Cannacurio Podcast Episode 48 with Gary Cohen of Cova Software
Cova Software CEO, Gary Cohen, joins Ed Keating on the Cannacurio podcast to talk about the start of Cova Software, what’s going on in the cannabis industry today and what the future holds.
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Cannacurio Podcast Episode 48 Transcript
Ed Keating:
This is the Cannacurio podcast powered by Cannabiz Media. I’m your host, Ed Keating and today we’re joined by Gary Cohen, CEO of Cova Software. Welcome to the show, Gary.
Gary Cohen:
It’s good to be here.
Ed Keating:
Excellent, excellent. Well, I wanted to dig right in. We had a great conversation at MJBiz this year and I thought it’d be great to get you on the podcast. We can dig in a little deeper. He started Cova in 2016, which is forever in cannabis years. How did you wind up there?
Gary Cohen:
Well, you know, it’s, It’s kind of, I think it’s an interesting story. You know, I sold the very first cell phone in 1986 in Denver and then I rode that industry for 30 years. And in 2016, I had had a business partner called IQ Metrics that does POS for the wireless industry for years and years. And it turns out they, we kind of had a boy crush on each other. So I, I told my wife if I ever need a plan B, there’s these guys up in Vancouver, Canada that are great. Turns out they liked me as well, and we started talking about new verticals that they could go into. And based on the wireless industry, which is about the most complex POS to build and maintain over the years, they had wound up with about 85% market share, over 20 years. So we started looking at the cannabis industry, who the existing players were, what they were offering and realized that the same formula that was very successful there, which was “how do you simplify complexity?”. You do it through the UI UX – no different than apple, make it easy to use, easy to learn. That was their secret sauce. We looked at the cannabis industry and the complexity through regulatory, and just the complexity of products. You know, you’ve got expiration dates and there’s some places that allow you to sell loose flour. So you’ve got weights and measurements to throw into packaged goods. So anyhow, that’s how it started. And I left the wireless industry to start this and always had an interest.
Ed Keating:
So it’s an interesting line of thought I wanna focus on because coming from the cell phone industry, that’s one industry. Other point of sale vendors that I’ve seen make incursions into cannabis include pharmacy POS and restaurant POS are those good moves for those companies? I mean, I’ve just noticed that in some states you see those cropping in where somebody tries to make that can of curious step into the, into our industry.
Gary Cohen:
Well, you know, if you think about bio track, which was really the original cannabis company, they came from pharmaceutical. So that was their transition.
Ed Keating:
Ah, okay.
Gary Cohen:
And, you know, from a restaurant side, we see some of that in Canada because Canada doesn’t have to have, well, they don’t have traceability.
Ed Keating:
Yes.
Gary Cohen:
You know, so you can have like 7-11 software or restaurant software. But what usually happens is, well, it’s usable, the ability to build all the system reporting and all the nuances of cannabis wind-up creating deficiencies.
Ed Keating:
Sure
Gary Cohen:
For example, no other industry has the promotions and all the various elements of that, that we have, you know, it’s, it’s mind boggling, especially in mature states.
Ed Keating:
Yeah, yeah, yeah.
Gary Cohen:
Well, software isn’t built for a myriad of promotions. So to answer your question, yeah, this looks like the land of opportunity.
Ed Keating:
*chuckles
Gary Cohen:
But you know, one of the things that happened to I Q metrics over the years was widened, Oracle or Microsoft or NetSweep, just take over pos in the wireless space. And the answer is the addressable markets not big enough.
Ed Keating:
Mmm…
Gary Cohen:
So when you think about our industry, I think right now we’re at about 12,000 dispensaries in North America.
Ed Keating:
Yeah
Gary Cohen:
Well, they could go get 7 Eleven, and there’s 12,000 doors with one account,
Ed Keating:
Yeah
Gary Cohen:
one solution support via one place, and to do cannabis with every state being different, all the regs are different, the compliance needs, the reporting needs, it’s so fragmented, and I always tell people any time you hear the word patchwork, that’s bad for business. Patchwork and business don’t go together.
Ed Keating:
Well, it is, if you’re, it is, if you’re a publisher. Coming from a regulatory publishing software, it’s awesome because as soon as you have to get to, let’s say, 2 – 4 jurisdictions, it’s such a headache that people need to rely on outside folks. But you’re right. I think when you’re dealing with things like point of sale, it does get ridiculously high. Now, this touches on sort of the next theme which is really how crowded the point of sale spaces. During our last survey, we found approximately, you know, just 79 providers in the US and I think 115 between the US and Canada. You know, I’m just kind of curious, you know, how you’ve managed to be a leader in both Canada and the US? I mean, you’ve already talked about the differences between the markets. How did you pull that off?
