Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback(at)cannainsider(dot)com to get started. Now here’s your program.
As the cannabis industry continues its growth curve, accelerating passed the $3 billion mark, the industry starts to get more grown up needs. One of those needs is using data to make intelligent decisions at the cultivation and retail level. To help us understand how to use data to help improve customer experience and your bottom line I’ve invited by Cy Scott, cofounder and CEO of Headset to CannaInsider today. Welcome back to CannaInsider Cy.
Cy: Hey Matt it’s great to be back.
Matthew: Cy to give listeners a sense of geography can you tell us where you are in the world today?
Cy: Sure I’m up here in the Pacific Northwest in Seattle, Washington where it’s nice and rainy these last few weeks.
Matthew: Yeah you’re originally a California native, if I remember correctly. How is that going transitioning to being now a Seattle resident?
Cy: Yeah it’s great. We love the area. It’s a great mix of technology and we love the adult use, recreational space that’s happening in cannabis up here. So that’s been great, but I do miss the sun from time to time.
Matthew: Yes, yes it’s almost like a myth in Seattle, the sun. People talk about the sun, but I don’t see it.
Cy: That’s true except when everybody visits for some reason the sun comes out. So everyone kind of gets a little fooled, but it’s not bad and it’s pretty beautiful up here so I really shouldn’t be complaining.
Matthew: Cy I want to jump into what you’re doing at Headset. A lot of interesting things there, but first let’s remind listeners about Leafly, how you got started in the cannabis industry and what Headset is now. And I just want to remind listeners that Cy has been on the show before and that is Episode 20. So if you go to www(dot)cannainsider(dot)com/20 you can hear all the in-depth details of what Cy was doing previously at Leafly, but with that Cy, can you give us a little background on how you got into the cannabis industry, what Leafly was, why you started that and then now what you’re doing with Headset?
Cy: Sure thing. So for that tale we have to go all the way back to the year 2010. So five, I guess six years ago now myself and two others, Scott Vickers and Brian Wansolich started Leafly. And five years ago really does feel like a lifetime in the cannabis industry with the all the change.
Matthew: Yeah it does.
Cy: Yeah it does. I mean so much has changed and there’s just been so much progress, and you know I’m really excited to see what the next five years holds. But we started Leafly. Basically we saw the cannabis industry as a real opportunity in a real growth market and we’re founders, we’re entrepreneurs and startup guys and then that’s what we’re always looking at, but we also enjoy cannabis. When we first got access to a dispensary in California way back it really opened our eyes to the variety of strains that were out there. Doing some research we found out there wasn’t a lot of good resources that had good strain information available, and we thought there’s something here that we can pull together, some sort of website and app to help people share their knowledge of strains and where to find them. That was the beginning of Leafly.
We decided to take it to kind of a more mainstream approach that I think cannabis hadn’t been treated as at that point. You could kind of see it starting, but it’s very different than it is today where you see a lot more mainstreaming, a lot more people opening talking about it. So that was kind of the beginning of Leafly and you know we started that and it’s doing great and it did great and we ended up selling it to a company called Privateer Holdings which has been doing a number of investments in this space. Once we did that we were really able to scale up and like you mentioned moved up here to the Pacific Northwest to be closer to them and also to the recreational market as it unfolded. Yeah, we recently left Leafly. Now it’s been about six months. Went out and raised some money and started Headset.
Matthew: Great. Now having sold a business myself, there’s almost like a grieving process or a funky transition whenever you sell a business. I mean it’s something you started. It’s part of your identity and then you’re kind of tearing it out of yourself and your cofounders and giving it to someone else. And everybody that sells a business no matter what there is a little bit or a lot of change in the course of the business because different people have different ideas. Sometimes it’s better, sometimes it’s worse, sometimes you can’t tell if it’s better or worse until years later. But is there anything you can tell about that process that maybe people don’t think about because there’s this idea like I sell my business and then I’ve got this golden trophy. There’s an exit and an exit is very important, but how do you feel about the whole transition from starting Leafly and then having Privateer, which has a great reputation. You have a good partner acquiring you, but you’re no longer the captain of the ship in a certain way. So what’s that whole transition like?
Cy: Yeah it’s a great question. I think you kind of hit it on the head there with a lot things you’re saying. Just like startups, a lot of people equate the startups to have an emotional rollercoaster. There’s a lot of highs, there’s a lot of lows, and I think that kind of the same thing when you sell a company. It’s very, very exciting to have an exit. And having an exit is really important when you’re doing startups, and when you want to do more than one. So that’s great. It’s also you’ve built something of value that someone wanted to purchase and that’s huge.
