Don’t Call LeafLink Co-founders Ryan G. Smith and Zach Silverman Disruptors

The pair say they didn’t “disrupt” anything. They simply addressed a need no one realized existed until LeafLink debuted.

LeafLink-1-Ryan-G.-Smith-and-Zach-Silverman-profile-mg-magazine-mgretailer
LeafLink co-founders Zach Silverman (L) and Ryan G. Smith. (Photo: Humberto Ona III)

As much as legalization has helped the cannabis industry grow and flourish over the past decade, peek behind the curtain and a less glamorous picture emerges. With limited access to banking, insurance, advertising, and other key services, cannabis companies large and small are forced to operate without the basic infrastructure other businesses take for granted.

When LeafLink co-founders Ryan G. Smith and Zach Silverman began analyzing the cannabis supply chain in 2015, they saw gaping holes and inefficiencies in an industry still in de facto startup mode. While other companies have tried to tackle the problem, LeafLink was among the first to gain widespread adoption for a platform that streamlines the ordering process in the wholesale market by directly connecting brands and retailers digitally.

Advertisement

Today, LeafLink’s e-commerce marketplace connects more than 1,500 licensed cannabis brands to more than 5,000 cannabis retailers. The system is used in twenty-five markets across the United States, including all the states in which recreational sale is legal. In 2017, the company surpassed $100 million in transactions; by the middle of 2019, transaction volume had reached $1 billion. In the spring of 2020, dollar volume surpassed $2 billion. Overall, the platform is a hub for almost 25 percent of all wholesale transactions in the U.S.

Not bad for a company that is barely five years old.

When Smith and Silverman met in New York a few years before starting LeafLink, they shared a mutual interest in technology. Both had worked for startups and 800-pound gorillas. Along the way, each acquired deep technical and business skills, as well as a taste for entrepreneurship. The LeafLink concept came together quickly, and the pair almost immediately found themselves setting up meetings with investors and polishing their pitch decks.

“What really brought Ryan and I together is more of the entrepreneurial interest,” said Silverman. “It’s very rare to look at doing something from an entrepreneurial perspective and have a brand-new supply chain forming. What we always say is it’s really exciting that we’re defining something versus disrupting something, and so the vision for LeafLink was how do we build out a [business-to-business] marketplace? How do we help stabilize this industry? What does this industry need to be successful, and what things do we want to avoid?”

The engineer and the suit

LeafLink-2-Ryan-G.-Smith-and-Zach-Silverman-profile-mg-magazine-mgretailer
Ryan G. Smith (L) and Zach Silverman. (Photo: Humberto Ona III)

Both of Smith’s parents were entrepreneurs. He caught the bug at an early age and in high school started several small businesses ranging from dog-walking to house-sitting and selling merchandise online. “I have always been fascinated by marketplaces,” he said. “When I was a kid, I would sell things around the house on eBay. My parents used to joke that if something was missing, it was probably in my PayPal account.”

By the time he arrived at Colgate University, Smith was an experienced businessman who was ready to start his first proper company. EcoCampus was a green office supply company he created to help Colgate’s academic departments purchase sustainable products. After selling the company in 2013, he moved back into his parents’ home and set up shop on the dining room table. Before long his next undertaking, Trupoly, was providing specialized relationship-management software to investment firms. RCS Capital acquired the company in 2014, and Smith was well on his way to stardom in the business world. In a blog post he wrote at the time for Colgate’s entrepreneurship website, he reflected on his initial experiences as an entrepreneur:

“Three things I’ve learned and confirmed this year:

  • There is always money in doing things people don’t want to do. If you aren’t sure what they don’t want to do, ask them. Then charge them for your solution.
  • Don’t fall in love with an idea. If you aren’t willing to change, you will fail.
  • Business ideas are worthless; execution is everything.”

The lessons have served him well over the years. By 2016, he was the first chief executive officer of a cannabis-facing company to be listed on Forbes’s 30 Under 30 list, and in 2018 LeafLink was the first company in the cannabis space to make Fast Company’s Top 10 Most Innovative Companies in Enterprise.

With his background in finance and startups, Smith said he handles the majority of LeafLink’s business accounts and client relationships, while Silverman manages product engineering and platform development.

“Even before high school, I became very interested in technology and the internet and what was happening there on the development side and how to go about creating web pages,” Silverman said. After that early discovery and experimentation, he went on to study electrical engineering in college and focused on software development, which later would become his primary professional interest. “As I got out of college, I became very interested in combining technology to make things better and easier within a business setting,” he said. “That put me on a trajectory to get into consulting and then after that, get into the startup scene that was taking shape in Manhattan.”