Gary Cohen:
Well, you know, I always tell people, people always ask me my secrets. What’s the secret sauce? And it’s not so secret, it’s not so mysterious. When we, when I started this A) I was totally transparent. I don’t know the canvas industry. I’m not gonna lie, blow, smoke up your dress. And I went to about 30 dispensary owners in Washington, California and Colorado and showed them my cards like I, I don’t have a product it’s gonna be well over a year until we have something we can go to market with. But I did have a story like I had this whole spiel about this big company, we’re well funded the technologies, solid, reliable. We’ve got 20,000 cellular stores using it and 30 out of 30 said we don’t care.
Ed Keating:
Yeah
Gary Cohen:
if you don’t understand compliance. None of the rest of it matters. And I’m not the smartest guy, but when 30 straight people tell you what’s most important, I came back to Cova, I go, we’re going to be all about compliance. And what’s odd is at that moment in time in 2016 None of my competitors focused on compliance is job 1, they all had a different value proposition and we used that. So that was the first cornerstone to be compliance oriented, I think, secondarily, it takes a lot to build a competitive product in this space. Competitive in terms of feature set and functionality. And when we went, you know, when we finally got an MVP or a minimally viable product to take to market, it didn’t have the bells and whistles that everyone else, like the existing people in the space had the leaders had. But what we had was people. So we had an infrastructure where we could provide high levels of training, coaching and support.
Ed Keating:
Mhmm
Gary Cohen:
So that hand holding day one about not just how do you use the software, but why like the principles of why? Like, for example, if you’ve never owned a dispensary or you’ve never been a retailer, you understand, you have to have inventory, but you don’t understand the mechanics of how do you buy it? How do you allocate your cash, and your resources to pay for it? When it’s depleted, how do I know when to reorder? How do I know how long it takes to get that reorder? That whole inventory management purchasing thing, just in stocking the store, we do education on, here’s how you do it and why. Then when you think about a lot of people don’t realize a dispensary is a store and all the principles of a store like merchandizing.
Ed Keating:
Yeah
Gary Cohen:
What do you do at night? How do you lock it up? Like, you know, you look at a jewelry store, they don’t leave the diamonds in the window overnight. Well, get that cannabis out of those cases that could be visible from the street or if the regulations are, you cannot have visibility into your store, windows have to be opaque or whatever, we do that education explain why you need to do this. And then as you’re building your SOPs to run your store, we help people. So what we laughed in product in the early years, we made up in training, education and service.
Ed Keating:
Yeah. So sort of the high touch versus just high tech, which everybody else sort of glommed onto.
Gary Cohen:
And then I think 3rd was like, we’re just doing retail software. We’re not doing grown management. We’re not doing advanced analytics. We’re not doing retail, our manufacturing software.
Ed Keating:
Yeah
Gary Cohen:
We’re only doing retail and through everything I just described, it’s obvious we’re putting resources and commitment to the retailer and the retailer’s success.
Ed Keating:
Yeah, yeah
Gary Cohen:
I think there’s, there’s your secret sauce, easy to use, easy to learn compliance and then a commitment to the retailer. And, guess what…
Both:
That works.
Ed Keating:
Yeah the compliance piece is interesting is, as somebody who has always been and essentially compliance industries for publishing software, etcetera. We work with a software firm many decades ago and one of the rules that they had that has stuck with me forever is there’s always a need for good software solutions when there’s a high penalty for noncompliance. And in the case of someone in the cannabis business, you know, that penalty can be quite high, you could lose your license, you could go out of business or worse things could happen too. So, it’s really a great focus and, and one that’s obviously adding a lot of value to customers. Now, looking at some others in the industry is sort of the broader cannatech industry, you know, last 90-120 days there’s been a lot going on.
Gary Cohen:
Yeah
Ed Keating:
We had BioTrack get sold again, I think that’s the third time. Akerna, I sort of looked at it, sort of merged out of existence. And then there was a board coup at Dutchie. What do you think is going on? Is just the industry is getting tight and investors are getting anxious, or is there something else afoot?
Gary Cohen:
Well, I, I think, I think each of the three, I could go deep into each of the three stories. And I do think what you just said is, is true across the industry.
