NatureTrak is offering preferred equity at a pre-money valuation of $13 million. With 2020 revenue of only $178,900, the revenue-to-valuation multiple for this round is 72x. This very high multiple does not justify this round’s valuation. However, this company is not too overly priced, considering it is a software company that has a patent-pending technology. Moreover, a $13 million valuation is only slightly higher than the majority of early stage startups currently raising capital through equity crowdfunding. These factors make NatureTrak’s current valuation fair but not particularly attractive for investors.

The US cannabis market is worth $65 billion in 2021, and it’s expected to reach $100 billion in 2030. This market size includes numerous aspects of cannabis-related businesses. Since NatureTrak focuses specifically on the risk management aspect of the business and expects to capture 1%-2% from all cannabis transactions, the company’s obtainable market size comes down to around $1.3 billion. The global enterprise governance, risk, and compliance market was worth $35.1 billion in 2020 and is expected to grow at 13.7% annually. This high growth rate bodes well for NatureTrak and indicates that the company could have ample room to expand.

The obtainable market for NatureTrak is reasonably small, possibly due to how heavily regulated the cannabis industry is. Although cannabis is gaining acceptance in America, heavy regulation has hindered many businesses from participating in the industry. On top of that, there are only 710 banks and 150 credit unions out of 12,000 banks in the US that are willing to serve cannabis businesses, making it an even more risky business. 

On the other hand, NatureTrak’s product focuses on compliance and risk management and that market is rapidly growing. Additionally, the cannabis market has a high potential. Recently proposed bills — like the Secure and Fair Enforcement Banking and the Marijuana Opportunity Reinvestment and Expungement — could be signs of the federal government preparing to ease restrictions. These bills would further enable accessible cannabis banking. Given these trends, NatureTrak looks primed to target a high potential market that sits at the intersection of cannabis and risk management.

NatureTrak is led by founder and CEO Jontae James. James received a degree in marketing from University of Saint Francis. He previously founded Bluntli in 2014, a digital licensing platform that focuses on patient and entity license verification in the cannabis industry. This experience is extremely helpful for further development of NatureTrak. Prior to Bluntli, James spent nearly twenty years in various marketing and business development positions. 

NatureTrak also has a comprehensive team of 10 members spread across finance, technology, and operations. While Ariana Van Alstine is listed as a cannabis law attorney at NatureTrak, her LinkedIn profile does not include the startup. It’s unclear what level of commitment she has with the company. Because NatureTrak operates at the intersection of a highly regulated market and risk management, legal expertise is a key need. This need is also not covered by founder James’ own experience. In particular, he has not spent significant time in either the cannabis industry or risk management. These factors are concerning for NatureTrak’s development and success.

Compliance and risk management services are not new to the cannabis industry. Hence, NatureTrak is in a highly competitive market with many players already present, such as Green Check and Abaca. NatureTrak offers more features compared to these competitors, including payments, integration with accounting, risk scoring, and pre-deposit verification. However, these features are not difficult to replicate, and more established competitors could easily expand their offerings to directly compete with NatureTrak. The company does have a patent pending for its Marijuana Anomaly Detection solution, which helps to somewhat balance out these concerns.

NatureTrak seems to be on the road to proving the market-product fit for its services. Although the revenue it gained over the past two years is not substantial, the revenue growth is tremendous. From $20,962 in 2019 to $178,900 in 2020, NatureTrak’s revenue grew 753%. This impressive growth has come with a high burn rate, but it is normal for software companies to burn this much in order to fully develop its product. Prior investments of $3.4 million have enabled the company to reach this stage and also show that there is support for NatureTrak’s product. The company also has a partnership with payment processing company Vector Payments, an encouraging sign that NatureTrak will be able to create the payment ecosystem it has promised. 

NatureTrak offers a moderate risk profile. On top of being the only founder, Jontae James has little experience in the cannabis industry or in the compliance and risk management market. James’ limited network and knowledge might hamper the growth of NatureTrak. Strong team experience is crucial to ensure the company is able to sail smoothly despite the heavily regulated market. 

The nature of the cannabis market creates further obstacles for the company. Notably, there is a risk of slow mass market adoption since cannabis is still not legal throughout the entire country. Moreover, NatureTrak is targeting banks and financial institutions that might already have their own systems and procedures. The company will need to convince these organizations that its system offers measurable improvements, a process that is likely to slow down the sales cycle. Lastly, NatureTrak is far from being profitable, especially looking at the fact that the company owes a fair amount of debt. 

NatureTrak bears massive risks because it operates in the cannabis industry. Although the notion of cannabis itself is gaining acceptance from the masses, federal law has yet to keep up. As a result, NatureTrak’s target consumers — which are the banks and financial institutions — are struggling to adopt and normalize cannabis banking. The company is also still early in its product commercialization. It currently only has one pilot client, North Bay Credit Union. Given these factors, the company’s valuation of $13 million is quite overpriced. Furthermore, NatureTrak needs to scale its team members rapidly, considering the founder’s lack of experience and limited network. 

NatureTrak has shown tremendous product and traction growth despite being founded in 2017. Its platform has enabled $1.5 billion in cannabis-related transactions and has processed $500 million in cash deposits. The platform is also federal- and state-tested. There is a huge potential that these numbers will continue to grow rapidly, especially with the recently proposed bills on cannabis banking and legalization. While the market is competitive, there is no dominant company providing these particular types of services. In addition, NatureTrak offers more comprehensive services for cannabis-related businesses compared to its competitors.

NatureTrak provides banks and financial institutions the ability to track and manage risks associated with cannabis banking in real time. The company’s main technology is its Marijuana Anomaly Detection, which simplifies the compliance process for its consumers. The company has shown an impressive track record so far. Its revenue grew by 753% in 2020, and it has successfully secured $3.4 million in previous funding rounds. The cannabis industry, especially the compliance market, has huge potential as more states legalize the use of cannabis. 

However, the obtainable market size for NatureTrak is fairly small. As it is a relatively new industry, there are huge regulatory risks associated with it. With little product differentiation and defensibility, it might be difficult for NatureTrak to stand out in this competitive market. Furthermore, the founder has little experience in running a cannabis or compliance company, adding to the uncertainty of future succes. For these reasons, NatureTrak is a Neutral Deal. 

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Analysis written by Inez Sanjaya.