California-based cannabis delivery giant Eaze won a rarity in the marijuana trade earlier this year: a second chance.
It began in August, when the company was purchased at auction for $54 million by FoundersJT, which is led by billionaire James Henry Clark of Netscape fame. Its reboot was formalized in November when Eaze announced another $10 million successful raise, which CEO Cory Azzalino revealed was straight out of Clark’s own pocket, to get the business back on proper footing.
The news was a literal lifeline for the struggling Eaze, which even after the sale to Clark announced that it was prepping to cease operations by the end of the year.
Now that the company has almost completed its 180-degree course correction, Azzalino visited with Green Market Report to share more details about what’s next for the business, which has a cannabis footprint outside of its home state in Colorado and Florida.
This interview has been edited for length and clarity.
What was your perspective just a couple of weeks ago? Were you basically prepping for Eaze to be completely shut down?
Nothing was guaranteed, but (Clark) and the other owners were through an evaluation period, and after going through a very detailed analysis, there were still some outstanding variables in terms of, how much capital do we need to raise? And that was very centered around Amendment 3 in Florida; that ultimately failing meant we needed less capital, because we don’t have to invest nearly as much in our facilities going forward in Florida.
We are very close to cashflow break-even. And we’ve already actually made a lot of the big capital investments in Florida, which is the only place where we’re not cashflow positive. We were just waiting actually on a power upgrade to turn on the incremental cultivation, and that will hopefully get us to profitability in Florida, in which case we’d be a sustainable business for the long-term.
Now, that assumes there aren’t further decreases in California or Colorado. Those markets have been declining with the overall market. We have not been immune to that, but we’ve been able to right-size those businesses.
There was a dramatic announcement about Eaze basically winding down by end of year. Were any employees actually laid off or let go? Does anyone have to be rehired or are operations continuing on as they had been?
This is an entirely new company. That is a very critical distinction. The old company is completely dead, which is why we had to issue notices to the vast majority of our employees.
And so we are embarking upon a massive hiring (spree) for the new company in the next 45 days. And to answer your question more specifically, yes, there were, and there will be some people who will be laid off as part of this process. That has already occurred. And then from a rehiring perspective, we may not exactly rehire the same number of employees as we had before.
We are working closely with UFCW (United Food and Commercial Workers Union), who is our union partner, who is the old company’s union partner in California and for one of our cultivation sites in Colorado, on a proposal for our new employees. We want to work with UFCW to negotiate both the bargaining impact of old company winding down as well as trying set up a new contract for new company.
What’s the key to avoiding a similar fate this time around in terms of just having Eaze be a profitable, sustainable business?
From a starting point, our operating businesses and our two main markets are profitable. So in order for them to remain profitable, we have to stop them being a business in decline and start them growing again.
So number one is our focus, especially in California, on finding growth opportunities. Part of that comes with our pivot to scheduled delivery, which allows customers to basically pick their delivery window in advance, which is not how the business was originally formatted. We were kind of only in the ASAP delivery model.
The benefit of scheduled delivery is it allows us to open up the service areas and basically service further out from our dispensaries and service more population, which means should mean growth. That’s a real keen focus for 2025 in California.
Florida is our only unprofitable segment today. We have basically too many stores, not enough product, and so we have to basically fix that balancing equation, because in Florida, there’s no ability to buy. Wholesale product is truly the single biggest bottleneck.
When you have the operating cost to operate 40 stores, it’s very expensive. Most those stores, most of those expenses are basically fixed. You have your rent, you have a certain level number of employees you have to have at the store at all times, and that basically can’t change. And so our mission is really to be able to increase the sales volume per store such that we get that market to profitability.
The market did grow over 50% last year, so it is by far our fastest growing market, but we still don’t have enough product. We have produce everything we sell, so we just don’t make enough. It’s a pretty simple equation: you’ve just got to make more product and sell that product at roughly equivalent prices. We have to make more product, sell it at rational prices, and if we can move that product to our stores, we will get the entire enterprise to profitability.
It’s already kind of prepped and cooked. We’ve just got to finish the meal.
How big of a deal is it going to be for Eaze if/when rescheduling is actually completed?
I think it’s massive in creating any of these businesses to be investible in the future. No matter what, basically every company big or small, whether you’re private or public, is to some degree accruing 280E-related expenses.
It is truly the thing the industry needs to at least make the business investible again, or self-sustaining, because in a competitive market, you just cannot pay taxes on gross profit. There is not enough margin in most states or most markets to make that a viable business, especially once the competitive pricing dynamics kick in. You cannot operate businesses at the California and Colorado market pricing, while paying for your full 280E burden. It’s pretty impossible.
Have you done the math in terms of how many millions of dollars ease would save in next year if you didn’t have to pay under 280E?
Rough math, it’d be like $16 million saved.
That sounds pretty enormous for Eaze.
Yeah, it’s massive. We’re a mid-size company, and I do think ultimately we’ll probably need more consolidation and more roll up and more the bigger companies getting bigger and being able to gobble up the smaller companies.
But while that may sound like a bad thing, at the end of the day, those are entrepreneurs who are being able to cash out, and it will definitely be a win for those people who get acquired.
How are you feeling about business, especially now with the new owner?
It’s been six years of not having any easy wins. I’m cautiously optimistic, and I think if we can make Florida go, we can make the whole company push forward on a really good foot.
So I’m very bullish on our team and the prospects of what we can accomplish, but we do need some legislative help. In California next year, taxes are slated to go up again. We see an immediate dip in sales as soon as taxes go up. So that’s not great. All these markets, you just need some degree of help, and we’re not getting it. That’s really the biggest challenge.
So still cautious, optimistic, very bullish on our team’s capacity, but my God, if the industry could get a win, that’d be music to my ears.
[[{“value”:”Azzalino said Eaze’s upcoming Florida infrastructure investment will be critical to future stability.
The post With second lease on life, Eaze CEO says Florida key to success appeared first on Green Market Report.”}]] Read More
