Eaze’s struggles reflect falling VC interest in cannabis startups

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Yesterday, TechCrunch reported that Eaze, a well-known cannabis-focused startup, is struggling to stay in business amidst a cash crunch, leadership turmoil, banking issues and a business model pivot. It’s a compelling, critical read.

The news, however, asks a question: How are other cannabis-focused startups faring? We’ll explore the question through the lens of fundraising and the public market results of public cannabis companies in Canada.


Why explore the health of cannabis startups through the lens of fundraising? If recent fundraising in the sector is strong, it would imply that startups working in the space are growing, and attracting more capital to continue their expansion. Falling fundraising would imply the opposite: that growth in the startup cohort was likely under expectations and expansion monies tight.

Framing the industry, cannabis-focused startup fundraising spiked in 2018, especially in its third and fourth quarters. A Crunchbase News analysis of funding data shows that capital invested in cannabis-related startups crested in the Q3 2018 to Q1 2019 period; venture deal volume during the same time period was also above preceding levels.

The report showed venture funding for cannabis-focused startups fundraising landing around $500 million per quarter during the period. Let’s add to the list, running a search for cannabis-tagged startups’ pre-IPO equity rounds in the same data set, snagging Q2, Q3 and Q4 2019 results.

Note that as we’re running a slightly different search than what Crunchbase News managed, we’re expecting slightly more conservative results starting in Q2 20191:

  • Q1 2018: $245 million
  • Q2 2018: $144 million
  • Q3 2018: $445 million
  • Q4 2018: $503 million
  • Q1 2019: $452 million
  • Q2 2019: $658 million
  • Q3 2019: $255 million
  • Q4 2019: $158 million

Those recent declines indicate an enormous drop in available capital for cannabis-focused startups. In light of the reported declines, it’s not too surprising that Eaze and other companies are having a hard time raising capital; there is not much to go around.

In the fourth quarter of 2019, Holistic Industries raised the largest-known private round, a $55 million deal that was announced in October. The startup, an “organic medical cannabis company,” according to Crunchbase, is based in Maryland and has raised a little over $66 million to date. The next two largest rounds were far smaller, with Ascend Wellness raising a $28.2 million round as December came to a close, and Flowhub raising $23 million in an October Series A.

Crunchbase has yet to record an equity round for a cannabis-tagged startup in its database in 2020. It does, however, list a single post-IPO equity round (we did not include similar post-IPO events in our above data, focusing instead on startups). Not that a few weeks makes the quarter, but the lack of urgency in new cannabis rounds (lots of startups are already announcing new private capital this year) is notable.

The Canadian connection

Private cannabis-related fundraising isn’t falling for a single reason; instead, a host of issues are to blame. Banking, illegal competition, overproduction, slim margins, delivery economics and more are at play. But also component to the funding slowdown, in my view, are rocky times for Canadian cannabis stocks.

By summer of 2019, the public comps for North American cannabis companies were struggling. Here’s MarketWatch from July of last year:

The cannabis sector has hit a summer slump, weighed down by a series of scandals, regulatory deadlock and a growing sense that the industry is not delivering the gold rush-like returns that some investors were expecting.

The news stayed bad as the year progressed. Here’s a Vice headline and dek combination from October 2019:

Major Weed Companies Are Cutting Hundreds of Jobs as the Industry Struggles; Mass layoffs, executive firings, and scandals suggest Canada’s weed honeymoon might be coming to an end.

The news in November didn’t get better, with Fool saying that:

Canadian Cannabis Companies Are Struggling; Here’s Why They Could Be Headed Even Lower

It’s perhaps not surprising that cannabis startups struggled as their public comps hit a brick wall. Optimism is no sin and investing ahead of certain trends is often a way to capture outsized returns. But in this case, if Eaze is more than a single, troubled case, it appears that cannabis investing got ahead of business fundamentals — and now they’re stuck.

More when more venture data comes in. And if you are building a cannabis company that recently raised money, get in touch.

  1. Our search is designed to be directionally useful, not exactingly precise. It includes all pre-IPO equity rounds for companies tagged as “cannabis” related in the Crunchbase data set, sorted by quarterly intervals. It was not constrained by geography, similar to the original Crunchbase News analysis.The trends, however, appear clear.