Yes, especially if you’re in the pot business.
BC: Right, but we run all the compliance, with all the state regulations and identifiers for the sales included. The entire audit is there. So when a banker asks about the $100,000, our solution enables customers to prove that their license and inventory is totally valid.
FR: Which in turn means what to a financial institution?
BC: It enables a bank to file a limited status report and do all the back-end paperwork to show that the cash is legitimate. I’m hoping that the same thing will happen in payments.
FR: On that note, what needs to happen in order for the industry’s payments solutions to enter the modern era?
BC: We've been actively talking to major financial institutions, and they want to get involved. It’s a question of trying to get their legal teams on board. The reality, though, is that there’s just not a lot of precedence for state law leading the federal law. I mean, in Law 101, attorneys learn that federal law is going to trump state law, right? However, you're starting to see small federally chartered banks getting into the industry. Little by little, as things hopefully work out, you’ll see expansion until eventually Visa and MasterCard get on board.
FR: Yes, I’ve thought about Visa and MasterCard, but when you bring up the big payments processors, you’re talking about interstate activity. From where you sit, can that happen before federal legalization?
BC: Conceptually, yes. I actually met with Senator Ron Wyden’s staff on this, and I believe that there’s bipartisan support for taking the cash out of the industry.
FR: Because cash-based business are inherently problematic?
BC: Yes; even if you’re opposed to legalization, you probably support taking billions of dollars of cash off the streets. A cashless industry is safer and more transparent. No matter your stance on legalization, it’s hard to argue with more safety and more transparency. That could be accomplished by tweaking some regulatory language, and it might be an easier sell in Washington.
FR: Right, because at least you know what’s going on.
BC: Exactly. Talk to anyone that's against federal legalization and say, "Hey, would you rather not see the billions of dollars of cash that’s moving around?” Of course not. That's what electronic payments bring to the table, the ability to monitor.
FR: Looking beyond payments, I’ve seen Green Bits referred to as the Square of the cannabis industry. As you know, Square has moved into lending because it has all this fantastic transaction data. Have you thought about getting involved in lending in some way?
BC: Yes, it’s on the radar for sure. Payments and banking need to come first, though.
FR: Finally, as you know, April 20th was last week. I’m sure you had lots of people in your network — an annoying cousin perhaps — remind you of it. Has the immature, Cheech and Chong-based line of humor gotten old for you?
BC: The Cheech and Chong-type humor has gotten old, but I’ve seen things change a lot in the last four years. As the industry continues to legitimize, more people are going to view cannabis as an alternative to alcohol or sleeping pills.
FR: Or as a potential treatment for the opioid crisis, or pain management for people dealing with a variety of illnesses.
BC: Yes; it's quite surprising when you talk to people 40 and over. It’s not a joke when people say, “I have a friend who has cancer and CPD helped them a lot.” I hear a lot of comments like that. You still hear the lame humor, but it’s lessening.
FR: Well, I think you're doing a lot at Green Bits to enhance the perception of the industry, so congratulations on that, and I wish you and your team great luck.
BC: Thanks Gregg. I really appreciate that.
This Interview has been edited for content, length and clarity.