MassRoots: Growing Up Cannabis

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DSC 0124 e1464311668503

From a $50,000 initial seed round of investment just a little over a year-and-a-half ago to begin building the social media hub of the cannabis community to being abruptly kicked out of the Apple App Store and then miraculously barging their way back in, MassRoots has grown their user base to close to 400,000 on their journey to connect cannabis-users worldwide.

THE IDEA
In the summer of 2013, Isaac Dietrich and Tyler Knight were sharing a college apartment in when they began to wonder why, despite the fact that most of their friends smoked cannabis, nobody posted about it on social media. The night ended with a mission: They would set out to build a social network dedicated entirely to cannabis. Isaac went about recruiting the team that he believed could get a product off the ground. He set his sights on Stewart and Hyler Fortier, a brother-sister pair from his hometown of Virginia Beach. Hyler had a strong design sense and outlined what the first version of the iPhone app should look like while Stewart brought his technical background to code it.

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About a month-and-a-half later, Hyler and Stewart joined the team (Stewart is now the CTO; Hyler is the Director of Branding)—and the first version of MassRoots was live in the App Store. iPhone users could download the app to share photos and text statuses about their cannabis consumption like they might share photos of a birthday party on Facebook. There was nothing unique about what the app was able to do, per se, but it was unique in that it was all about cannabis.

“Tyler was focused on getting our initial user base, which was originally just our closest friends in our smoking circle. And then it just kind of started to scale from there,” Isaac remembers. “My role was maxing out my credit cards to fund the entire operation, so I’ve always been on the financial part.” (Isaac is now the CEO.)

Tyler, who is now the CMO of the company, however, remembers the first version of the app as “extremely basic…you wouldn’t even recognize it now. But the fact that we were connecting cannabis consumers at this small level was extremely exciting.”

Over the next two months, MassRoots grew its user base to about 6,500 people. “When we started to see users that weren’t in our immediate friend networks, we were like ‘Oh, shit, does anybody know this person? It looks like people are actually starting to find the app,’” Stewart recalls.

THE HUSTLE
Around the same time MassRoots started to see its user base grow beyond the founding team’s immediate circles, Isaac began the fundraising process. Raising money for a technology company in a federally illegal space, however, proved to be difficult. “That initial summer, all the VCs said that no one was going to use our app and that there was no need for a social network for cannabis consumers,” says Isaac. “So all throughout the summer of 2013, very few investors took us seriously, and it was extremely difficult for us to raise capital. In fact, we raised no capital, which is why I was maxing out credit cards.”

Isaac finally caught a break when he pitched MassRoots at an event hosted by the ArcView Group, a network of high net worth individuals interested in the cannabis industry. Unlike most pitches that the group had heard before, Isaac was bringing them an actual product, not just an idea that people were already using. “Isaac was saying, ‘Hey, this is already working. I’m not trying to prove anything. I’m trying to show you that your chance to get in is now,’” Stewart says.

THE BIG FISH
One of the investors in the crowd during Isaac’s pitch was Doug Leighton. Leighton, a managing partner at Dutchess Capitol saw an opportunity in MassRoots. Dutchess, a pre-IPO global investment firm since 1996, had recently entered into the cannabis space with investments in Dixie Elixirs and the American Cannabis Company.

“When Isaac was introduced to the crowd, all I heard was he was a finalist for Peter Thiel’s 20 Under 20,” says Leighton. “I spent the next 3 minutes on my phone Googling to find out if that was true—and sure enough, there he was on a CNBC Documentary talking in a segment in between Peter Thiel and Sean Parker. I did not even hear the pitch. Afterwards, I grabbed him and we talked for a bit and I verbally committed to investing in the seed round. I was very impressed with Isaac and Tyler and thought the idea was great. I started using the MassRoots app right away.”

Dutchess promptly wired the team $50,000 to lead their seed round. After closing an additional $100,000 from two other high net worth individuals, MassRoots finally had the capital they needed to continue scaling their product. They used the funds to build an Android app, improve their web version, and finally start marketing their product to acquire new users.

By the winter of 2014, MassRoots had 100,000 users and had delivered on all of the promises they had made their seed investors. Isaac returned to the ArcView group with a large user base and a more impressive product to raise another round of funding, but this time the ask was bigger. “Now we’re trying to raise $475,000, and this is what we will accomplish with that money,” Isaac told the ArcView board members. “And each time we’ve gone back we’ve accomplished what we said we were going to accomplish…and I think that’s the main reason why we’ve been successful.”

