How Serial Entrepreneur Keith McCarty Is Building Tech Solutions For The Cannabis Industry
Keith McCarty was two years into his Snoop Dogg-backed cannabis startup when he knew it was time for a change. Eaze, nicknamed the Uber for Weed as it serves as a delivery platform connecting cannabis dispensaries and their customers in legalized areas, was hitting its stride. It was 2014, and the company was on the eve of closing on a $40 million Series B round. What’s more, Eaze’s home state of California had just voted to legalize recreational use of marijuana, serendipitously expanding the company’s services beyond medical use clientele. But connecting clients and dispensaries came with multiplying constraints of the scattered commercial supply chain. So for McCarty, it was time to go.
McCarty, a serial entrepreneur, a founding team member of social media startup Yammer, saw an opportunity in the excruciating pain points between cannabis brands and dispensaries. In August, three years after his departure from Eaze and with $5 million in seed funding, McCarty launched Wayv, a B2B version of Eaze.“With more legalization comes more regulation and causes more friction in the supply chain,” McCarty told Forbes. That’s why he’s doubling down on his bet that tech solutions will help smooth out the logistical kinks through Wayv’s Amazon fulfillment model, in which brands can list their products and retailers can place bulk orders for next day delivery.
Like soda or cigarettes, the cannabis business is emerging with multiple brands, and each has its fans. It’s in the interest of every dispensary to carry the brands its customers prefer, but because of byzantine and contradictory state and federal laws, outlets can’t order multiple brands from a single outlet. Adding to the complication is the fact that nobody in the supply chain, not the growers, processors, distributors or retailers, can use banks to make it all happen as facilitating the sale of cannabis is against federal law.
Each cannabis brand begins with growers, processors and state-mandated laboratory tests before it hits the distributor, which gets the brand product to the warehouse before it’s ready to hit dispensary shelves. Together, cannabis brands bear the operational brunt of marketing, sales and processing transactions, and retailers can’t buy brands in bulk but have to deal with each individually.
“Today, the process retailers have to go through is sending emails, text messages and make calls to 30 to 50 brands to even place the order,” McCarty said. “This is one of the biggest white spaces in the industry and one of the most unsolved aspects.” In California, Wayv is greasing the cannabis distribution track, offering a “seed to sale” e-commerce compliance and distribution platform. For 80% of California’s licensed retailers using Wayv’s services, access to live inventory and brands beyond their geographical market means consistent and diverse product selection for dispensary customers. For a 15% fee, Wayv replaces the door-to-door salesman model for brands to get their products on store shelves and offloads the delivery and payment exchange—which is mainly cash-based.
Beboe, a high-end vape and edibles company, uses Wayv as a marketing tool and credits the platform for an uptick in sales. “Last year there was such a supply and demand issue because there was no data before,” said Kiana Anvaripour, Beboe’s VP of marketing. “Wayv has helped us be nimble and quick—it’s a way for you to be able to show your brand digitally.”
Brands, retailers and the distributor can all track the status of the order through Wayv’s platform and app, which helps avoid unwanted issues such as ordering the wrong product or amount—cannabis products legally come with a nonreturnable policy upon delivery.
Wayv also addresses one of the biggest pain points for brands, the inability to access traditional lines of credit. To alleviate the cash flow part of the supply chain, Wayv offers an initial credit line and takes on delinquency and default for brands to help them keep up with market demand. “We understand that brands don’t want to be a distributor or tech company. Both of those are provided for a 15% fee, and that’s lower than your fully weighted distribution cost,” McCarty said.
McCarty remains the majority shareholder of Eaze, which he launched with his Yammer cofounders, Jim Patterson, Aleksey Klempner and Roie Edery. He spent a year at Microsoft after it purchased Yammer for $1.2 billion in 2012 before moving into cannabis. As research, McCarty interviewed 150 medical marijuana patients at the San Francisco medical dispensary Sparc. The biggest problem with the plant, McCarty cleared, was lack of easy access. Hence, Eaze.
“Eaze was pushing the limits of what’s required by brands to be able to participate, and very quickly you start to realize there’s a supply constraint about to happen,” said McCarty. He reemerged on the cannatech scene last summer with the launch of Wayv and $5 million in seed funding from Yammer cofounder David Sacks, his first investment in a cannabis business.
While there are a handful of cannabis POS startups, one thing Wayv has over one of its competitors is partnerships with a licensed distributor and lab. McCarty says one of the biggest hurdles brands face is getting their product into the dispensaries. The average mom-and-pop brownie business doesn’t have the funds to hire a delivery driver, so Wayv deploys a third-party distributor, Indus, to fulfill pickups for brands and drop-offs for retailers. Wayv also offers the option to offload state-mandated testing requirements by partnering with a licensed lab that conducts product batch testing adjacent to Indus’ warehouse.
Because Wayv is not vertically integrated, it’ll be easy to expand outside of California, but McCarty cautions that scaling is a race against time. “This is a very complex part of the supply chain,” he says. “People could probably do it over time, but the industry doesn’t have time.”