“During the gold rush it’s a good time to be in the pick and shovel business,” Mark Twain reportedly said. That’s certainly true in the modern gold rush that is the cannabis industry, where it’s not just weed sellers seeking a fortune but also the companies that supply them.
Case in point are the firms selling custom software—which is every bit as important to cannabis companies as picks and shovels were to Klondike gold miners. In recent years, investors have been pouring money into these software firms.
The latest example of this is Denver-based Flowhub, which on Tuesday announced it has raised a $23 million Series A funding to expand its sales of compliance and point-of-sale software to marijuana dispensaries nationwide.
“The end of prohibition is near federally, and we want to serve a global cannabis market,” says Flowhub CEO Kyle Sherman, who takes encouragement from recent laws like one that removed hemp (though not marijuana) from a list of Schedule 1 prohibited drugs.
While payment giants like Square could theoretically serve the cannabis industry, Sherman say such companies shy away given the heavy regulation of the industry.
Meanwhile Flowhub is also adapting its software to help dispensaries manage their inventory (including the shelf-life of edible pot products) and staffing needs—services that, once again, could in theory be provided by traditional software vendors except for the distinct legal environment surrounding cannabis.
Flowhub is not the only firm making software for the marijuana industry. According to data from PitchBook, there were 39 venture capital deals involving cannabis software last year worth over $178 million. A chart from the company, which reports 2019 data as of mid-October, suggests investments will reach a similar level this year:
The firm CBInsights reports different figures for the cannabis software industry, but ones that likewise show it has become big business.
“After a big spike in 2017 of $204 million, funding to enterprise software solutions for cannabis retailers has grown at a slower pace. In 2019 to date, these companies have raised $89M across 15 deals,” says CBInsights analyst Marissa Schlueter.
Another major players in the space include LeafLink, which supplies software that connects pot retailers with growers, and was recently valued at $255 million, and Green Bits, a FlowHub competitor valued at $50 million.
The growth opportunities remain plentiful for the firms as more states legalize recreational use—that includes 11 states plus the District of Columbia as of 2019. New opportunities could also come in the form of credit card processing. Card companies current refuse to provide services to marijuana merchants,, but this is likely to change as the financial system becomes more accommodating of the still-fledgling pot industry.
Meanwhile, Sherman of FlowHub believes his company will one day be able to deploy the expertise it has garnered in the cannabis industry to other fields such as gambling.
“I see future where our technology could be applied to any highly regulated vertical,” he said.
Flowhub’s Series A funding round was led by e.Ventures, Poseidon and Kraft Heinz-backed Evolv Ventures.