THE RELOCATION
Once the Series A financing closed, the team relocated the company to Denver from Virginia Beach. The team decided to use the majority of their funding for product development—not lavish office space. “Our first office was this converted home in a pretty questionable part of Denver. We were in between a dispensary that was painted bright purple and a cake shop that we never saw a single person walk in to,” Stewart explains. “There was a bullet hole in the conference room and we were like ‘was that coming in or going out?’”

However, the team of young entrepreneurs proved that it wasn’t outward appearance that mattered—it was building something that people were passionate about. They started to grow their team of developers to speed up the improvements to their product and launched a few new features, including the “Local Feed” which allowed users to see the content that people were sharing nearby. Two new employees were recruited to head up their account services department, which would manage relationships with the dispensaries and other businesses that would eventually want to advertise on MassRoots. They crossed 175,000 users and tens of millions of user-to-user interactions.

THE APPLE BITES BACK
On Election Day of November 2014, however, Isaac received devastating news: Apple had decided to ban all cannabis social networks from the App Store. The news was surprising given that three more states decided to legalize cannabis that same day. So, after being live for about a year-and-a-half, MassRoots was removed from the App Store.

The team scrambled to find a way that their app might be reinstated, but the outlook was grim. Apple’s App Store policies are rigorously enforced and notoriously difficult to change. MassRoots knew of no other companies that had been removed but later reinstated without having to significantly alter their product. They didn’t see a future without a presence in the App Store.

The team debated for weeks on if it was worth releasing a watered-down product that would comply with the new App Store policies. They eventually came to the conclusion that removing the social functionality that their users loved would be a disservice to the entire community. Disheartened by the fact that it is exceedingly rare for a company to change App Store policies, the team was encouraged by the fact that MassRoots had something most others don’t: a community of passionate users. Isaac spearheaded an effort to petition Apple to change their policies.

Isaac was confident that their users would help them out. Hyler recounts one story of a passionate MassRoots user at the Emerald Cup one year, “We didn’t have a booth, but a friend of ours was there and she called me and was like, ‘Hyler, did you guys hire some guy to walk around to all the booths and tell them to get on MassRoots?’ And I had no idea what she was talking about. But long story short, this random guy on our app, who’s a very loyal user, was going to every single booth saying, ‘Are you guys on MassRoots? Like, if not…. What are you doing?’”

         A week after launching their campaign against Apple, over 10,000 people personally emailed the App Store requesting that MassRoots be reinstated. They recounted all of the reasons they loved the app, ranging from it being their support network as a medical patient to its value as a social platform for making new friends. A few days later, the App Store reversed their policy and reinstated MassRoots. This catapulted the startup into the ranks of the few rare companies that have mobilized their communities to force regulatory change, including such stalwarts as Airbnb and Uber.

massrootsTHE IPO
MassRoots now has over 375,000 users. They just relocated to a new office in downtown Denver where their roughly 20 employees are continuing to build a revolutionary product to connect the cannabis community. All of their user engagement metrics have set new records month-over-month and in April of this year they became one of the first-ever publicly traded cannabis companies, clearing the S-1 process and meeting all of the disclosure requirements from the SEC. Their stock now trades under the symbol “MSRT” on NASDAQ.

“One of the hardest things is to keep going when everyone tells you that you’re going to fail,” Isaac reflects about that turbulent time. “That initial summer, all the VCs said that no one was going to use our app and we kept on going. When we were out of the App Store, a lot of people said, ‘That’s the death of your company. You’re never going to get back in.’ When we decided to go public, people said, ‘No one’s going to buy your stock at a multimillion dollar valuation.’ And they did!”

Next, the team plans on launching features that will allow cannabis businesses to advertise directly to the consumers on their network. MassRoots also has the potential to mobilize hundreds of thousands of cannabis enthusiasts to get out to the polls in 2016 and help legalization efforts across the country.

After a long day taking photos around downtown Denver, Tyler is relaxing in his office. He looks around taking it all in and says, “Whenever somebody is getting on their phone and it’s marijuana related,” he says. “Whether they’re a business, an end consumer, or an ancillary product, we want them to be on MassRoots.”

massrootsGROWTH SPURT: THE NUMBERS (as of end of June, 2015)
375,000: Users
140 million: Amount of people who have interacted on its network
95,000: Facebook followers
210,000: Instagram followers
107,396: Average volume of shares traded daily
$1.02-$7.01: 52wk range of stock price
57.43 million: Market cap
300: Dispensary’s posting on their network