Silverman co-founded programmatic trading desk ReachLogic Media, which internet marketing data company A6 Corporation acquired in 2014. From there, he became a product manager at eBay Enterprise Inc., where he helped build the tech behemoth’s e-commerce and marketing platforms. When he met Smith through mutual friends in New York, the two realized they shared a passion for building new businesses, and their combined technical and business expertise seemed like a natural fit.

Early on, Smith and Silverman concluded the cannabis supply chain was a fragmented environment with a critical need for the unified infrastructure businesses in other industries take for granted. “It was the status quo in terms of inefficiencies and where margins are going and the lack of technology, the lack of transparency, the lack of efficiency across the board,” said Silverman. “There’s definitely a cultural aspect to our interest, but I think more than anything it was just the excitement from the entrepreneurial mindset and how we could help contribute to build an industry.”

Raising capital and pitching clients

When LeafLink debuted in 2015, the cannabis industry was still in its infancy. States in the Midwest and on the East Coast were starting to warm up to the idea of both medical and recreational weed. At the same time, investors were taking a closer look at the industry and its potential, along with the growing momentum for federal legalization in Canada.

In the spring of 2017, LeafLink secured its first round of funding, a seed round of $3 million led by Lerer Hippeau Ventures. At the time, the company was up and running in Colorado and Washington, but the founders were eager to expand. It didn’t take long to convince dispensary operators of the value proposition.

“There is this massively underserved group that requires all the tools any other business does, right? There are so many mom-and-pop businesses in the space and lots of consolidation happening, but what can we do to help them grow their businesses? And that’s where we got started,” Smith said. “If you’re a retailer, there are new brands coming out and new pricing, new product lines all the time, so you have to talk to fifty brands every two weeks to stock your shelves. Well, now it’s all together in one place, and you don’t need to speak to several dozen sales reps. That was really empowering, because there’s so many other things they need to work on in their day-to-day business on top of that, so that was really the jumping-off point.”

Instead of contacting distributors and brands directly, LeafLink allows wholesale buyers to view all the compliant brands in their state and drop all their orders into a single cart. For both buyers and sellers, LeafLink offers other tools such as order management, customer relationship management (CRM), inventory and order tracking, and customized reporting systems.

When Smith and Silverman talk to clients about how they use the platform’s features, the data and analytical tools are the most intense area of interest. Retailers want objective evidence about which brands and products are popular so they can stock their shelves. Brands want to know the same thing so they can adjust or expand product development. Sales teams and distributors use the data to identify shops that haven’t placed orders recently and stores that are doing particularly well selling specific types of products. At the end of the day, everyone wants to get a leg up on the competition.

“They’re interested in how to differentiate themselves from the store two blocks down,” said Silverman. “And so that’s where a lot of our focus is spent on the retail side. From the sales side of the platform, it’s not only the e-commerce channel they’re interested in but also how best to market their brand, how best to advertise their brand, how best to sell their products and represent their products to the shoppers.”

Where’s the competition?

One of the curious aspects of the cannabis industry and its technology infrastructure is the limited participation from large companies with an established presence in other business sectors. This is true across the board, in areas including banking and insurance as well as security and software. Until cannabis is legalized on the federal level, that situation isn’t likely to change—and that is great news for companies like LeafLink, giving them a head start that’s invaluable in securing new clients and market share nationwide.

Currently, LeafLink is in a unique position in an industry where most other market segments are flooded with companies competing for shelf space, operating on thin margins, and struggling to stay afloat. So why the lack of competition in the B2B software space?

We took a lot of meetings to help educate people, and we knew they probably weren’t going to cut checks. But if they knew a little bit more about the space, in the future they might be somewhat more open to funding some other company, or even a plant-touching company.

Ryan G. Smith

“It’s not for lack of trying,” said Smith. “In the past four years, I can think of a handful of really-early-stage companies that probably had a similar goal. But one of the things that’s important is the space is incredibly dynamic and changing so quickly, so it’s hard to stay ahead of the curve. And we shouldn’t forget there wasn’t ample amounts of equity capital available to those early-stage companies at that time.”

Smith added some smaller companies are trying to chip away at parts of the supply chain, but none are a serious threat at this point. “We keep an eye on companies that have websites that do something similar to what we do and just keep tabs on them,” he said.

LeafLink has raised about $50 million in investment over the past three years, but even with the founders’ impressive track record with startups, finance, and technology, they realized raising capital for a cannabis business would be challenging.

“We took a lot of meetings to help educate people, and we knew they probably weren’t going to cut checks,” said Smith. “But if they knew a little bit more about the space, in the future they might be somewhat more open to funding some other company, or even a plant-touching company.”

When cannabis is legal at the federal level, Smith expects bigger players with long-standing supply chain platforms in other industries will try to move into cannabis. “We know people are interested, but because they’re publicly traded a lot of them can’t [get involved with cannabis],” he explained. “So for us, the existential threat and the race is to make sure we bring as much value as we possibly can to our clients and the community so that we really are cooked into the supply chain as an underpinning technological foundation.”

