Cannabis is becoming legal in more states and seeing a greater acceptance by consumers, but small businesses in the industry are still grappling with a dearth of data around sales and marketing. A San Francisco startup is trying to help fill that gap.
Happy Cabbage Analytics is developing software tools to make crunching sales data simple for small cannabis retail businesses.
CEO Andrew Watson, 30, co-founded the company in 2019 with COO Ryan Herron and CTO Bobby Fatemi. And on Monday, they announced raising $2.75 million in what they describe as a bridge round that was backed by Delta Emerald Ventures, Emerging Ventures Fund, Ensemble Brands, Hilltop Ventures, West Creek Investments, Yaax Capital and Silverleaf Venture Partners.
The new round brings its total funding to $4.25 million, including a $1.5 million seed round that it raised in 2020.
Originally from Baltimore, Watson spent several years working in analytics and finance roles in the Bay Area at companies including Analysis Group, Salesforce and most recently One Medical.
In 2020, he left One Medical to focus on Happy Cabbage full-time.
"Information was bad for a cannabis business in the illicit market, because if you had information, the feds would come after you," Watson told me. "Now, cannabis businesses, through regulation, have to capture significant amounts of information about what's on their shelves, who's buying it, who's selling it, what the testing is."
That same information can be used for sales and marketing purposes, but most small businesses don't have a team of in-house data scientists who can efficiently crunch that data.
So, Happy Cabbage has developed a suite of tools specifically designed for small cannabis retail businesses that currently focuses on sales, inventory and marketing, and it charges businesses monthly fees based on which tools they use and the number of retail locations that utilize them.
Their tools can be readily integrated into around a dozen major cannabis point-of-sale systems, Watson told me.
The company has around 200 small business customers around the country with most in California, but it also operates in other markets including Arizona, Colorado, Massachusetts, Maine, Illinois, Montana, Oklahoma, Oregon and Ohio.
Watson is eyeing an expansion as more state legalize cannabis use. On Tuesday, Maryland and Missouri became the latest states to approve recreational use.
Happy Cabbage has around 15 employees and will be hiring a few more people particularly in sales and marketing as the company ramps up for expansion which will include working with other strategic partners as it grows.
The company isn't profitable yet but is working towards that goal and has been generating revenue for a while now, Watson told me.
Watson is also looking at raising a Series A round next year so it can keep up with the pace of legalization in new markets and build out additional features like native integrations, as well as automated purchasing and pricing tools — software infrastructure that's critical for managing revenue and profits, but is lacking for the cannabis industry right now.
The goal is to help businesses "meet their consumers' preferences a bit better" and "enable these retailers with a lot of really easy to use simple tools that can measurably grow their business," Watson said.
There are also industry-wide concerns about equity, addressing the disproportionate impact the "war on drugs" had on people of color and the prospect of consolidation that Happy Cabbage is also trying to address.
Approving retailer and wholesaler licenses through an equity lens is just the first step, Watson said.
"How can we then make sure those people are funded? How can we make sure those people have the tools, the technology, the resources? A big part of our mission overall is to build for a world in which we're not just trying to get gobbled up by Amazon," Watson said. "We're actually trying to make something that can make the lives of these business owners who are getting these opportunities better, measurably better."
