- The buzziest startup in cannabis doesn’t even sell marijuana. Meet Flowhub, a cannabis-tech company that helps retailers track inventory and process sales.
- Flowhub ranked first in our recent list of top cannabis startups according to VCs.
- The company has raised a total of $27 million to help cannabis dispensaries manage their businesses and comply with regulations that differ from state to state.
- Legal cannabis is strenuously tracked, according to Flowhub founder and CEO Kyle Sherman. He said he likes to tell lawmakers on Capitol Hill that the US tracks legal cannabis better than it does uranium.
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The buzziest startup in cannabis doesn’t even sell marijuana.
Flowhub, a cannabis-tech company that helps retailers track inventory and process sales, topped Business Insider’s recent list of the hottest startups in the industry. Founded in 2015, Flowhub has raised $27 million from investors, and now works with more than 900 dispensaries in the US.
The US cannabis industry is projected to reach $85 billion by 2030, up from $51 billion now, and Flowhub — which already operates across 12 states — is set to benefit as more states legalize cannabis.
“We exist to make safe cannabis products accessible for every adult on planet earth,” Flowhub founder and CEO Kyle Sherman told Business Insider. That, Sherman said, is a big financial opportunity for investors who see how big the cannabis market is becoming.
Flowhub’s backers include cannabis-focused VCs like Poseidon as well as investors from beyond cannabis, such as tech-focused VC firm e.ventures and Evolv Ventures, the food-tech-focused venture fund backed by Kraft Heinz.
Jett Fein, a partner at e.ventures, one of Flowhub’s biggest backers, told Business Insider that Sherman’s vision was one of the things that attracted him to the company.
“I think that a business that helps retailers make cannabis more accessible is a business that in the long-run creates a lot of value for customers, for employees, for shareholders,” he said.
Why cannabis needs a customized retail management platform
Flowhub is what’s known as a retail management platform, which means it provides all the software needed to run a shop selling cannabis, from tracking shipments and inventory, to processing sales and making sure companies are following the rules in their particular state.
With almost a thousand dispensaries on its platform, Flowhub processes $1 billion in sales annually and charges dispensaries a monthly subscription fee that starts at $499 for a single location. There’s also a one-time $1,000 implementation fee. Flowhub also offers hardware like the Nug mobile scanner, which lets workers use smartphones to manage inventory and check IDs.
Cannabis-tech startups are gaining increasing attention from investors looking to make deals in the cannabis sphere. Some investors are reluctant to get involved with companies that deal directly with cannabis, since the substance is federally illegal in the US, so tech startups can give them a way to wager indirectly on the cannabis boom.
In Business Insider’s recent list of hot cannabis startups, the top three spots were all taken by tech companies like Flowhub that help dispensaries manage their businesses and abide by compliance regulations.
Some outside the cannabis world may wonder why there needs to be a retail management platform specifically built for the cannabis industry. There are already systems built to serve a variety of businesses that range from cafes to clothing stores.
Sherman said Flowhub’s specialized software is better able to handle the complex tracking and regulation required by states where cannabis is legal.
“A line I often use with lawmakers on Capitol Hill is that we track cannabis better than we track uranium in the US,” Sherman said, emphasizing the strenuous compliance regulations that dispensaries have to abide by.
How Flowhub came to exist
Sherman worked as a documentary and podcast producer in Los Angeles and in advertising before starting Flowhub. He told Business Insider that his interest in the cannabis industry started when he was working in Los Angeles as an entrepreneur in the entertainment industry. Sherman said he was prescribed anti-depressants and anti-anxiety medication in his early 20s, but when he tried to stop taking them, it was a miserable experience.
“It was really hard physically to get off of them,” Sherman told Business Insider. “I used cannabis to get off of everything successfully, minimizing withdrawal symptoms and it was a phenomenal experience.”
In 2014, he moved to Denver and got involved in the cannabis sector, cultivating relationships in the industry and lobbying the Colorado Department of Revenue to build Metrc, which effectively automated a compliance reporting system for cannabis businesses that up until then had to be done manually.
The next year, Sherman founded Flowhub, which partners with Metrc and allows dispensary owners to track how they’re complying with state regulations.
“They have the DNA of a Silicon Valley company,” Narbe Alexandrian, president of Canopy Rivers, a Flowhub investor, told Business Insider recently. “They’re heavily focused on data and aim to make retailers smarter; I think that’s something we can all get behind right now as the industry matures.”
Flowhub’s future plans
Today, Flowhub works with over 900 dispensaries in the United States, spread out across 12 states. Some dispensaries that use Flowhub include Dr. Greenthumb’s and Green Dragon.
The company closed its Series A in October 2019 at an oversubscribed $23 million. Sherman declined to get into details about a possible second round of funding but noted that Flowhub is always looking for great partners to work with. Right now, though, he and his team are “heads down,” focused on growing the business.
In 2020, Sherman said that Flowhub will be focused on improving the company’s offerings and expanding into new markets. The company says it’s focused on states including Illinois, where recreational cannabis was legalized as of January 1, as well as Missouri and Maine. The company may also expand into states like New York, New Mexico, and Florida, a spokesperson said.