Wholesale Marijuana Software Platform Raises $10 Million Without Touching Cannabis

LeafLink, an online wholesale marketplace that connects cannabis dispensaries with marijuana product manufacturers and distributors, closed a $10 million Series A funding round to help the company expand further into the massive California cannabis market. The Golden State is getting ready to launch adult-use sales on January 1, 2018.

The round was led by Nosara Capital, a global venture capital firm based in the U.K. LeafLink said previous investors also participated in the round, including Lerer Hippeau Ventures, which has made investments in Venmo, Casper, Warby Parker, Buzzfeed, and Soylent. Casa Verde Capital, which is Snoop Dogg's cannabis-focused investment firm, Wisdom VC, Phyto Partners, TIA Ventures, and Brand New Matter also participated.

Ryan Smith, LeafLink co-founder and CEO, says LeafLink had $17 million in soft-commitment, which Business Insider initially reported on Monday, but the company officially closed $10 million. 

LeafLink is an online wholesale platform that connects branded cannabis product manufacturers and distributors with cannabis dispensaries. The dispensaries can review a brand's product menu and place orders. Cannabis brands, through a distributor, deliver their products to stores and pick up cash or check. (Some brands are also distributors.)

LeafLink won't touch the stuff, however, nor does it host financial transactions between buyers and sellers.

"It's important to keep our ancillary status, so we don't touch the plant," says Smith. By not hosting deliveries, LeafLink can appear lower risk to investors who want to get in on the $7 billion legal marijuana industry. With marijuana still banned under federal law, the majority of venture capital firms will not invest in cannabis.   

Smith says LeafLink has 1,700 dispensaries and 400 marijuana brands on its platform in California, Colorado, Oregon, Washington, Nevada, and Arizona. The company has hosted $100 million in sales orders since founding in March 2016.

Smith says the company, which is headquartered in New York City, is on track to do $500 million in annual orders in 2018. LeafLink charges a monthly fee to be on its platform, starting at $299, depending on company size. LeafLink says it will explore other revenue models, too. 

LeafLink plans to launch in nine new states by the end of 2018, says Smith. The $10 million round will be used to double the company's staff, expand the platform, and build new products as its geography grows.

The company's prime focus is California as that state prepares for adult-use sales starting in Jan. 1, 2018. California's medical marijuana market has been open since 1996 and the state is thought to be the epicenter of America's marijuana economy despite decades of being a grey market. But, the California state government just issued new rules and regulations for adult-use marijuana sales last week. The rash of new rules, including mandatory third-party distribution and mandatory state and local licensing for every marijuana company, means many businesses will have to change the way they've been doing business. 

Charlie Cangialosi, the sales director at Kiva, which makes THC-infused edibles, says the company has been using LeafLink since June to allow dispensaries to place orders. Kiva is also a distributor for six other cannabis brands, including concentrates manufacturer Nativ Born in Venice, tincture company Humboldt Apothecary, and Prism.

Before LeafLink, Kiva would collect orders from dispensaries via text message, making it difficult to keep track of customers, Cangialosi says. Kiva distributes product to more than 1,000 dispensaries, which means orders were coming via text from all over the state. "It was a scramble to figure out who ordered what product. The platform eliminated a mess of phone calls and texts and is helping to remove a lack of sophistication across the industry," says Cangialosi.

Andrew DeAngelo, the director of operations at Harborside Health Center in Oakland, the country's largest dispensary, says there are a handful of wholesale platforms in the California market but they're all in their infancy. DeAngelo, who's brother Steve co-founded Harborside, says they listed cannabis from their farm to sell on LeafLink and purchased cannabis from another company as an experiment to evaluate the platform.

He said one major downside is that potential customers asked for samples, but LeafLink is not licensed to distribute cannabis and the potential customers were too far down state for Harborside to make the delivery itself or to send a courier still be economical. (It is illegal to mail marijuana.)

"The regulatory bodies want to link each transaction through a licensed supply chain from seed to sale--if you cannot make that link, it's problematic," says DeAngelo. "But, these kind of platforms, in my experience, do not emerge unless there is a lot of product that needs to be sold.  And there is a lot of cannabis in California that needs to be sold."