WeedMaps CEO sees difficult layoffs as 'a moment in time' amid rising inflation

WeedMaps CEO Chris Beals joins Yahoo Finance Live to discuss the state of the cannabis industry and how his company is like the "Amazon for cannabis," along with how WeedMaps has been impacted by inflation.

Video Transcript

- With cannabis legislation largely in limbo in the nation's capital, it's been a rough road for cannabis stocks. As of late, the largest ETF in the space harvest seeing shares nearly cut in half this year. You're getting a good look at the multistate operator has been suffering as well. What does the road map look like ahead?

Who better to ask than WeedMaps CEO, Chris Beals? Chris, good to see you. Before we get into the overall macro environment, a lot of people look at you as the Yelp of cannabis. Is that how you describe it?

CHRIS BEALS: I'd say probably about six or seven years ago maybe that was accurate. At this point, there's two apps to the business. We operate WeedMaps, which is the largest online marketplace for cannabis. So think sort of Amazon for cannabis where we're bringing cannabis consumers together with over 5,500 brands, retailers, that sort of thing.

On the other side we have WM business, which is a suite of SaaS software that lets brands and retailers manage the consumer lifecycle. So that's acquiring consumers, servicing orders, and then reactivating, and then doing analytics, data, that sort of thing. And what underpins all of that is as a 14-year-old company, the largest pool of first party transactional data, which we use for product recommendations and what I believe to be the largest brand catalog the industry has.

- It's very difficult for cannabis businesses to reach that consumer. Is that what you're hoping to accomplish here?

CHRIS BEALS: There's really two elements to it. One, it's incredibly difficult for cannabis businesses to reach about 13% of consumers who consume once a month or more. But the other thing is, cannabis is complex. For all intents and purposes, it's like an over-the-counter pharmaceutical good. And so helping consumers decide tinctures, types of products, what's it good for medicinally? That's where we come in with data, recommendation engines, that sort of thing.

- Education is certainly helpful in this industry. You were recently criticized by "Marijuana Business Daily" for having unlicensed or illegal products on the platform. What's your response to those allegations?

CHRIS BEALS: Yeah. So we actually take a pretty aggressive stance in terms of requiring licensing if a business wants to be up on the platform. And then we have a notice and takedown procedure. So if somebody reports or our moderation team sees something on there that a business has on their menu that looks non-compliant, they'll investigate and it will come down.

And so I think in that regard, we've always believed we had to be a market leader in sort of making sure. And so we've invested heavily in our moderation team over the last year and it's something that we take pretty seriously.

- You recently also had to make a difficult decision to do some layoffs, a 10% of your staff. And in the note you cited-- and this came as a shock to a lot of people industry. You said "a double digit pull backs in California, down 12%. Oklahoma, down 21%. Colorado, 17%." Obviously, this is in the legal side of the industry. What do you make of that? Is there a common thread? Very different markets, is there a common thread?

CHRIS BEALS: Yeah, look, we're a 14-year-old company. We've traditionally operated profitably for our entire history. And so with those cuts, what we were looking to do was to make sure that we had the path to profitability and continue to offer that. We think it's a differentiator. And yeah, it's in the face of these markets pulling back.

I think to some degree, we think of it as a moment in time we think gas prices heavily impacted delivery operators. We saw them pulling back the regions to which they deliver, some unfortunately going out of business. Wholesale prices coming down, which pinched supply side folks who couldn't operate cost effectively. But we're seeing that kind of stabilize and sort of flatten.

The other thing that's worth noting is, we as a tech and SaaS platform have traditionally outperformed in markets by double digit percentages. So our growth in California was 10% on a year-over-year basis despite California being down 10% year-over-year.

- I want to hit on the legislative environment, which many were optimistic about with President Biden and Democrats in control. And it has gone nowhere and looks like it'll go nowhere. SAFE Banking continues to get through the House, I think, a half dozen times. senators Booker and Schumer have unveiled their legalization platform. Both appear at least to me to be dead in the water. How optimistic are you about either legislation?

CHRIS BEALS: In my view, I think there's a low probability of either passing. I think we could be surprised at the end of the session, but I think the issue fundamentally is this. Is I think the president is not necessarily super favorable in terms of cannabis legalization.

And separately, I think there's a bit of an internecine war that's occurring within the democratic caucus where the more progressive wing wants to see movement on safe banking and that sort of thing coupled with social justice reform. And there's a more conservative bloc that, while comfortable with banking or financial reform, doesn't want to see anything beyond that. And I think that's really where it's stuck at this point.

- So what markets are you eyeing next to possibly go legal? And what are the best selling markets overall right now?

CHRIS BEALS: Yeah. So I think in terms of the markets that are really exciting for us, New York just announced today the first 150 adult use or recreational licenses for retail being issued or they're opening the process. New York's an incredibly exciting market. I think new York will be bigger than the California market within the next three years.

And I think others will come to see that as they see the number of cities that have opted in. New Jersey I think will be a really interesting market. We have a full bumper crop of states in the next two years that have ballot initiatives to either go from medical to add adult use legalization or to add new medical legalization.

So Nebraska, which is a flat prohibition state, ballot initiative. South Dakota, augmenting medical with recreational. Maryland, augmenting medical with recreational. When you look at the polling, these ballot initiatives have the support they need to pass. So I think we'll really see a wave of new states opening.

Currently, I think within existing states, there's a ton of green shoots and space for them to grow. California, only about 30% of cannabis demand in the California market is met on the legal side. The remaining 70% is on the illicit side. And the solve for that is simple, it's more cannabis retail licenses. And we're seeing more cities opt into licensing now.

- Strange dichotomy with the progress being made at the state level but those who represent those states, not so much in the nation's capital. WeedMaps CEO, Chris Beals, good to see you, sir.

CHRIS BEALS: Thanks for having me.

- Appreciate you being here in studio.