Ed Keating:
Mmm
Gary Cohen:
Investors are looking for profitability like stop, you know, it’s not a, it’s not a cash burn. The future is gonna be bright.We need to see you guys start offering like a real business in a real industry. So I, you know, I, I was a ‘dotcom’ guy so I saw where you can pump a ton of money into bad business plans or bad operators, and eventually either pull the plug or you change out the management
Ed Keating:
Mhmm
Gary Cohen:
But it doesn’t go forever. Well, I think, I think our industry hit that in 2022 as you know…anyhow, I’ll go back to our, our subjects. I do think there’s a similarity across the three companies, and it’s bad strategic management. So at the leadership strategy level, you’ve got, you know, there’s, there’s been three owners of bio track in the last five years, not one of them ever had a commitment to the product. So, when you think about all that flipping of the business, you know, the guys from the hedge fund, that bottom, their goal, like their goal was to flip it. But the, the valuations that they would have gotten decreased, they just happened to hit it at a bad time. But instead of “let’s work on the product”, they didn’t. And then when Forian got them, they had another agenda which was to harvest the data, plug it back into the medical industry, and didn’t invest in the product again. And then, you know, if you look at now what’s going on, you’ve got, you know Transact First is behind Alleaves, so it’s a payments company The acquisition is to get payments into the BioTrack doors first. Secondarily with the traceability aspect of their business, the state contracts, there’s been a play for the last 10 years that BioTrack would kind of leverage the state traceability to force people onto their platforms, you know, through a little bit of trickery or misleading, but at a greater frequency that’s now blowing up. And now you’re stuck with this lawsuit of Dutchie suing BioTrack in Pennsylvania for this, this very reason.
Ed Keating:
Yupp
Gary Cohen:
You’re artificially blocking, blocking people out. So, and then when we get to the Dutchie, oh, I’m sorry, Akerna – there’s just a long history of, of not focusing on the product or data, data integrity, system integrity.
Ed Keating:
Yeah
Gary Cohen:
So they’ve just kind of dwindled away. And again, that’s a strategy, you know, do you put your emphasis on expansion to other countries like Mexico and, and consulting and all these other various things versus you’re a product technology company. Did you put your focus on the product, invest in the product? Because that’s where the rubber hits the road,
Ed Keating:
Yeah
Gary Cohen:
And that’s where most of your revenues come from and that’s dried up.
Ed Keating:
Yeah, certainly.
Gary Cohen:
And then I think, you know, in the case of Dutchie, the, the whole coup thing is just a mess. But underneath the mess, is two years ago when they acquired GreenBits and LeafLogics, even if you were just doing one acquisition and trying to merge two technology companies together, it’s, it’s a tough, it’s a tough thing to do.
Ed Keating:
Absolutely
Gary Cohen:
And some companies pull it off and there’s enough either internal know how, or you pull external capabilities, you know, you pull into Kinsey, or the Anderson or somebody to help in the merger. And at the same time when you’re doing that, there’s the people aspect, there’s the client aspect, and there’s the technology aspect all need to be managed, they don’t just snap together. But now when you’re doing three companies and you’ve got that dynamic of those three elements. Well, it’s exponentially, it’s like nine factors to think through. And I really think this has been a very difficult two years,
Ed Keating:
Yeah
Gary Cohen:
you know, on top of having a bucket of money. So imagine you have just more money than this industry has ever seen to work with, to do the acquisitions and try to do the integration of the companies and figure out your technology strategy. Well, what are your business practices during this period? And in the case of Dutchie, it was buy share. We’re just gonna use money to continually try to grow our footprint, buy share at all costs, which is free hardware, six months, free service, six months free POS, e-commerce, whatever. And again, it’s an executional, you know, did they execute on all their goals? Which was Canada and Payments? They didn’t do that very well. In the meantime, you’re burning every, all this money
Ed Keating:
Mmm
Gary Cohen:
Share at any cost. And in the meantime, your internal workings are still not all aligned and figured out. So I’ll go back to, you know, nowhere in here are bad people.
Ed Keating:
Right.
Gary Cohen:
It’s bad, you know, what was your strategy?
Ed Keating:
Yeah.
Gary Cohen:
And did you execute or was it the wrong strategy for long term success? That’s what bit everybody, it just happened.
Ed Keating:
Well, with Dutchie, you make a great point that it was two acquisitions, and you know, for any of us have been through that. It sounds like you have, I’ve been through it. It really becomes such a management distraction too because you’re trying to focus on all that, bringing in new people, new organizations, new jurisdictions from a compliance standpoint. It’s definitely a challenge. So, I appreciate that review of those three. You touched on one of the things that I was curious as to dig in a little bit further is, what’s the value in the state’s seed to sale contracts? Like Metric has a bunch of, BioTrack, Akerna had some, it’s really been a, sort of those three have most of them. Are they worthwhile? I mean…
Gary Cohen:
Well, you know, I would say, you know, if you were BioTrack and you basically created an artificial soul source,
Ed Keating:
*chuckles
Gary Cohen:
it was a good strategy. Like, honestly, it might not make you a hero like in the state of Washington where people, everyone revolted, forced the state to open it up. But I mean, you can pick some tall cotton fast, and that’s what they did.