MASSROOTS+FLOWHUB=THE DREAM PARTNERSHIP

In April, MassRoots partnered and took an equity position in a full seed-to-sale system run by Flowhub. “The seed-to-sale software market is currently dominated by MJ Freeway and BioTrackTHC, two antiquated systems that regularly crash and impede dispensary and grow facility operations,” says MassRoots’ CEO Isaac Dietrich. “By partially combining MassRoots with a seed-to-sale system, we will give MassRoots’ users access to live pricing, inventory, and an order ahead system. At the same time, Flowhub will be streamlining dispensaries’ operations and enabling them to target ads to specific customers based on purchasing patterns and social activity.” As of going to print, MassRoots has over 300 dispensary’s posting on their network, with the hopes that by the end of summer that number is over 1,000. Flowhub CEO Kyle Sherman sees the partnership as the ultimate competitive advantage. “We are combining the data from cannabis grow operations, point-of-sale systems and the leading cannabis social network in one platform,” he says. “This is some of the most important data in the entire cannabis industry. It will allow dispensaries and grow operations to streamline their operations, optimize profit margins and monitor consumer trends to anticipate demand for particular products and strains.”

massrootsQ&A: DOUG LEIGHTON, MANAGING PARTNER, DUTCHESS CAPITAL, SEED INVESTOR MASSROOTS

What intangibles did you like that made you invest so early in MassRoots?
People, people, people. I could see the drive in both Isaac and Tyler. I could also tell they we natural born leaders.  Even going through the due diligence process, I could tell that those two were very smart and hardworking. I sent over our standard due diligence requests and expected them to take a week to get everything back to me like most companies—Isaac sent over everything we requested within an hour. They both reminded me of the early days when Mark Zuckerberg or Elon Musk would talk about their vision; they were so passionate and could see the future so clearly. I knew the market was there. Cannabis users are a very tight knit community; I knew that once people found the app, they would want to share their experience there.

Are you happy with how the investment is progressing?
It is going fantastic; their growth rate has been parabolic, beating their own internal projections. From the small amount of capital they have raised so far, they have been able to achieve tremendous results. Even after being removed from the Apple App Store for four months, they still are still at 375,000 users. Keep in mind: this is not a Silicon Valley funded company that raised $50 million. Their total raise to date is under $2.4 million dollars. The team is now 19 strong, with a great new office space and a strong team. They continue to astound me with their work ethic, vision and commitment to making this company wildly successful.

Do you see this going big like a Facebook or Instagram?
I think it can be as successful as these social media outlets but within the context of the cannabis space. There are 3.1 billion with Internet in the world (internetstats.com), 1.4 billion of those people are on Facebook. There are only 147 million cannabis consumers worldwide (WHO), so the market is much smaller. However, in saying that, Facebook has a market cap of $246 billion. If MassRoots is able to reach 1 million users, we believe it could be valued around $400 to 500 million based on comparable valuations in cannabis technology. Based on their current growth rate, they should be there by the end 2015.

What is the business model? Advertising?
Yes. It is sponsored content. Since this is a niche social network, there is only one reason be on MassRoots: you are a cannabis consumer. Unlike the broad reach of Facebook, if you advertise on MassRoots, you are reaching someone who you know is a cannabis consumer, not some algorithm that think you might like something based on a search. That makes each user worth far more than the $175 per user that Facebook is valued at and the $190 per user that Snap Chat is valued at. I see the real value in big data. They have collected about 140 million data points since inception; this is an incredible tool for cannabis and non-cannabis companies. For example, if someone uses the hashtag #bluedream, #hiking, #camping, #munchies at a camping site in Colorado that provides a tremendous amount of data. That person can be sent info on strains like Bluedream and REI. But Coleman (Sporting goods) would love access to that person just as YUM brands and Frito-lay would like to know who gets the munchies. Then, when that MassRoots user returns to their legal home state, it can tell them where to buy Bluedream. It’s brilliant. The big data component is much larger than just the cannabis market. That is the hidden value of the company.

What other areas of the cannabis industry is Dutchess looking at?
Everything. The cannabis space is still in its infancy. The cultivation and dispensary market has become too saturated. We really like the consumption device category and are working on many new technologies in the space.

Where do you see MassRoots in 5 years?
We don’t make predictions or recommendations. After closely watching the company for close to two years now, I think it has the potential and team to become a billion dollar company. In saying that, though, always do your own research.

mass roots
“Whenever somebody is getting on their phone and it’s cananbis related… WE WANT THEM ON MASSROOTS.”

By Bianca Barnhill
Photography by Jeff Forney

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