Bloomstack is raising on a convertible note at a $9.5 million valuation with a discounted valuation of $8.5 million for those who invest early. This price demonstrates restraint, particularly for a software business in the red-hot cannabis industry. Similar companies would likely list at a higher (and unjustified) valuation, but Bloomstack seems to be realistic about its current progress and revenues. A 25 times revenue multiple (Bloomstack made about $380,000 in 2020) is fairly reasonable for a fully built, complex tech product in a rapidly expanding industry. That’s why Bloomstack’s price rating is its highest.

Analysts have always predicted that the cannabis industry would grow fast, but the current pace continues to exceed expectations. Several states legalized marijuana in the 2020 elections, spurring even more growth. More than one-third of Americans, over 111 million people, now live in a state where recreational cannabis is legal. 

Recent estimates indicate that the US legal cannabis industry is worth around $60 billion and could be worth up to $100 billion by 2030. Other analysts predict a growth rate of roughly 20% over the next several years, which far outpaces the growth of most other industries. 

It’s clear that Bloomstack is operating in a sizable and growing industry, but there’s an important caveat. Bloomstack isn’t capturing the cannabis consumer market. Instead, Bloomstack serves the businesses manufacturing and selling cannabis — a much narrower market. There are less than 7,500 dispensaries across the US, so Bloomstack has a limited selection of buyers. 

While Bloomstack is operating adjacent to a large and growing market, the company’s obtainable market size is significantly smaller. Thus, Bloomstack’s market rating is only average.

Bloomstack was founded by Eric Delisle, a longtime entrepreneur who has led a wide variety of companies for more than 20 years. His previous entrepreneurial ventures include an electrolyte beverage company, a pen retailer, a media company overseeing mixed martial arts events, a software development consultancy, and more. Delisle has significant business management experience but no specific expertise in software or the cannabis industry. It’s not clear that any of his previous companies have been particularly successful. 

Bloomstack was co-founded by Delisle’s friend Matthew Michaels, who served in junior- to mid-level operations roles at Apple and Google before launching his own exercise studio. Michaels doesn’t seem to work for Bloomstack full time. 

Beyond the co-founders, the Bloomstack senior team also includes Vice President of Engineering Felipe Orellana and technical director Neil Lasrado. Orellana has served as a developer at various small businesses for about 15 years, including stints at founder Eric Delisle’s companies. Lasrado founded DTI India, an enterprise and custom software development company in Mumbai. Bloomstack acquired DTI India in 2020. 

All in all, the Bloomstack team has significant business experience. No members of the team have deep software as a service (SaaS) sales or marketing expertise. However, Bloomstack benefits from experienced management at the helm, so its team rating is relatively high.

Bloomstack’s sales pitch relies on the complexity of existing software solutions for cannabis business owners. There are countless software tools that facilitate some component of business management: customer relationship management (CRMs) like Salesforce and Zoho, website builders like Shopify and Webflow, payment processors like Square and Stripe, and many more. Bloomstack argues that cobbling together all of these solutions is complex and unwieldy, requiring manual data transfer and other frustrating inefficiencies. These challenges are only compounded by the burdensome compliance requirements specific to the cannabis industry. With an all-in-one software hub tailored specifically to cannabis businesses, Bloomstack aims to streamline business operations and give business owners space to scale their companies without software concerns. 

This is a decent value proposition. Bloomstack is correct that cannabis is a complex industry with strict reporting requirements that can easily confuse business owners. And it is frustrating and time-consuming to work with multiple programs that don’t communicate with each other. However, any software business that promises to combine multiple existing tools into one must prove to prospective buyers that its tools are actually equal, if not superior, to the tools it’s replacing. That’s a very difficult task, particularly for a platform like Bloomstack that aims to replace so many well-established software tools. It’s difficult to say whether Bloomstack is actually delivering the value it promises, particularly because the product is still in beta. 

It’s also important to note that Bloomstack isn’t the only company building software for the cannabis industry. A simple Google search of “cannabis industry software” yields a long list of options for business owners, including 365 Cannabis (built by Microsoft Dynamics, an intimidating competitor), Quantumleaf, Distru, Trym, and many more. One of Bloomstack’s competitors, Trellis, was actually acquired last year. The company sold for just 1.8 times its revenue — not a good omen for Bloomstack, which could follow Trellis’ path.