Ed Keating:
*chuckles
Gary Cohen:
I think that like in the case of a colonel, you know, and this goes back is like one of my worst decisions of all time was we didn’t know what state to launch first. And the fact that Washington was dropping, they had dropped, they had fired BioTrack, they went out to bid metric one. Then the growers revolted and said, we’re not gonna buy tags, we’re not doing it, you need to go back to Metric and tell him to use paper tags. And then Metrics said, no, we did this, you know, the cost for the state system was this, we make our money on the tags. You know, it’s the, it’s the razor, you know,
Ed Keating:
Razor blades
Gary Cohen:
Razor blades, and Metric said no. So then they went to the next choice which was Leaf. Well, I thought the state was divided between GreenBits and BioTrack for its pos, usually when a big change like this has happened in other industries, it’s like everyone sticks their head out of the hole and says, well, do we have any other choice is if you’ve got to change, if all this is going to change, let’s look at a new POS
Ed Keating:
It’s like research the category again.
Gary Cohen:
Yeah. So I thought that was gonna be our opportunity. And where I made an enormous mistake was that I thought they would transition. And I think this was October, I think it was either October one or November one of 2017, that they would transition from BioTrack to Leaf, which was Akerna, and our engineers saw five weeks ahead of time it’s not gonna happen. And sure enough, it didn’t happen for five more months. That Leaf wasn’t ready.
Ed Keating:
That’s crazy.
Gary Cohen:
So Washington, I don’t know if you remember, but they, you know, they fired BioTrack. They went back to bio track said, can you keep it running? BioTrack said no, you fired us, there’s no love, we’re not throwing you a lifeline and helping. Well, if there was ever a time in our industry that the risk and by the way, this was when Jeff Sessions was the attorney general,
Ed Keating:
Oh.
Gary Cohen:
who hates cannabis. You know, it was, it couldn’t have been a worse moment to have no traceability in this state. And there was none.
Ed Keating:
And I, I think that is the scariest moment people don’t realize that the federal government could have said, see, we told you you can’t manage it. That’s the end of the whole cannabis experiment. Washington would have blown it for everybody.
Ed Keating:
Wow
Gary Cohen:
And then sure enough, it was also a time where Washington had passed the equilibrium of more supply than demand. So margins, prices were coming down, margins were going down. 60 days later, they found Washington cannabis in all 49 other states. So traceability does work. It does keep an eye on the supply chain, but they didn’t have one for five months.
Ed Keating:
Jeez
Gary Cohen:
Okay, so back to your question. Leaf has never made any money on it, they did, they only had a few contracts, they lost them all. The only one they have left is Utah, with 13 stores or 17 stores.
Ed Keating:
*chuckles
Gary Cohen:
And Pennsylvania which they’re being, “Oh, it’s them, it’s their lawsuit, they’re being sued by Dutchie for not opening this up”. So that’s bad, That’s bad. BioTrack’s tainted, which leaves Metric. Metric runs their business, I think really well to do this.
Ed Keating:
Mmm
Gary Cohen:
So I think that the safeguards they have to keep the technology, the integrations or the API connections proper are done really well. And I think they’ve got a good business.
Ed Keating:
Yeah
Gary Cohen:
So to answer your question and they’re not, they don’t sell any other software. That’s what they do.
Ed Keating:
Right. Right. Very good for them.
Gary Cohen:
It’s a good, it’s a good move.
Ed Keating:
Speaking of other software, there are some providers in the cannabis tech stack that have gone really broad. You know, they, they say that they offer ERPS were instead of point of sale, seed-to-sale, you know, in other industries I’ve worked in. That’s exactly the strategy you want to do. I want to own a greater share of your day and therefore get a greater share of your wallet. But is that really working in cannabis? I’m thinking, you know, longer sales cycles, more complexity, you know, a road crop all the way to a store. It seems complex. But I’m curious from where you sit is their success there or can there be success there?
Gary Cohen:
Well, there can be, I think that I think you gotta ask the question, “what is a real ERP?”.
Ed Keating:
Mmm
Gary Cohen:
So, you know, when they first started, when some of my competitors started branding themselves as seed-to-sale, we’ll seed-to-sale was traceability systems, and then they’re like, “no, no, no, seed-to-sale is vertically integrated. So we do grow management, manufacturing and retail and that seed to sale”, and then it morphed into, well, this is an ERP.
