Flowhub gets $19mil
Flowhub gets $19mil

Cannabis Tech and Websites Stay Scorching Hot - Flowhub Raises $19 Million Including Funding from Jay-Z

Cannabis tech platforms remain red hot with investors as margin compression hits the bottom line

Posted by:
The Undercover Stoner on Sunday Oct 24, 2021

Flowhub Closes $19M in Funding, Including Personal Investment from Jay-Z

cannabis Flowhub gets funding

First, Weedmaps got a $2 billion valuation.

Then Leafly went into a SPAC fund to get their $700 million valuation.

Then Dutchie raised another $350 million to reach a $3.5 billion valuation.

Jane menu management then raised $100 million to reach a $1.2 billion valuation.

EAZE raised fund and bought the Green Dragon MSO and is opening EAZE dispensaries as I write this.

Then Deb Borchardt sold the Green Market Report to Crain Publishing.

Next was PotGuide.com selling for $8.5 million to Fire and Flower of Canada.

If you see a theme here, you are right, cannabis websites and tech platforms are red hot with investors and Flowhub joined the party.  They not only joined the party, they brought Jay-Z with them!

Entrepreneur and billionaire hip-hop artist Shawn “Jay-Z” Carter has made a new investment in the cannabis industry. However, rather than selling hand-rolled joints worth $50, his latest investment is into a tech company that assists cannabis dispensaries process payments.

Jay-Z's latest investment is in Flowhub, a cannabis point-of-sale software company based in Denver. Flowhub generally assists dispensaries by offering compliance, inventory tracking, point of sale, and business intelligence solutions. Jay-Z participated in the $19 million strategic funding round which saw the company's valuation rise to $200 million. 

 

Significance of the funding

Flowhub has raised a total of $50 million and this new round of funding was led by Poseidon Asset Management and Investment firms Headline. Every year, Flowhub processes over $3 billion in cannabis transactions for over 1,000 businesses in 14 states. This latest fund will be used by the company to expedite expansion into developing markets, grow its social equity program, and further improve its product line.

Flowhub was established in 2015 by Kyle Sherman to help dispensaries track inventory and process transactions. As well as helping dispensaries stay compliant with state cannabis laws. No doubt the latest funding will help achieve these goals.

Kyle Sherman in a press release praised Carter, Poseidon, and Headline. He affirmed that he couldn't imagine a more ideal group to work with as they take the Flowhub to the next level. He believes the latest funding did not only emphasize the quality that Flowhub offers to their customers. But, it is also a huge step toward the growth of the marijuana industry in general. Sherman also mentioned that the company remains focused on creating creative products that will assist customers to operate a better business.

Sherman praised Jay-Z particularly saying Jay has got an incredible business acumen. He confessed that Jay-Z knows how to surround himself with bright minds and build great establishments.

 

The birth of Flowhub

The managing partner and co-founder of cannabis fund Poseidon Asset Management, Emily Paxhia first met Sherman in 2015. Paxhia met Sherman at a pitch competition in Denver and she was impressed with him. The fact that Sherman recognized the biggest problem with dispensaries even before he started his company made an impression on Paxhia.

Sherman recognized that dispensaries always had to manually report their sales total and inventory every day to Colorado’s Department of Revenue. And if the inventory of a dispensary doesn't match the state's database it results in a huge problem. The dispensary could lose its license and face considerable fines running into millions of dollars. Sherman was able to convince the state to open its database to software companies. Thereby automating the reporting process.

Paxhia became Flowhub's first investor through Paxhia's fund which she operates with her brother. Presently, other payment processors are not serving the industry and thus giving Flowhub a head start in the cannabis industry.

Paxhia asserted that Flowhub is the Square of the cannabis industry. She is referring to the payment processing company established by Jack Dorsey. Jay-Z is now one of Square's board members having sold his music streaming service "Tidal" to Square. Paxhia also said it's quite obvious that several tech companies will emerge as leaders in the cannabis industry. And of no doubt, she believes Flowhub will be one of them.

 

Flowhub’s social equity arm

Flowhub has established a strong social equity arm within the industry. Flowhub’s social equity program was initiated in June of 2021. The program invests in cannabis business owners affected negatively by the War on Drugs. The social equity program provides qualified social equity business owners Flowhub's point of sale software at a discounted price. The program offers the software at $4.20 for three years, the View app, the Greet apps, and mobile Stash, and free implementation.

So far, Flowhub has given over $1 million in free software to companies held by underrepresented groups via the program. These groups include veteran-owned, woman-owned, and black- and brown-owned dispensaries.

 

 A cash-intensive Industry

Given that cannabis is still federally illegal, large federally insured banks like Wells Fargo and JPMorgan Chase can't serve companies in the cannabis industry. The same also applies to credit card companies such as Mastercard and Visa or payment-processing such as Square and PayPal.

What this implies is that most transactions in the industry across 36 states are done in cash. Just last year, the industry reached a total of $20 billion in sales, with all transactions done in cash. And according to Cowen, the industry is predicted to reach $100 billion in sales annually by 2030. The cannabis industry is a cash industry according to Sherman, which is difficult to believe.

A lot of cannabis companies gave restricted access to the mainstream financial system. The local credit unions are the only financial system that serves cannabis retailers. And this allows dispensaries to set up bank accounts, pay their employees, vendors, and taxes with checks instead of cash. As regards customer transactions, many dispensaries make available an ATM in the front store.

However, Flowhub’s point-of-sale tools assist dispensaries to repress the intricacies of a cash-intensive industry. Flowhub’s software enables customers to use their debit cards at checkout, but the transaction is basically an ATM withdrawal and not a debit transaction. Sherman asserted that what the Flowhub software does is not a debit transaction but it feels like it.

 

Conclusion

Presently, efforts towards banking reforms are stuck on Capitol Hill. As of last month, The Secure And Fair Enforcement (SAFE) Banking Act has passed the house for the fifth time. This bill would see state-regulated cannabis businesses access loans from the mainstream financial system and pay taxes easily. It should be noted that the bill has not been taken up by the Senate. Until SAFE is passed, the cannabis industry will continue to be cash-dependent even if marijuana becomes federally legalized.

Sherman claims that the biggest obstacle the cannabis industry faces presently is not being able to access the mainstream financial system. He went on to say waiting for the government to change such a policy isn't an option anymore. Given that the industry rakes in billions of dollars in annual sales.  How did this all start? Well, Apple changed the marijuana industry forever and allowed delivery apps in their ITUNES store, that began a the race for "2-click" cannabis ordering in one app or ecosystem.  Click here to read how it all happened and to see the latest cannabis tech and website deals!

 

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