MassRoots app earns first IPO for marijuana industry
Weed has gone public.
A social network platform for cannabis users, MassRoots, on April 9 secured the first initial public offering for any company with ties to the marijuana industry. The 2-year-old Denver-based startup is valued at $45 million, with stock now traded publicly through the OTC Markets Group marketplace at 10 cents per share.
“Our whole thing is community, and opening the cannabis movement to the public marketplace is a huge step forward,” said Stewart Fortier, MassRoots’ chief technology officer and co-founder. “We see a public offering as crowdfunding in the highest form — only accredited investors can get involved with these companies and that gives you the viability you need to keep growing.”
For apps like MassRoots, a pot-friendly Instagram-style tool with more than 75 million posts by legal weed enthusiasts, the tech space can be notoriously unpredictable.
The IPO came just six months after the company’s iPhone app was banned from Apple’s App Store in November 2014. At the time, MassRoots had been available through the store since September 2013. It boasted 215,000 users in all 23 states with legal medical or retail marijuana, along with nearly $625,000 in total equity investment capital.
“We thought that was the death knell of the company,” Fortier said. “If you’re a mobile app, you have to be on the iPhone. When Apple tells a company they can’t do something, they usually comply. But we couldn’t.”
Apple removed the app from its store with hardly any warning on the same day that voters in Oregon, Alaska and Washington, D.C., gave a thumbs-up to retail marijuana. Apple pointed to an App Store restriction that states, “Apps must comply with all legal requirements in any location where they are made available to users.” If users could flaunt the use of a federally illegal drug through MassRoots, Apple implied, then the app was against the law.
In response, Fortier and the development team double-checked laws in the 23 legal markets and beefed up the app’s geo-fence feature, which prevents users in the remaining 27 states from downloading it. Apple wasn’t appeased until nearly 10,000 MassRoots users emailed the tech giant to get their app back.
“They didn’t budge on those points at all, so eventually we thought, ‘Let’s open the faucet and let our users have a voice,” said Fortier, who admits he wasn’t willing to release a watered-down version of the app. “You’re dealing with the critical thing every dispensary is dealing with: Does the federal law apply or does the state law apply? But for us, we are a total third party, so it’s crazy to think we’re in violation of any state laws.”
By late January, Apple revised its rules, giving the app a green light and opening the App Store to other cannabis-friendly platforms, like HighThere, a Tinder-esque dating app, and new features on Weedmaps, one of the first dispensary and strain locators with more than 500,000 users in 2014.
The App Store victory bolstered MassRoots’ profile for an IPO, Fortier believes, and with 275,000 current users and roughly 20 full-time employees, the app continues to grow. The company is currently beta-testing a business portal with four Colorado-based cannabis brands, including dispensaries.
“It’s a green light for other cannabis companies to do the same thing,” Fortier said of the IPO. “We went through the entire vetting process through the SEC…so it’s cool to see where things are headed. The scale has really tipped for us at this point, taking us from startup mode to company mode.”
MADE IN COLORADO
MassRoots is based in Denver, but the four co-founders lived in Virginia before moving to Colorado for the state’s thriving tech scene and, of course, their target audience.
“When we got out here, we saw way more opportunities than we had before,” said Fortier, who spent about a month building the first version of the app as sole developer. “Even if we were in California, we would feel more restricted. I think Colorado has the best market, the best legal cannabis market, and after coming from the East Coast, we realized the market is more mature than we realized.”
While a handful of marijuana apps are based elsewhere — the alcohol and medical marijuana delivery app Nestdrop was founded in California — the vast majority come from Colorado. And like the tech industry in general, marijuana apps are beginning to hit just about every niche.
Best Buds, a strain locator and daily-deals app launched in January 2014, feels like Yelp crossed with Groupon crossed with Facebook’s Messenger. Users can directly contact 60 dispensaries across the state for information on pricing, strain availability and just about anything else. Even after the MassRoots decision, Apple still forbids apps from listing prices, and the messaging feature is one way to give users more access without ruffling feathers.
“That was very nerve-wracking to say the least,” said Jordan McHugh, founding partner with Best Buds. “We put a lot of money into building an Apple app, and if we didn’t work under their guidelines, we might have to pay more again to change it. It’s really a crapshoot — they don’t tell you exactly what to do upfront, but they can request changes after it’s already out there.”
McHugh and founder Tim Opsal are juggling Apple-required changes with app development, business planning and marketing — the lifeblood of any tech startup. Before it launched, Opsal says his original plan was to build a Groupon-like app just for the marijuana industry. The idea evolved when he started reaching out to dispensaries, and he now describes it as a marijuana finder for connoisseurs, with high-quality photos and partnerships with dispensary brands like Green Man Cannabis in Denver and PMS Medical Marijuana in Colorado Springs.
The company currently has no partnerships with Summit County dispensaries, but those are on the way.
“It’s not like it was a year ago — there are no lines out the door anymore,” Opsal said. “The hype has died down a bit and these owners are just back to running their businesses. They need a platform to get people into their stores, and being the most efficient app to help that is really our goal.”
Best Buds is now experimenting with new advertising models for dispensaries that face the same backlash MassRoots felt from Apple.
“I don’t really see advertising going mainstream for marijuana,” Opsal said. “Being a niche product in a niche market is going to be key for that long-term exposure. It won’t be anytime soon you’ll see TV ads or anything like that for marijuana.”
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