Ed Keating:
*chuckles
Gary Cohen:
Well, a true ERP is a multimillion dollar investment into a very high level complex, internal management system of your inventory, retail practices, it’s all encompassing in one package.
Ed Keating:
Mmm
Gary Cohen:
But it’s a billions of dollars proposition
Ed Keating:
Right
Gary Cohen:
Not a couple of pieces that really are disjointed,
Ed Keating:
Bolted on.
Gary Cohen:
Bolted on. And when I’ve, you know, I’ve interviewed people from our competitors who sold “so called” cannabis CRP. And I go, what’s the feature that people buy? Like, what is it that you guys offer? Because let me, let me make a footnote to this whole thing. The source of truth is the state traceability system. You can’t use your grow management, you know, trance, you can’t transfer from your grow to your MIP and then from your MIP to your retail, it all goes through BioTrack, Metric and on down. So that’s the layer of technology that it doesn’t matter what you want to report down here, if it doesn’t match that it’s worthless.
Ed Keating:
Right.
Gary Cohen:
So I go, why do people do it? The answer is single sign-on.
Ed Keating:
*chuckles
Gary Cohen:
They like just having 1 sign-on. And I’m like, oh man, this is killing me!
Ed Keating:
Wow
Gary Cohen:
You know that, but that’s you know, single sign-ons usability. But it’s not reporting and it’s not that I have visibility across all my supply chain or my vertically integrated business, because I have to verify and validate through the state system. So anyhow, let’s go back to ERP. What I see is when you get to a certain scale, the investment in true ERP – Oracle, Sage, Dynamics…
Ed Keating:
Yupp
Gary Cohen:
These enormous platforms, there’s an ROI, it makes sense
Ed Keating:
Yeah
Gary Cohen:
But your investment is in the millions of dollars. And then for a company like Cova, we integrate into our biggest customer, our MSO and strategic accounts in Canada, we integrate into their ERP systems,
Ed Keating:
Right
Gary Cohen:
But they’re not like cannabis, ERP, they are big enterprise wide systems.
Ed Keating:
Sure
Gary Cohen:
And then you, you might ask, well, why do they even bother with Cova? Because there’s a retail, like every one of them has a retail component to it, but that retail component doesn’t do the trace, the state compliance, traceability stuff. So you still need that piece that can talk to metric and manage all of that at the end, who you know, who’s gonna be responsible when they change it
Ed Keating:
Right
Gary Cohen:
Because they change the rules state by state or county. But you know, even in the county level, at least every year, if not more frequently. So Sage and Oracle and those guys, they don’t have a team that’s going to do it. And then you as the user, the client, you’re not gonna hire some software developer to tweak the Oracle retail component across all your states every time that one state changes.
Ed Keating:
Right
Gary Cohen:
If you look at a company like Cova, you do it. So that’s what we wind up doing, so that’s how we play together. I think it’s a misnomer for any of the companies in our cannabis space to call themselves an ERP because when you get into that functionality of predictive analytics relative to inventory management, they’re not doing that,
Ed Keating:
Right
Gary Cohen:
they’re doing accounting.
Ed Keating:
Yeah, interesting. Now, in terms of go-to-market, you referenced this before in terms of how traceability is very different across the borders between Canada and the US. How is your market go to market strategy, different Canada versus the U S? Because you know, you’ve got federally legal on one side of the border and then you’ve got all these small markets here in the US.
Gary Cohen:
Well, that’s a, that’s a really good question. You know, we thought that in Canada with federal legalization, it’s what, it’s not a patchwork.
Ed Keating:
Mmm
Gary Cohen:
Guess what? It they did the same thing. So even though it’s federally legal, there’s a report that if you’re a cannabis operator in a province, you still have a report, you have to do monthly to Health Canada. So there is a like an overriding visibility by the government, but then each
Province is different. So, you know, we’re right back to, like there’s so much weirdness in Canada and for everyone who’s listening from Canada,
Ed Keating:
*chuckles
Gary Cohen:
Sorry to say there’s so much weirdness, but there is an anti capitalistic or anti competitive element in the, in the Canadian cannabis market where your province issues you your license so that your inspector there, the grand tour of the access to the market, but they’re still in the cannabis business. So what they’ve done is the Provinces are your distributor. So you can’t buy directly from like in the US, you can’t just go to the grower and buy from the grower, you have to buy from the Provincial distribution or wholesaler,
Ed Keating:
Mmm
Gary Cohen:
which means everyone gets the access access to the same products at the same cost. It’s ubiquitous at every Province
Ed Keating:
and at the same time too.
