Dutchie, The Cannabis Industry’s Highest-Flying Software Company, Falls Back To Earth

Once valued at $3.7 billion, the Oregon-based e-commerce platform recently laid off 8% of its employees—and some investors may be looking to cash out.

Only a few months after Dutchie raised $350 million at a mouthwatering $3.75 billion valuation, a broker started reaching out to cannabis investors with a deal—buy a multi-million-dollar stake in the cannabis software company at up to a 30% discount. In April, multiple investors across the cannabis industry got an even sweeter offering: Invest in Dutchie at a $1.7 billion implied valuation.

The cannabis industry’s most valuable software company—the privately held, Bend, Oregon-based Dutchie sells e-commerce and point-of-sale software to dispensaries to help manage online orders, inventory and state law compliance—has been humbled less than a year after it raised two back-to-back rounds totaling $550 million from big names such as Tiger Global (which has backed Peloton, Roblox, Spotify and Juul), billionaire Daniel Sundheim’s D1 Capital Partners, and earlier rounds from Snoop Dogg’s Casa Verde Capital, Josh Kushner’s Thrive Capital, NBA star Kevin Durant’s fund and billionaire Starbucks CEO Howard Schultz.

Dutchie “has come down to earth,” says a cannabis investment fund manager who does not invest in the company.

On Monday, Dutchie laid off 8% of its 700-person workforce, citing a “dramatic market shift” and a decision to “restructure” certain parts of the organization, cofounder and CEO Ross Lipson says. GeekWire first reported the news of the layoffs.

But the company’s head count is not the only thing potentially getting smaller. According to interviews with past and present employees, current Dutchie investors and fund managers who have not invested in the company, the days of its stratospheric valuation are over. (All nine people interviewed for this article would only speak on the condition of anonymity.)

“Everyone knows the valuation from last year was lunacy,” says one investor who has been approached multiple times by Dutchie shareholders. “The people who paid for it in 2021 were living in a different world, a different time.”

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No sale on the secondary market at a lower valuation has been completed, but according to several sources, there are shareholders from every category—early employees, big and small investors—looking to exit. Some who got in early are willing to part with their shares at a sub-$1 billion implied valuation, while newer investors are hoping to cash out as low as $1.7 billion, a 55% discount from the company’s valuation in October. What drew investors to the company in the first place is the potential of the cannabis industry while it’s still in its infancy. In 2020, U.S. cannabis sales hit $17.5 billion, but that number is projected to grow to $100 billion by 2030. So Dutchie has become a way to invest in the industry without investing in a cannabis company. Dutchie, Lipson has said, will never grow, sell or distribute marijuana.

Lipson says despite the layoffs, Dutchie’s position in the market is still intact and the company is delivering for its customers and investors. He also balks at the notion that Dutchie’s valuation has decreased. “Our company’s valuation has not changed since our latest financing round and any claims to the contrary are completely false,” he says. “Dutchie is in a strong position, and we are focused on continued growth. We will continue to hire top talent and pursue growth opportunities that map to our business objectives in order to advance our mission to provide safe and easy access to cannabis while helping to drive the cannabis industry forward.”

Dutchie was valued last year at more than 80 times its revenue. By comparison, some of the best-performing software companies are valued at 20 times revenue. 

Ross and his brother Zach founded Dutchie in 2017. Ross, who had sold an online food ordering business he started in college a few years prior, was waiting for an hour to buy weed from a dispensary in Bend on the first day of legalization when he had his “aha moment”—there should be a way to order cannabis online. Dutchie was born.

Forbes estimates that Dutchie brought in $45 million in revenue last year, meaning it was valued at more than 80 times its revenues. By comparison, some of the best-performing software companies are valued at 20 times revenue.

The head of a venture capital firm that started investing in Dutchie in 2020 and continued to invest in three consecutive rounds says they are still confident in the company but admits that it is no longer valued at $3.75 billion. He is encouraging Dutchie to “batten down the hatches” and reduce head count.

“Unfortunately, despite them being fundamentally sound, you cannot ignore that tech has cratered and Dutchie definitely pushed the envelope in their Series D,” the investor says. “Am I surprised that there are offers on the secondary market? Absolutely not. Am I surprised by a 50% discount? Tech on average is down 45%, or more, and this is more speculative.”

As for how an unprofitable software company with an estimated monthly burn rate of around $20 million and some $45 million in annual revenue could attain a $3.75 billion valuation in the first place, the investor points to big names like Schultz and Durant. “They couldn’t have garnered such a big number without those poster board names,” he says.

Dutchie is not alone in the downturn. Akerna, another software firm and Eaze, a cannabis delivery company, also announced layoffs recently. Meanwhile, the publicly traded cannabis companies have also taken a beating: MSOS, a cannabis ETF, is down nearly 70% compared to 2021, while Curaleaf, Green Thumb Industries and Trulieve, some of the country’s largest cannabis companies, have seen their stock prices crater 60% since last June. There’s trouble across the broader venture market, too. Forbes reported last month that most startups valued at $1 billion or more are trading on the secondary markets at 20% to 40% discounts.

Tiger Global declined to comment while D1 Capital and Casa Verde did not respond to calls and emails. Dutchie told Forbes that one of its current investors bought shares on the secondary market at the valuation set in October, but it wouldn’t say which one. Thrive Capital partner Gaurav Ahuja says the firm is long on Dutchie and doesn’t think economic headwinds affect the company. “The legalization of cannabis continues to spread across the world,” says Ahuja. “The industry—like Dutchie itself—is experiencing rapid growth in the face of broader macroeconomic conditions. In recent weeks, shares were purchased at Dutchie’s most recent valuation of $3.75 billion.”

But one current employee and a former employee say that the company is behind in product launches, most notably Dutchie Pay, a mobile payment product that allows customers to order pot online and pay through an ACH transfer, which company leadership has said is a key to profitability. Dutchie Pay launched in alpha during the first quarter and will have a wider rollout by this summer.

“People internally see the writing on the wall,” says a former employee, who was part of the recent layoffs. “Dutchie doesn’t have the products to back up its valuation—and it doesn’t have the strategy, either.”

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In an interview with Lipson in January, he noted that Dutchie’s business model is “nearly identical” to Shopify, the leading e-commerce platform that has seen its stock plummet more than 70% this year, while its market capitalization dropped $136 billion in the same period.

An investor who declined to invest in Dutchie when multiple offers hit his desk this year, says Dutchie has a slick software offering, but wonders if it’s better than mainstream competitors. “The concept they sell people on is that they are Shopify of cannabis,” he says, “but why wouldn’t Shopify be the Shopify of cannabis?”


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