Emerging From Turmoil, Eaze Unveils its Second Act

The San Francisco web merchant is launching its own retail brands. Some partners are scared.

As I’ve noted in this space before, Eaze has by far the best interface of any of the cannabis-merchant websites I’ve tried. It’s easy to use and attractive. Its product descriptions are clear and complete. My opinion seems to be widely shared, given that the San Francisco-based Eaze is among the most popular pot-delivery platforms in the business.

But apparently, that isn’t enough. After months of tribulation, which included big layoffs, rumors of impending demise, and a major lawsuit against the company alleging fraud, Eaze last week announced that it would expand beyond being merely a platform for merchants, and would be getting into the selling business itself, offering its own products along with those offered by its retail clients. Until now, Eaze has marketed itself as “the Uber of weed” — it merely facilitated transactions, taking a cut of each sale. Eaze will partner with as-yet-unnamed local licensees on its selection of cannabis products.

In a statement, CEO Ro Choy said: “Verticalization is Eaze’s second act” that will allow Eaze to operate “in a more sustainable and profitable way, while continuing to grow Eaze’s existing services.”

“Verticalization” is jargon that means Eaze will not only act as a store, but also now be selling its own products in that store.

While that might sound sensible (and might well be sensible), it is a fraught move that has generated a lot of blowback. On LinkedIn, cannabis attorney and consultant David B. Feder laid out, rather biliously (but amusingly) his objections. He imagined the following “hypothetical (but very plausible) scenario”:

Dispensary: “My customer wants me to deliver cannabis products from my store directly to them at their home/office/etc. Who should I call to make the delivery?”

Eaze: “Ohh, ohh. Pick me. Pick me! I’ll help you.”

Dispensary: “Wait, but aren’t you my competitor, selling your own cannabis products directly to customers? Why should I give you MY customer’s name, contact info, location, basket sizes, shopping preferences and habits?”

Eaze: “No no no. We’re totally not trying to sell OUR cannabis products to YOUR customers. Trust us. We only want to sell our cannabis to other people’s customers. Not yours. Basically, to everyone else except your customers.”

It’s a legit concern. None of Eaze’s retail partners whom I reached were willing to speak to the issue on the record, but one told me he is “concerned” about Eaze’s new iteration. Eaze might favor its own products over his store’s. I asked him about the potential of Eaze using all the data it has collected over the years to give itself a further competitive advantage, and even using data particular to each of its clients’ operations. That was something this merchant didn’t seem to have considered. But, upon hearing it, he seemed a bit concerned by that as well. Another seller told me she has had great success selling through Eaze, and didn’t think the move would pose any problems for her. A couple of others — one of them in a private Internet group — said they were taking a wait-and-see-attitude, and seemed mainly worried about losing Eaze as a platform.

I put the question to David Mack, Eaze’s senior vice president of public affairs. “People are entitled to their opinions, and that’s great,” he said. But though I reframed the question in several different ways, he never quite addressed the core issue: doesn’t competing with your own customers raise legitimate concerns for them? He did say, quite accurately, that “consumers are going to pick what they want.” Where Eaze might find itself in trouble would be if it were to feature its own products more prominently than its retailer customers’ or otherwise give itself an advantage. He also said Eaze doesn’t collect granular levels of data on its clients’ transactions.

This has by now become an old story in the Internet business: an online platform wields a lot of marketplace power, so when one of them expands into the business it is facilitating for others, people get nervous. Amazon has caused a great deal of consternation, and even drawn some (anemic) government attention, by being an online retailer that also serves as a platform for other online retailers.

High Times, the storied, decades-old pot magazine that in recent years has expanded into events even as it has changed hands and flirted with bankruptcy, also is expanding into retail, planning to open its own dispensaries. When that was announced a few months ago, people had similar reactions as some are having to Eaze’s plans. What will it mean for the fairness of High Times‘ industry coverage, or of its Cannabis Cup competition? It’s hard to know, but at the very least, both of those things will be devalued by some people’s reckoning, just by definition. Imagine if The Hollywood Reporter and the Academy of Motion Picture Arts and Sciences decided to start making their own movies.

Meanwhile, Eaze has gotten some much-needed breathing room. In announcing the new business, it also announced that it had landed $35 million in new venture financing, with an option to draw on another $20 million. The company hasn’t disclosed its valuation.

Eaze also has escaped the lawsuit it had been facing, an altogether weird situation that isn’t any less weird in its resolution. The suit was from the now-defunct DionyMed Brands, which had owned the Hometown Heart retail licensee in Oakland, an Eaze client. DionyMed had accused Eaze of committing fraud by disguising transactions as involving something other than cannabis in order to trick credit-card companies into handling them (credit card companies and banks are skittish about working with cannabis companies). Eaze noted that it didn’t handle payments, its clients did. In the end Eaze ended up buying Hometown Heart from DionyMed, and the lawsuit was dropped.

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