Overall, Bloomstack has a unique point of view in the cannabis software space, but it’s too soon to say whether those differentiators are validated by the market. Bloomstack also faces significant competition. As a result, Bloomstack’s differentiation rating is moderate.

Bloomstack hasn’t fully launched its product and is focusing on improving it in beta testing. Still, Bloomstack’s 43 existing customers have already generated revenue and meaningful year-over-year growth for the company. In 2019, Bloomstack brought in just under $55,000 in revenue with a $486,000 net loss. In 2020, revenue increased significantly to just under $380,000 with a net loss of $561,000. 

Bloomstack is still a very early-stage company that hasn’t yet proven product-market fit. However, early results are positive. Revenue increased by nearly 600% between 2019 and 2020, indicating that early customers seem to be pleased with the product. Based on the limited data available, Bloomstack’s performance seems to be above average for a young software business, so its performance rating is one of its highest. 

Overall, Bloomstack isn’t a particularly risky investment compared to other opportunities on crowdfunding platforms. Bloomstack’s product is already developed, and 43 beta customers are paying to use the tool. Software-as-a-service (SaaS) businesses are relatively easy to scale as high margins tend to propel companies to achieve profitability more quickly. Bloomstack’s founding team, while inexperienced in the cannabis industry specifically, is full of seasoned company executives. The primary source of risk from this opportunity is the investment terms. While a 25 times revenue multiple is somewhat reasonable at the intersection of SaaS and cannabis, Bloomstack will have to grow significantly to justify that valuation — and grow significantly beyond it — to provide investors solid returns.

It’s too soon to say whether Bloomstack’s product actually satisfies the needs of cannabis business owners. Moreover, the company faces significant competition in the cannabis SaaS space. Numerous software companies have popped up in this industry, and none of them seem to be performing that well. (A notable competitor, Trellis, was acquired at just 1.8 times revenue last year.) 

It seems as though Bloomstack’s success might hinge on its expansion to additional industries, a path that Bloomstack’s founder seems to be considering. However, that goal poses a contradiction. Is Bloomstack valuable because it is highly specialized to cannabis industry regulations, or is it a more generic tool that could be used in any industry? Both options present risk. If Bloomstack is too specific, its market size is limited. But a generic business software tool is subject to intense competition on nearly all fronts. All in all, it seems as though Bloomstack’s long-term prospects could be limited.

Marijuana legalization has caused a unique market boom, presenting significant opportunities for entrepreneurs to innovate at every stage of the growing and selling cycle. Bloomstack’s core premise that it’s difficult to run a cannabis business due to hefty compliance requirements seems to be a solid one. It’s also an advantage that Bloomstack’s product is fully built out and generating revenue from beta customers. While Bloomstack isn’t a first mover in this niche, its product does seem to be on the leading edge of sophistication and adoption. 

While Bloomstack undoubtedly faces a difficult path ahead due to intense competition, there are positive signals that it bears unique advantages. The Bloomstack team is deeply experienced with many decades of combined expertise in business and technology. Bloomstack’s product has attracted 43 paying beta customers, and the company’s year-over-year revenue growth of more than 500% is notable. A potential expansion into new industries is also promising (though Bloomstack will need to be cautious about preserving a niche application in cannabis if it does choose to expand). While it’s very early, prospective investors could easily be bullish on Bloomstack’s potential in this booming space.

Bloomstack is an all-in-one business management software platform for the cannabis industry. With a customer relationship management tool, an e-commerce platform, a human resources management system, and a variety of other tools built into one centralized system, Bloomstack offers cannabis business owners a streamlined way to manage all aspects of their business (including complex compliance reporting) without having to pay for and integrate multiple different software tools. The company experienced nearly 600% revenue growth from 2019 to 2020 and has more potential to expand when sales and marketing kick off later this year. 

On the other hand, it’s too soon to say whether Bloomstack can actually achieve product-market fit. Arguably, Bloomstack’s platform is too generic and not valuable enough for users to justify switching from better-developed tools like Salesforce and Shopify. It’s also unclear whether Bloomstack plans to double down on the cannabis industry or expand to serve other types of businesses, and both of those paths pose a risk. Therefore, Bloomstack has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.