Gary Cohen:
So at the same time, so at the start when there was very little supply and huge demand, you know, you got an allocation but your competitors all got an allocation as well. The other thing is the Provinces still deliver via post via mail.
Ed Keating:
Yes
Gary Cohen:
So you can order by mail. Then we’ve got provinces where they have provincial cannabis stores, just like state liquor stores in Pennsylvania
Ed Keating:
Pennsylvania, yeah
Gary Cohen:
have prevention. So you’re actually competing with the people who are regulating you and your wholesaler who’s selling to you and you compete with it. That’s messed up.
Ed Keating:
Yeah
Gary Cohen:
Okay. And then you’ve got the tax issues. So to go to market in Canada turned out to not be a ubiquitous rollout at all. The Province we thought would be the fastest,
Ed Keating:
Mmm
Gary Cohen:
Which would be BC, the biggest cannabis industry, you know in, in the, in Canada. And in truth, the west coast of the US was Washington, Oregon, California – the biggest gray market black market – same in Canada was BC but we thought they would all be the most well managed the fastest into the most progressive turns out to be the last.
Ed Keating:
Huh
Gary Cohen:
So BC is the laggard in all of Canada. You know, Alberta was the fastest, Ontario had all these starts and stops and anyhow. So go to market in Canada was not a straight line, it was not ubiquitous, it was, you know, at the, at the leisure of how each of the Provinces rolled out their cannabis programs.
Ed Keating:
Yeah
Gary Cohen:
When we look at the U S, you know, every, every state is different, you know, I look at New Jersey versus New York right now, New Jersey’s got their arms around social equity and diversity and how they’re doing it really, really well. But the biggest blocker is the municipalities.
Ed Keating:
Yeah
Gary Cohen:
Turns out they’ve got a little codicil in the regs that you need municipal approval to get your license. That sounds a lot like the Sopranos to me.
Ed Keating:
Sounds a lot like Massachusetts too. I mean, that, that’s what they run into with those, with all those town hosting agreements you had to pay for. It’s horrible for.
Gary Cohen:
Pay for! You know, and how did some MSOs just get it like that? And mom and pop, it’s, it’s arduous. Well, we deal with that, that’s a consideration of how are we going to go to market? What’s the rollout? How many licenses, you know, what’s our market opportunity? You know, in the, in, in our industry, That spectrum is massive from Oklahoma to like a Missouri where originally 192 licenses,
Ed Keating:
Right
Gary Cohen:
That’s it. They’re tied to congressional districts that’s not changing. And we’ve allocated a number of dispensaries per congressional district. So we’ve got to think through like, what’s our strategy? We’ve got only 192 targets for the next few years. That’s it.
Ed Keating:
Yeah, yeah
Gary Cohen:
It’s legally said it’s not, there’s no variability.
Ed Keating:
Like it’s like Arizona where it’s based on the number of pharmacies.
Gary Cohen:
I know, 10-1. What, like who thought of that? Well, guess what the pharmaceutical lobbyists thought of it and they put it in the law and they said, look, we don’t want all these dispensaries messing with our world. Okay, 10-1.
Ed Keating:
Yeah, we can gang up on them. 10-1.
Gary Cohen:
Yeah.
Ed Keating:
So Gary, in terms of go-to-market, how does Cannabiz Media help your team get to the market?
Gary Cohen:
Well, that’s, that’s a pretty good question. You know, we, we utilize your service to help us understand a couple of things. There’s the volume of licenses, and there’s a velocity. So velocity is a big deal. I’ve seen states that swore they’re gonna do it great, like Missouri is the best one. I never saw a state put more thought into how we’re going to do this equitably with expediency,
Ed Keating:
Mmm
Gary Cohen:
With transparency, and guess what happened? They blew it. Every state has blown it. Some have the best of intentions. Some have no intentionality of doing things quickly or factly. But we don’t have a, we don’t have a way of knowing how they’re doing without your service. And that service, so when I’m, when I’m understanding your, we need the information you’re picking up that we can see. Well, then that helps me allocate resources.
Ed Keating:
Yeah
Gary Cohen:
I can now start toggle in my marketing span, the quantity and the intensity that will put sales into a market. So that’s, that’s one of the ways that it helps me. I think another way that we just experienced in the last year and a half is the health of markets.
Ed Keating:
Yeah
Gary Cohen:
So when I start seeing stores close, I can get a read on which licenses are, are terminated.
