Deal to Watch: An App for DIY Cannabis Cultivation

Key Stats:

Summary

The Grow With Jane team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

As regulatory barriers decline in certain countries, cannabis production and consumption grows. This trend looks set to continue, even as a supply glut formed in late 2019 / early 2020 in Canada. Long-term, this industry appears to offer significant prospects, but most of the emphasis has been on the growing and distribution of cannabis from a retail and wholesale perspective. However, not everyone wants to buy their drugs from a retailer, wholesaler, or dispensary. Many people want to have more control over the products they consume, and the ability to grow cannabis at home is a straightforward way to do this. Another benefit to taking this route is that it helps to drive down costs. The problem with growing, though, is that getting a quality harvest is not always easy. Millions of Americans who might benefit from or enjoy growing have limited exposure to what the best practices would be. This lack of knowledge can result in devastating consequences, including diseased plants, higher-than-expected costs, and lost yields.

Solution

One company seeking to help the ‘do-it-yourself’ cannabis crowd is Grow With Jane. The company has set itself up as a website and mobile app aimed at helping novice, intermediate, and expert cannabis growers cultivate their own plants. Economically, this can result in significant cost savings. According to the business, the cost per gram when grown at home can be as little as $2.12. To put that in perspective, the last report by industry leader Canopy Growth Corporation stated that its selling cost per gram was between $4.30 and $5.74. Not only that, but many Americans find growing their own plants (of any kind) enjoyable. Naturally, this should extend to cannabis as well.

The aim of the app is relatively simple. Management hopes to connect growers and industry brands through social networking features. One example of this is the company’s GrowLogs, which are best imagined as digital diaries. On them, users can record their activities, observations, and other information related to growing and harvesting their cannabis. This data might include plant type, when and how the plants were watered, and more. Users often include photos of their plants as well. According to management, more than 160 thousand plant logs have been registered on their network, and more than 1 million photos have been uploaded.

Management surveyed their users and found that about 50% of them fall under the novice category. A further 35% can be considered intermediate, and the remaining 15% can best be described as experts. To best cater to each group, the company created premium subscriptions. These were launched in July of last year. Novice packages include only the most basic premium functionality. Intermediate users, meanwhile, get things like grow recipes and advanced planning features. Experts receive access to detailed graphs and statistics. Each package comes at a price of $7.49 per month or $34.99 per year. Users can also get all three packages for a monthly cost of $17.99 (with an annual package currently under development). As of February of this year, Grow With Jane boasted 296 paid subscribers on its platform. The company also sells merchandise on its platform, with prices per product ranging from $8.99 to $30.99.

Moving forward, management does have plans for additional features as well. In the second quarter this year, Grow With Jane wants to roll out an AI image recognition system. This tool, they claim, will help users to identify the health of the plants they are growing. It may also provide custom, tailor-made feedback that can help them achieve optimal quality and quantities. The company also wants to engage in what it calls ‘brand connections’ in the current quarter. These connections would involve partnerships aimed at opening information channels between consumers who might need advice on how to use a company’s products and the company that sold the products in question. In the third quarter, management also hopes to roll out their business intelligence platform, which is meant to allow brands to better understand how consumers are using their products.

From a user count perspective, the company has managed to do reasonably well over time. As of February of this year, it had 25,095 monthly users on its Android version. The firm does not have a record for its iOS version, which was launched in June of 2019. However, they do keep track of downloads, and since releasing their iOS version, the company has seen 8,110 downloads.

Despite launching their first monetized features in the middle of 2019, sales for Grow With Jane have been fairly low. For all of last year the company generated revenue of only $2,610. Its net loss and operating cash outflows, meanwhile, were -$117,427. This disparity between sales and losses is not all that surprising. It’s typical for companies, particularly ones this early in their lifecycle, to report material net losses and cash outflows. The more depressing metric is the revenue figure. No update has been provided for any of the months in 2020, but it’s safe to assume that revenue is not rising at a rapid pace.