As they watch the industry expand across the U.S. and new states hash out their regulations and licensing requirements, Smith and Silverman said they are getting better and faster at incorporating LeafLink so new and existing clients quickly can enter new complex, dynamic, and heavily-regulated marketplaces.

“One thing I always find interesting is inconsistency, because everything from policy to taxes is just all over the place,” Smith said. “We have some states that are just now beginning to make sense of what they want in their medical programs, and what they want the recreational or adult-use program to be. There’s so much reinventing the wheel versus kind of picking and pulling from what’s already working and what’s already been established in other states and geographies that have already gone through the pain over many, many years.”

Shaping the platform

Early on, LeafLink realized branded products would be the future of cannabis, and people would demand new and ever-more-creative products as the market evolved. Since anything with fat or sugar can be infused with THC, Smith and Silverman predicted edibles and beverages would see a steady rise in market share. They were right.

When they began meeting with dispensary operators, distributors, and brands interested in tapping into the platform, it was a learning process on both sides of the table, according to Smith. While LeafLink educated about concepts like CRM, operators provided insight into the day-to-day headaches of running a cannabis business. What might have been a classic fish-out-of-water tale—two young tech entrepreneurs from the East Coast showing up on the West Coast and offering to solve decades-old supply-chain problems—worked out well, though.

“It was a complementary marriage, and we have a ton of respect for the progress previously made and a nice connection with a lot of the earliest operators in the space,” said Smith. “We learned a lot from what they were doing, and we brought things that we knew. And what’s interesting now is the space is maturing and evolving, so you have people coming in from other verticals, totally unrelated industries that have additional demands and different types of product requests that we have to cater to. But there’s this nice range that we’re always playing to, which allows us to really take the lead on how the supply chain is developing.

We’re defining something versus disrupting something, and so the vision for LeafLink was how do we build out a B2B marketplace? How do we help stabilize this industry? What does this industry need to be successful, and what things do we want to avoid?

Zach Silverman

“I think it’s something that’s unique and very challenging, but exciting, to us,” he continued. “At the same time, it’s a really wide bandwidth of skills and sophistication in the space. We think trust is really an important quality that we’ve built relationships around with our earliest clients. And yes, some came from illegal and pre-legalization times. So, there’s enormous respect that we have for all the progress that was made by those early groups.”

Unlike the data point-of-sale systems like Meadow and MJ Freeway collect at retail outlets across the country, LeafLink’s data is in the B2B realm and sheds light on about 25 percent of all wholesale transactions in the U.S. As new markets open, the value of the data grows by the day, and LeafLink has begun to share the information with clients that want insight for product development, marketing, and other strategic plans.

“So many other data products and insight products in other industries and other supply chains tend to be aggregators around the point of sale,” Silverman said. “But that is only really half the story. What we’re sitting on is first-party data on the wholesale front, which really helps us enrich the data. It lets brands focus on building their brand and focus on expansion and how to enter new territories. And then on the buy side of the platform, it allows retailers to make more-informed purchasing decisions, understand consumer demand, and help differentiate the products they carry within their stores.”

Earlier this year, the company launched LeafLink Insights, which Silverman describes as “a deeper dive into your own metrics,” along with MarketScape, which lends a broader view of what’s happening with product pricing and market share in specific states and regions.

Completing the triangle

Looking ahead, Smith and Silverman talk about the “LeafLink triangle” the company created to keep its strategy and vision goals on track and stave off the competition that inevitably will be nipping at their heels before long. The triangle comprises growing liquidity, securing the payment cycle from end to end, and supporting distributors and transportation companies.

“That triangle is how you really have a successful checkout experience—the things people take for granted on [business-to-consumer] marketplaces—but it’s far from easy to plug in on the B2B side, particularly in our regulated space,” said Smith. “We’re very aligned right now in completing the triangle, and so everything everyone does structurally goes back to what everyone’s doing day to day and hitting those points as a team. So it’s execution, and then trust is a really big element, with very high ownership across each of the points of the triangle.”

To stay ahead of the game in an unpredictable and dynamic industry, LeafLink’s co-founders use intuition and instincts they honed over years in the tech space. “It’s just constantly trying to put your finger on what’s going to be the most meaningful thing,” Silverman said. “We don’t have all the resources in the world, and even if we did, it wouldn’t justify doing everything at once. We’re getting clues on a daily basis and then making decisions as to what we want to focus on, from the pure product to the engineering side. Because anytime we get that wrong and work on something that was not the right thing, it’s just extremely expensive. That’s not to say we’ve been perfect along the way, but I think we’ve done a good job of minimizing wrong choices, and that’s allowed us to grow alongside and at the pace, if not ahead of the pace, of the industry on the whole.” 

Advertisement