Ed Keating:
Right
Gary Cohen:
I can see how many I, you know, I can put that in context of the total number
Ed Keating:
Sure
Gary Cohen:
And then how fast does that happen? Well, I might not get a good, I might not have good market share in a certain state, but now that I see your stuff and think about it, does it present an opportunity or do I want to hold back? Like, look, let’s not right now, might not be the best time to double down on California.
Ed Keating:
Yeah
Gary Cohen:
Let’s take a step back and see how this is going to play out over the next six months, so that’s another.And then I think a third is our industry does not have like, ah god, I can’t even remember the names of them in other industries. But, but mature industries have services that are measuring market share
Ed Keating:
Yeah
Gary Cohen:
for competitors
Ed Keating:
you know, like a Nielsen, or a IRI RegScan
Gary Cohen:
Right. So I came from Nielsen. I used to do this
Ed Keating:
That’s right.
Gary Cohen:
And we don’t have that. So I can through your information, I can get relative share, like you guys report, of my competitors. But there’s another thing I get is I can find out who the players are.
Ed Keating:
Mmm
Gary Cohen:
So I can look at who the licenses and this is at the retail level. Who’s getting the licenses? I can look at the names behind that and I can triangulate on man, Abc Cannabis is up to their 12th store. They were never even on our radar.
Ed Keating:
Yeah
Gary Cohen:
Like I didn’t know, I, I don’t know him or maybe we talk to them when they had two stores. They now have 12. Why aren’t we trying to work with? And I can see that from your data. There’s no other resource other than, other than Google Maps where you just keep zooming in.
Gary Cohen:
You go. Do I see any names that are the same?
Ed Keating:
*chuckles – Right, right.
Gary Cohen:
Well, wow, there’s four of these ABC Dispensaries in Phoenix, let’s go to Tucson. Oh, there’s two in Tucson. There’s one in Flag…They have seven stores. Well, that’s a horrible way to try to figure out who’s who and what’s what, by Google Maps.
Ed Keating:
Right. Nah, it’s true, it’s true.
Gary Cohen:
I can use Cannabiz for that.
Ed Keating:
That’s great. That’s great. Well, one of the things that we’ve started doing recently is building up indices. So we have one that’s single state operators. So we, we’ve tracked all the companies we can find that have at least five licenses in the state. So it’s just a way to sort of narrow that down if you’re trying to triangulate to that group. So, one of the other strategy questions I wanna ask is: with 79 providers or brands in the industry, such a tough climate right now, do you see more M&A likely, where some of these point of sale firms are going to get bought by others? Or do you think they’re just gonna fall off and wither and die and their customers would just get picked up by the stronger players?
Gary Cohen:
Well, I think, you know, I always tell people there’s maybe four or five of us at the top end of end of industry,
Ed Keating:
Right.
Gary Cohen:
And then there’s a really, really long tail.
Ed Keating:
Yes.
Gary Cohen:
And I think it’s worth mentioning why. So I’ll say, I think those at the end of the long tail, like the last 50 or 60, are gonna over the next 12 months, you’re going to die.
Ed Keating:
Mmm
Gary Cohen:
And the reason I think they’ll die is SAAS, just the SAAS model.
Ed Keating:
Yeah.
Gary Cohen:
It takes so much capital to build your solution and then you’re only charging this much per month. So it takes volume, takes a huge number of subscribers to cover your your, your investment and then your burn. Because as you grow, your costs aren’t flat.
Ed Keating:
Yeah, right.
Gary Cohen:
It takes more and more support to keep it going. Both technically and from a just, you know, customer support perspective. So your burn increases as your, your customer base goes up. But it takes a long, long time to get to break even. Now. what’s just happened in the last year and a half Well, we’ve had almost every one of our customers call us and go. We’re having some sort of trouble. Can you work with us on our subscription? Well, if you lower their rates or when you lower their rates, you’re just making your burn situation worse, you’re taking money off the table.
Ed Keating:
You’re becoming the bank.
Gary Cohen:
Exactly. Well, for small companies, well then there’s a third factor which is, technology demands. So more functionality, more capabilities in the software. The expectation is you can’t, you can’t, leave your product at a status quo year-over-year.
Ed Keating:
Right.
Gary Cohen:
You know, we found that, you know, I’ll give you an example like we built this metric reconciliation report. So basically anything, anytime anything is flagged at Metric, it shows up on a report in your interface and instead of getting a violation, it gives you a chance to go in,
Ed Keating:
Mhmm.
Gary Cohen:
find the incident, correct it, make the adjustment, turn it back into Metric. Okay, well, that’s an R&D project. That’s something that we did that they greatly reduces risk and improves management time.
Ed Keating:
Yeah.