With Privateer it was a pretty unique exit because they brought us back on. They bought the company from us and then we stayed on basically to help operationally and keep it going, and we did that for about three years with them. During that time we were really able to access resources that we couldn’t get on our own early on with Leafly. So in the beginnings of Leafly we had great traction. We had a lot of users. We had customers, everything that that a typical startup really looks for when you go out and try to raise money, but we really struggled to get any sort of investment capital back in 2010. There wasn’t a lot of money flowing into this space. It was strictly medical at the time. While everyone recognized that an opportunity was there I think that most investors were just a little anxious about it. And it really wasn’t until I502 and Amendment 64 in Washington and Colorado respectively passed and we saw adult use markets coming in that investment really started pouring into the industry.
So with the Privateer sale it was really a good deal because they were able to essentially fund us which helped take Leafly from a bootstrapped nights and weekends project to a full time, and with those resources we’re able to build a great team and you know it’s in very good hands now. It continues to grow month over month by all measures, and we still have a great relationship with those guys and wish them the best and wish them a great success. It’s hard to put into words I guess what it’s like to sell a company, but it’s overall very positive and I look forward to doing it again at some point with Headset in the far future here.
Matthew: So you transitioned from Leafly to Headset. So you went from a business that focuses on consumers now to a business that focuses on other businesses and they have a lot of different wants and needs. So let’s dig in to what Headset is. If I was a business owner in the cannabis space and you and I were having coffee, what would be some of the first; how would you frame the problem that Headset solves?
Cy: Sure. So if we were sitting down talking about Headset, I would like to describe it as a platform that enables your cannabis company to really optimize your operations by giving you insights into your everyday decisions. We call it Cannabis Intelligence. Headset is a product of years of conversations with people in this space from large scale retail chains to small growers and really kind of understanding their wants and needs and the biggest issues that they’re having. One of the most common thing that we heard was really just having a lack of access to good data and good insights. What’s happening at their locations, but also what’s happening in the overall marketplace.
So we really wanted to create a platform that helps solve that, and the best way to sum it up is really all about optimizations. So we’re really giving you a new lens, a new way to view your business so that you can really optimize and maximize your revenue potential. And with Headset we’re able to do that by analyzing data from a wide variety of sources and presenting that in an actionable way so that you can use that information to make more informed business decisions. So that would be decisions like how to best optimize your inventory if you’re a retailer or maybe you’re a product manufacturer. You know what kind of products should you be offering. Understanding what’s going on in the competitive landscape around you and being able to identify opportunities and again just really maximize those revenue streams for yourself.
Matthew: If you were put into the position of being a dispensary owner or perhaps owning a cultivation facility, if you were to sit down and look at the metrics that they have in place, most of the folks that are running these businesses aren’t really focused on the data piece. That’s where you fit in. So if you were to sit in their shoes, how would you orient yourself? Okay you look at sales, yeah that’s super important. Then you look at well which strains are selling the most, and then perhaps what else would you look at? How would you determine the health of this business and start to make insights?
Cy: Sure. Yeah it varies depending on the type of business that you have. We like to think of Headset as that super smart analyst or data scientist that you have on your staff that’s giving you insights to save you money and help you earn those additional revenues. And for a retailer, those things like sales are obviously very important, and what we try and do because you can get sales numbers out of your point of sale, but what we try to do is really create some more sophisticated reporting and some deeper analysis on numbers like that. Some of the stuff we really want to help retailers with is understanding their inventory and their assortment, how it’s priced, what kind of promotions they’re running, what kind of brands they’re carrying, what kind of brands should they be carrying, which brands are performing and which brands or product segments have the best margin and the best turn for them.
So for retailers it’s really kind of looking at stuff like that. It’s also looking at how you’re doing now compared to previous. So kind of always understanding the trajectory of your business in the context of how long you’ve been open. So a lot of these companies are new so they don’t have a lot of historical data, but you can start to see trends. And for the companies that have been open for more than a year we’re able to compare your operation compared to that time last. So a lot of those things are really helpful just to kind of understand what’s going internally. So right not it’s really hard for these companies to get that kind of inside out. The more sophisticated retailers out there are kind of building these reports on their own and trying to do a lot of Excel and pivot tables and really spending a lot of money on internal staffing to kind of get those insights and we wanted to make that really easy for them through a nice app that they access on their mobile phone or on their desktop that’s well designed.
