Eaze — A future Unicorn in the cutthroat on-demand space?

How Eaze is different from other on-demand players

Here’s why I think Eaze potentially could achieve $250mm revenues in the next 4–5 years. If then valued similar to a SaaS company, it could achieve ~4x sales (public equity multiples) or the coveted $1bn valuation.

• Legalization tailwinds drive growing market and timing
• Lower operational intensity + supplier network effect + proprietary onboarding tech for repeat customer base = moat and scale
• Can achieve ~$250M rev at ~20K deliveries/day; strong business model drive high future valuation multiples (SaaS/mobile gaming)

Behavior change and market timing

Obtaining a state-issued cannabis card and access to clinics have historically been difficult due to high prices, long wait times, and far distances. These factors drive spending habits of typical medical marijuana patients, who are oftentimes frequent users. These users sometimes drive an hour to their nearest dispensaries in some states due to zoning laws, face possession limits and suffer high prices.

Twenty three states already permit medical cannabis use, and four states and DC permit full adult use, driving ~$4.6B in total legal cannabis sales in 2014 and an estimated $22B by 2020 ($10B for medical). Behind growing pro-legalization sentiment (58% in 2013 Gallup poll, up from 36% in 2005) and dozens of states now favoring legalizing medical and recreational use (after positive outcomes in Colorado and Washington), only recently has technology permeated the cannabis industry.

Competitive moat & scalability

Enter first-mover Eaze ($12.5M series A), the “Uber for medical marijuana.” Eaze handles the end-to-end process from patient verification, to ordering, delivery logistics and customer service for dispensaries.

Eaze has lower operational intensity than a Postmates or DoorDash: there are a limited number of dispensaries per market, thus 1) delivery logistics for a hub model is easier than point-to-point, 2) new market entry is faster.

Eaze provides its turnkey technology to dispensaries that are structured as collectives (from perusing partnership terms on Eaze’s site), putting Eaze at arm’s length from legal issues. Eaze charges dispensaries a percentage fee per transaction: maybe 15–20% (similar to GrubHub), and possibly up to 30% if similar to an app-market platform (note: Eaze drivers tell me 40–50% — I do not smoke).

Eaze enables on-demand delivery and lower prices to a loyal and high-demand user base. Eaze’s delivery times average 15 minutes and its delivery drivers are contracted to the dispensary collective. Eaze drives down price by enabling patients to compare across its partner ecosystem and doesn’t charge the user any mark-ups.

More importantly, in June 2015, Eaze launched EazeMD, a proprietary online medical marijuana evaluation provided by legally verified 3rd party doctors for $30. Traditional evaluations are in-person, take weeks, and cost $100. Competitors uber doctors to new patients. EazeMD is Eaze’s moat — it significantly lowered the user onboarding barrier and likely drove the company’s recent hockey-stick growth.

In November 2015, Eaze reported thousands of deliveries a day in just California, up 5–10x from hundreds a day, or 30K total as of their $10M raise in April, 2015 (led by DCM).

Risks, competitors and exit analysis

Behind regulatory tailwinds and EazeMD driving a first-mover advantage, Eaze stands to quickly enter into new markets (NV, AZ, WA, CO, OR). At an estimated high end AOV of $120 and possible 30% take-fee, Eaze can achieve $250M in revenue at just 20K deliveries a day (note: Lyft did 430K rides a day as of 2015 year-end).

Current risks include: federal banking regulations make the medical marijuana business cash driven; cities and counties in CA set dispensary regulations, making finding a strong dispensary partner crucial. Eaze is currently sharing data with local municipalities, driving stronger relationships.

Current close competitors are at best seed stage and partner with a small selection of dispensaries. Competitor WeedMaps helps 6M MAUs find dispensaries, generated $25M (2015 revenue) and was valued at $300M in 2014. Competitor Leafly helps 5M MAU (Apr 2014) users learn about strains; parent Privateer Holdings raised $75M at $425M valuation in Apr 2015. Combine WeedMaps and Leafly with an on-demand delivery solution and you get Eaze.

Eaze’s relationship with its suppliers could value it like a recurring e-commerce play (Grubhub at 4.7x 2016 EV/sales) or even SaaS (~4–6x sales); its strong repeat customer base likely exhibits mobile-game level retention, and could value Eaze like KING (2.5x 2016 EV/sales), which was recently acquired by Activision Blizzard for $5.9bn.

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