Gary Cohen:
You know, error tracking. Okay, well, if you’re a little company and you’re competing against that, do you have the resources to go build that? And our competitors are building other things that are cool. We don’t have, so we’ve got to get it on the road map. Evaluate how vital is this again, that takes money. So, here we are at a time where we’ve had more dispensary and that’s the last, well I guess I have a 4th bullet, is we had more dispensaries go broke last year,
Ed Keating:
Yeah.
Gary Cohen:
then in the previous six years combined.
Ed Keating:
Wow.
Gary Cohen:
You know, last year was brutal. And in most states, they passed that equilibrium point of more supply than demand. Prices started going down. Bad operators competed with price versus the value proposition of “why should you come to my store?”. And then as their margins got tinier and tinier if you competed with, you know, you die, but you live by price died by price,
Ed Keating:
Yeah, indeed.
Gary Cohen:
And a lot of them died by price. And so what if I’m a little POS company? Well, if you lost 10 or 20% of your subscribers because they went out of business, you don’t have enough buffer to keep paying your bills. So that’s a roundabout way of saying this is a very hard thing to do, is to run a SAAS company and get it to profitability, especially in a down, like in a kind of a down economy for the sector
Ed Keating:
I feel your pain, I feel your pain. Very true. Now, in terms of 2023, any anything that you guys have on the road map that you can talk about or you know, new enhancements that might be coming down.
Gary Cohen:
Well, you know, you brought up a point about the wallet and I think that, and I’ve always thought, eventually you’ve got to provide a bundle of services.
Ed Keating:
Mmm.
Gary Cohen:
So Cova originally built itself on this open API architecture. We originally thought we were going to be the connector for the industry, which is why we did that and we’ll make it super easy for everyone to tie in, provide all this, this, this ecosystem of services. And the funniest story is nobody wanted to connect with us.
Ed Keating:
*chuckles
Gary Cohen:
Like, you know, this was one of our big attributes and big investments and the thing was we had no customers, all the other partners or people in the ecosystem had customers. And it’s like, well, you’ve got nothing for us. Well, it was a chicken and egg thing,
Ed Keating:
Yeah.
Gary Cohen:
like, well, come on. Well, if we work together, we’ll all grow. But eventually the strategy paid off and people found that Cova built this to be really easy to, to connect into and to partner into. And you know, and then over time you find, look, there’s some certain core things that all dispensaries use, e-commerce and payments.
Ed Keating:
Yeah.
Gary Cohen:
And we were very, very slow with both of those. Payments because of the conservative nature of our parent company. And e-commerce, because we just had so much to build and work on within the POS that building out e-commerce that was competitive was just a huge lift and we didn’t have the resources to do it. So late last year, we acquired an e-commerce company that was already integrated with Cova and then rolled that out at MJBiz Con. And since then, it’s, it’s great. So to answer your question, payments and e-commerce are the biggest things we’ve rolled out lately, and then we’re going to be increasing our partnership with SpringBig to provide more functionality for CRM and loyalty. So I think when you take that whole bundle
Ed Keating:
Mmm
Gary Cohen:
And then by the way, we still offer optionality. So we’re not a closed system, if you don’t want our e-commerce, you don’t want our payments. All those integrations are still there. We don’t put any friction in.
Ed Keating:
No forced bundling.
Gary Cohen:
Nope.
Ed Keating:
Yeah.
Gary Cohen:
So anyhow, this is very exciting for us because it, it does make Cova a more complete solution.
Ed Keating:
Excellent. Excellent. Well, one last question – looking forward through the rest of 2023. When do you see the industry righting itself? Is it gonna be mid year? Q-Four? Next year? Any guesses?
Gary Cohen:
I think all those things we talked about like management coups or investor coups,
Ed Keating:
*chuckles
Gary Cohen:
And acquisitions. And I really think the money, you know, follow the money
Ed Keating:
Of course.
Gary Cohen:
All the many people who put the money into our industry, I think really have tightened the screws in the last 6-8 months, to where, you know, this isn’t a wild west kind of industry
Ed Keating:
Right.
Gary Cohen:
In the tech space.You need to be adults and, and, and although they’ll put in adult management and I, and I think the fruits of those changes will pay off in the 4th quarter. So I think that’s the time frame for everyone to get their shit together and you’ll see it come together.
Ed Keating:
Excellent. Excellent. Well, thanks for joining us on the Cannacurio podcast today Gary, it’s been a pleasure talking to you. I look forward to seeing you in Boston this week at NeCann.
Gary Cohen:
Yeah I look forward to it! Take care Ed.
Ed Keating:
Excellent. Alright. I’m your host, Ed Keating. Stay tuned for more updates from the Data Vault.
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