It’s simple, intuitive. Everyone is really busy and they don’t have a lot of time to struggle with some of this stuff so we really wanted to make it real simple. So providing those types of insights and a real easy to use kind of well designed package. And design is really important to us as you can see with what we did with Leafly, taking a very design forward approach. We’re doing the same thing with Headset and we think it’s really reflected in the app now. And there’s other problems for product manufacturers, for growers that we solve. It just definitely varies for a product manufacturer. It’s really understanding their product line and where do they invest. Where do opportunities lie? Should they create a cookie or should they create a brownie? What’s selling out there? What are their competitors doing? How’s the pricing look like? What kind of opportunities for sales do they have? What kind of market coverage do they have compared to competitors?
For growers it’s what strain should they be investing in? Are people more interested in hybrids, indica, sativa? Is there regionality? Is there seasonality? So presenting that kind of information from the market data we collect but also from their own internal data as far as what’s selling for their brand because maybe their brand specializes in something that’s a little different from the market. So kind of marrying those things together and really giving it to them in a nice package is what we try to do.
Matthew: Okay so Headset can help a dispensary owner look and see okay here’s the velocity of the strains and how they’re selling. Blue Dream number one, this is number one and maybe Star Dog is number two and they can kind of see what’s selling at their own dispensary but then Headset can offer insights more to market level too like hey, in the Seattle market maybe you can say Blue Dream is number three overall and there’s two other strains ahead. So maybe you’d consider adding two other strains or different edibles and so forth so there’s both dispensary insights and then market insights that are married.
Cy: Absolutely. Yeah we feel that both are really important. So we do, we do share that. So we’re able to share market data at the aggregate level so they can understand what distribution looks like for some of their products that they carry across the market in general and even with their competitors. We’re also able to help them understand aggregate sell thru data so if they’re underperforming and over performing for certain segments or certain brands or even certain product lines we can help them with that. We also try to help them with this turnover problem where we’re seeing a lot of strains come and go as they run out of stock. So really helping them make sure that they never hit those costly out of stock events or if they happen to, giving them insights into other vendors that might carry a similar or if not same strain so they can backfill. That kind of stuff is really important.
Again, it all just comes down to optimizing the business because once you get; you have your store. You’re getting people coming to your store by using services like Leafly, but what we really want to maximize that revenue per square footage. So bringing in those insights from what’s happening internally as well as the market is very important for that.
Matthew: Now how does Headset integrate into the point of sale or how does it get the actual data to then analyze? How does that work?
Cy: Yeah so we do have integrations with point of sale software. So we’ve worked closely with some, others have APIs available and we just have methods to kind of get into that data, and there’s a number of point of sales that play in this space. We’re even seeing some from outside of cannabis that are now coming in, particularly in the recreational markets. And so we support all those guys and then we also support accounting software. So for some of the product manufacturers we will connect to services like QuickBooks and things like that. It’s very critical to kind of get that data. I mean obviously to be able to give you those insights we need access to the data and we don’t want it to be any sort of manual process, but we also take privacy very seriously. We never share that data out in an attributive form or anything like that. So while we work with the data and we integrate with these point of sales it’s just to give you your business intelligence as a store owner.
Matthew: Are you focusing on Washington out of the gate as your core market?
Cy: Yeah a lot of that is because it’s our backyard. Also it’s a pretty interesting market. I don’t know, Matt, you’re based in Colorado I believe right?
Cy: And so I don’t know if you’ve had a chance to come out to Seattle or Washington recently but the market is really coming together. It’s a really interesting space, and we think it’s a good model. We anticipate Oregon looking a lot like this and potentially California. So it’s really great to kind of start here. Also geographically it’s easy for us to work closely with our beta partners and get that kind of feedback we need, but we understand we’re not strictly Washington and just like with Leafly we want to cover all markets. So we will be rapidly expanding this year into other spaces, recreational and medical.
Matthew: One of the problems not just for a business owner but for everybody is the amount of data. People are drowning in data. So to have information curated for us is very helpful. However not every variable or key performance indicator deserves the same weighting. So that being said, when a business owner is looking at their dashboard, they’re looking at sales, they’re looking at the turnover, but after that how do they get to the next level? Because all dispensary owners are looking at those things. It’s great to have it beautifully presented, but then when you dig in and you try to differentiate yourself and make decisions based on data, what would you advise there? Are you starting to dig into what each individual bud tender is doing or what are some other things to look at?