An Attractive Market

The market that Grow With Jane operates in is certainly attractive, and it’s definitely growing. According to one source, the current size of the cannabis industry in the US is $15.88 billion. If forecasts are accurate, this figure should rise by 14% annually, eventually hitting $30 billion by 2025. Another source thinks the market looks a bit different. It is of the opinion that the entire global market for cannabis is worth $18.64 billion. The belief is that the industry is growing at a rate of 32.6%. If this is the case, then by 2025 the industry will have value representing $97.35 billion. All of these estimates pale in comparison to what Canopy Growth, the industry leader in Canada, thinks. Its own forecast looking out to 2032, it believes the global market could be worth around $200 billion. By ‘global’, the company means the Americas, Europe, and the Asia/Pacific region.

Another way to examine this market is to push aside the issue of money for a moment. Number of users can be a useful way to come to understand the opportunity here. According to one source, about 38.4 million people in America have used some sort of cannabis-related product in the past year. That’s between 11% and 12% of the population of the US. Of these, 45% are between the ages of 25 and 44. Just over one third of consumers (36%) do so daily, while over half (59%) do it once per week or more. This amount is a large chunk of the population, and it’s really this group that will be most attracted to Grow With Jane’s offerings. In essence, that demographic is their addressable market for the US. Another interesting metric states that about 19 million households in the US would grow their cannabis at home if it were legal to do so.

Terms of the Deal

In order to maintain operations and to keep moving forward with development plans, the management team at Grow With Jane is looking to close a round of funding. They are doing this by issuing convertible notes. The goal is to raise $107,000, but it can close its raise with as little as $25,000. These notes don’t actually carry an interest rate, but they will convert at a 20% discount to the valuation of the firm at the next raise. This discount is subject to a valuation cap of $2 million for the first $25,000 committed to its raise. Any money that comes in after that point is subject to a valuation cap of $2.5 million. The fact that it doesn’t carry an interest rate and does convert at a discount upon the next raise makes it look more like a SAFE than a convertible note. When the note does convert, it will be into non-voting preferred stock. To participate in the transaction, investors must allocate at least $100. As of this writing, the business has just $3,550 committed to its raise.

An Eye on Management

Some founding teams are larger than others. Such is the case here. There are four co-founders that comprise the Grow With Jane team today: Nicolas Botti, Gaston Lozano, Daniel Kim, and Roque Terrani. Botti currently serves as the business’s CEO. He has prior experience as an IT Consultant at Giux S.A., and before that, he worked as a Support Technician at Direccion General de Estadística y Censos de la Ciudad de Buenos Aires. Lozano, meanwhile, is serving as Grow With Jane’s Chief Product Manager. He used to work as a Magento Specialist Freelancer at Teza Web. He also has technology leadership experience at a firm called Conal Encuentro.

The next co-founder in line is Kim, Grow With Jane’s Chief Marketing Officer. Before joining the firm, he worked as a Senior Pipeline Engineer at VFX Boat. He also worked at a company called Aleph Media. The last co-founder is Terrani. Like Lozano, he was a Magento Specialist Freelancer at Teza. He has also served as a Magento Developer for Praxis Information Science, and at Summa Solutions before that, he served as a Magento Specialist.

Rating

Based on the data provided, we here at KingsCrowd believe that Grow With Jane is worthy of a Deal To Watch rating for manifold reasons. For starters, the market opportunity here is attractive. It’s a fairly large space today, and the growth rate projected by various firms means that it will be significantly larger in the future. Even if the world falls short of the $200 billion forecast, tapping into a market worth at least tens of billions of dollars is a great thing. Management has also done well to establish itself with a presence among consumers in this space, as evidenced by its user count. Being able to sell third-party products this early on is a great set of steps toward monetizing the platform. So, too, is the launching of its premium subscriptions.

This is not to say that everything is great at the firm. While the user base has grown over time, it’s far too small, with the current monetization strategies in place, to support the firm’s costs. Management must either find new ways to generate revenue or increase the percent of current users utilizing its monetized features and/or attract new users entirely. It’s hard, but certainly not impossible, to take a platform with fairly slow growth and to supercharge that. If management can do that, there could be a really attractive upside in this opportunity. Until such time though, it’s undeniable that there are viability risks to consider, and Grow With Jane remains a Deal to Watch.