Cy: Yeah that’s a great point, and that’s something that we set out with Headset to really try and change. Data is great, but insights are really where it’s at. Insights are only as good as you use them, and if you don’t use them they expire. If you don’t know how to use them, it’s even worse. So we really wanted to create a platform that’s very intuitive, very easy to use to kind of pull those insights out for you. So if you were looking at a graph or a chart and you’re trying to make heads or tails of like what is this really telling me. What are the key pieces of information? What we like to do with Headset is we actually pull that out and just present it to you. So you get the key pieces of information and then you can go and look at the chart to really understand okay how are they coming to this conclusion and really analyze that chart and maybe come to additional conclusions from it.
So that’s one thing that we really try to do, and it’s not an easy problem. It’s much easier just to present all the data and figure it out, but we understand there’s varying levels of sophistication in this industry. A lot of these companies are small to medium sized businesses with small staff. So we really needed to create a platform that is very easy to use that they can access from anywhere, on their phone on the go and just get that kind of insight and that kind of intelligence at a glance. So that was one thing. Yeah a variety of reports. Also you mentioned bud tenders.
So with the retailers we’re really trying to help them understand what’s happening in their store. So not just inventory sell thru but what their employees are doing. As I’m sure you’re well aware, bud tenders, particularly in recreational but also medical, they have a lot of purchasing power so they can really drive the purchase because people come in and there’s not a lot of brand awareness quite yet. There’s a huge variety of strains, not to mention types of products. So a lot of consumers come in and shoppers, they’re looking and are just kind of overwhelmed and the bud tender is really source for sales for these stores. So really helping them understand what the bud tenders are selling as far as brand affinity. So is this bud tender selling more of Brand X or Brand Y? And that’s really useful in a lot of ways. If you want to run a promotion for Brand X, you can look to which bud tender on my staff is selling the most of Brand X and you use that as a training exercise for the rest of your team or maybe learn some insights of what they’re saying that’s doing so well and selling so much of this.
Also their category, how they stack up. So you may find that some bud tenders do really well at selling topicals and other might do really well at selling edibles. So really understanding that, and you can use that as a store owner or a store manager to really pull some levers to try and really optimize your employees, and if you want just kind of a broad range of what they’re selling versus category versus brand, you can look at some of this Headset data to really help make those decisions and really change the way your business is run.
Matthew: It is amazing to your point about the ability of a bud tender to sway the purchasing decisions. It seems like the ones that when I’m purchasing more they do a really good job of making a connection with the person. It’s not just a transaction. It’s a connection and there’s an understanding and an empathy and it can make a huge difference in not only the revenue for a dispensary, but how happy the customer is walking away and feel like they got what they wanted and what they needed. Strangely some dispensary owners just think well hey I can just have this person train the others, and that bud tender may not know why they’re great. There just might be something innate to them. So it’s maybe something where they shadow them or something like that. So it is worth a lot of study there. Now you’re saying you can break out how much a bud tender is selling in flower and edibles and so forth which leads me to my next question. Initially Seattle seem much heavier a flower market. Is that starting to turn a little bit where we’re seeing where edibles are becoming more popular or is flower still the thing that people are really interested in?
Cy: Yeah, no it’s definitely in Washington we’re seeing a lot more of the package goods. So edibles, beverages, even topicals. I think it started with a lot of flower just because every kind of had to start from zero here for the recreational side. Colorado, all the dispensaries, a large number of them were able to turn over and become recreational. So they had things like edibles already. Where while Washington had edibles for the medical market. That was a whole new license and a whole new kitchen and everything was so different. So it was basically everyone started from zero. So flower is obviously the easiest thing to produce because it grows and you process it, you dry it and you package it which is interesting here, all packaged based on weights. But yeah it’s definitely over the year plus, it’s been a little while now that we’re starting to see more and more brands. We’re starting to see more consumers kind of heading that way and more concentrates. Obviously flower is still dominates and I think flower still dominates the majority of sales, but we are definitely seeing it increase in edibles.
I think a lot of it for the recreational consumer that’s just now getting back into cannabis or is going to these retail stores for their first time here, you know, a flower can be a little overwhelming too. It’s like do you want to go start drinking coffee, it’s buying coffee beans and grinding it up and doing a pour over coffee versus just buying something ready to go or pod for your coffee machine, really easy. I think there’s consumer demand we’re starting to see more of and also brands starting to address that. We’ve got some really interesting brands here that are popping up in the edible scene and some really interesting products. It’s very exciting and it’s just the beginning. Like I said early on five years ago a lot of the edibles we would see in California were packaged brownies in a Ziploc and a Avery label. And that Bang chocolate bar I think popped up around then and you could kind of see well this is the kind of the direction it’s going, but now it’s getting very sophisticated, and it’s really pretty impressive.
Matthew: You’re right and to your point it’s interesting to see kind of regional differences. I have a theory that places that have bad weather the people tend to be inside focusing on things a lot more and people in nice weather are outdoors not as focused perhaps and it’s definitely so in Seattle. We’re having an entrepreneur on the show soon that’s making dissolvable breath strip and out of; it’s not a breath strip, it’s like a dissolvable strip you put on your tongue and it has either CBD or THC in it. So there is some really interesting things coming out of the Seattle market and I look forward to highlighting those more. Now next steps, rest of the year. Here we are early 2016, what do the next 12 months look like for Headset? What are you going to be focusing on? Where are you going to be going strategically?
Cy: Sure so we’re just now coming out of beta for our retailer product. So probably by the time this podcast is up we’ll be live in Washington for retailers. So really pushing into that space. Meanwhile we’re in the middle of developing our product manufacturer processor edition. So like we talked about earlier, different types of companies have different problems, there are some overlaps for sure, but we really have dedicated kind of experiences for the different types of companies. So really focusing on the process or a product manufacturer coming up, and then expanding into other markets. So 2016 is going to be a huge year for us.
We just started Headset probably about July last year is when we started fund raising. We left Leafly in June and spent some time just kind of thinking about what’s next. We wanted to stay in cannabis. We love this industry. We think it’s going to be a huge, obviously so does probably everybody listening, it’s going to be a big market and we really want to see it succeed. So we kind of set out to figure out what that was and landed on the idea for Headset. So we’ve spent the last four or five months fund raising and then we were able to do that relatively quickly and then dove right into building. We’re just now kind of coming out of that. So I’m really excited to get it in the hands of customers. We’ve had it in beta for a bit now and have gotten a lot of great feedback so that’s a positive reinforcer. It keeps the team motivated, but I’m really excited to start getting it into customer’s hands and expanding into other regions this year.
Matthew: Cy are you still looking for investors for Headset?
Cy: We’re not. We did the seed round last year. A relatively small seed round, we wanted to keep it small. We raised money on an idea and a team. We love our investors and we love the group that we pulled together and we’re really privileged to have the investors we do and they all come from, you know, some point in cannabis. They have some connects. So along with the finances we also get a lot of support, a lot of insight into the market as well as a lot of connections. So that’s been really helpful. But this year we’re planning on doing a Series A, so probably sometime in the middle of the year while we’ll be doing that. And we wanted to have a product, get some customers, get some traction before we go out and raise a bigger amount. So this year we’ll be out there again looking for investors. So yeah that’s coming later, definitely probably middle of the year I would say, but right now we’re good on the financial front.
Matthew: How can listeners learn more about Headset?
Cy: So I encourage listeners to head over to www.headset.io, that’s www.headset.io. While we’re pushing into new markets, definitely sign if you’re interested in getting early access. We do betas usually before we roll out the platform for each market. So if you have a cannabis business, retail, if you’re a product manufacturer or grower and you’re interested in these types of insights before anybody else, sign up and we’ll reach out and we’ll get you connected and we’ll get you on the platform.
Matthew: Awesome. Cy, thanks so much for coming on CannaInsider today. We really appreciate it.
Cy: Yeah thanks Matt, great talking with you.
Matthew: : If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.
Some quick disclosures and disclaimers, me your host works with the ArcView Group and promotional consideration may or may not be given to CannaInsider for the ads placed in the show. Also please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Lastly the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.
Cy Scott was a co-founder of Leafly, the wildly popular cannabis strain exploration app. Cy and his co-founders left Leafly in 2015 and founded Headset. Headset has its sights set on helping cannabis cultivators and retailers use data to make educated decisions to help their business.
What are the five trends that will disrupt the cannabis market in the next five year? Find out with your free guide at: https://www.cannainsider.com/trends
[3:15] – Cy talks about his background and how he got into the cannabis industry
[6:35] – Cy discusses the transition from selling a business to starting another
[9:32] – What is Headset
[11:53] – Cy talks about how business owners use Headset
[17:21] – Integrating with point of sale systems
[18:33] – Cy talks about Headset’s core market
[20:25] – Cy discusses different areas of data for business owners
[24:58] – Flower versus edibles as it pertains to the Seattle market
[28:12] – The future of Headset
[30:57] – Contact details for Headset