Leafwire is currently raising a convertible note at an $8 million valuation, with a 15% discount rate. Given the platform’s serviceable infrastructure, fleshed-out service offerings, and many thousands of users, as well as significant revenue in the past year, this is a reasonable valuation. Leafwire’s price score is about average as a result.

It’s safe to say that legal cannabis is a market unlike any other, literally just coming into its own. The legal market was valued at $17.5 billion in 2019 and is projected to grow at a 17.8% CAGR over the next several years to reach a value of around $65.1 billion in 2027. In truth, these estimates are necessarily educated guesses made with smoke and mirrors. Unlike many sectors of the economy, the government — federal and state level — will have an enormous influence on just how explosively cannabis grows over the next several years.

Assuming legalization passes on a federal level and subsequently across U.S. states, the industry will next need to overcome its glaring PR challenges by opening the minds of consumers to marijuana use, medical and otherwise. Research suggests that 12% of Americans already smoke marijuana, a number that has remained steady in the past half-decade. As American consumers become more open to potential health benefits and recreational uses of the drug, the market could expand even further.

Of course, Leafwire is not a manufacturer and doesn’t get to bite into the regular cannabis market. This startup takes its revenue from industry professionals. For Leafwire, this is both good and bad news. wWhile premium subscription fees provide a necessarily low profit margin, cannabis industry jobs are growing faster than any other industry in the U.S. As of January 2020, the industry held 243,700 full time positions, up 15% from the previous year. Obviously, this isn’t a huge potential customer base — the closest analogous social media giant, LinkedIn, has over 260 million monthly users. Still, with recurring revenue sources from emerging leaders in the industry, Leafwire could stand to benefit from a national surge in cannabis interest. 

It’s also worth noting that Leafwire faces a number of social media competitors, such as Cannabis Pros and Weedlife, as well as other platforms less focused on the industry itself and more on cannabis growth and consumption. As of now, Leafwire holds the dominant position in its particular niche: professional, legal cannabis production.

Due to the high level of uncertainty in the cannabis market, Leafwire’s market rating is below average.

As cannabis growing is a new industry, it’s fair to say that there are few true industry experts out there. Peter Vogel, Leafwire co-founder and CEO, has experience in business but is a newcomer to the cannabis industry. Vogel spent several years in business development of “Online-to-offline” ad platform Empyr. Empyr was eventually acquired by competitor Augeo — a successful exit, though it occurred three years after Vogel left the company. Vogel also co-founded Plink, an online-to-offline brand loyalty platform, which he left in 2014. Vogel is a longtime resident of the Denver, Colorado area, which has given him an up-front perspective of the start of the cannabis industry.

Marc Marin, Leafwire’s COO, has a long history of working with Vogel, having co-founded Memolink.com with him more than two decades ago. Marin also worked with Vogel on Plink and has several years of upper-level management and consulting experience in brand loyalty industries and startups. Marin holds an MBA in Operations Management from Binghamton University. Scott Wollaston serves as a part-time CFO for Leafwire, among other companies, and specializes in working with startups to develop viable business plans. Finally, Michael Kelley serves as Leafwire’s Director of Business Development. Kelley specializes in B2B relationships, and has decades of experience in sales growth and development.

All in all, while the team has experience in industries that could be considered parallel, they are by no means experts in the social media landscape or in cannabis. Thus, Leafwire’s team score is low.

As a result of cannabis’s ongoing emergence, the good news for Leafwire is that there is no one dominant social media network for cannabis producers — indeed, if there is one, Leafwire is it. The bad news is that the space is enormously competitive and is likely to become more so as cannabis use is legalized across the U.S. While its service is proving popular with users — as its high level of monthly users demonstrates — Leafwire will need to keep its premium fees moderately low to prevent competitors from sweeping in with similar services for lower prices. Leafwire’s early mover advantage balanced against the likelihood of future competition has netted the company an average differentiators score.

At its current stage, Leafwire has secured a sizable portion of the cannabis industry. The platform has more than 36,000 members. The majority of those — 25,000 members (accounting for more than 10% of all cannabis industry jobs) — are active monthly users, and users have made more than 700,000 connection requests. The platform overall grew 700% from January 2019 to October 2020. Buoyed by legalization victories and partnerships with companies like Marijuana Business Daily, Leafwire has begun taking in revenue. In 2019, Leafwire took in $95,173 in advertising and $15,839 in subscriptions, as opposed to basically no revenue at all in 2018. As of October 2020, the company’s reported YTD revenue was $196,000. That’s a significant increase over 2019 numbers, though it remains to be seen if and how business operating costs have increased.

The company has had to take on significant liabilities of nearly $500,000 in short- and long-term debt, which is significant but not particularly concerning. The company does have a relatively weak cash position, but expects to be able to use funding from this round to finance further growth and develop a mobile app. The combination of early revenue and strong early traction with users is reflected by Leafwire’s above average performance score.

While the cannabis industry’s skyrocketing growth rates are exciting for startup investment, such investments are the definition of counting one’s chickens before they hatch. Even now, with Leafwire’s membership comprising a sizable portion of the cannabis industry and publicly acknowledged as the largest cannabis business connectivity platform, the company is far from profitable.

Leafwire projects continued aggressive growth in the coming months. However, it is relying on not only increased adoption among current industry employees, it also requires an expansion of the industry itself. In order for Leafwire to meet its growth goals, it needs Congress to legalize marijuana, medical and/or recreational (preferably both), and it needs American consumers to overcome their preconceptions about marijuana use. If any of these links in the chain should fail, Leafwire will find its rapid growth eventually slowing, and its costs will outweigh its revenues. Even if the industry does continue to expand, it’s not entirely clear that Leafwire’s services will be deemed necessary by the growing industry. If, as the industry hopes, cannabis production and use becomes de-stigmatized, there could be no reason for specialized cannabis social media platforms.

On its most basic level, Leafwire has seen a need in the market and sought to fill it. Like any workers, cannabis producers have social and networking needs that must be met to build a thriving market, and Leafwire is providing the largest-available place to do so. In social media networks, size is everything.

If current trends bear out and marijuana use becomes legalized and further accepted, Leafwire holds the momentum to grow along with the industry. If the market merely doubles in the next six years and Leafwire manages to capture a quarter of that market while encouraging access of its premium services, the service could easily be taking in over $1 million in revenue per year, and possibly much, much more.

Designed to serve a growing cannabis industry, Leafwire is a social media platform intended to connect workers and businesses from all corners of the market. Growers, dispensary and CBD workers, lawyers and HR professionals — all are welcome on the platform, which is free to join but offers paid premium features. These premium options include advertising and job postings.

While cannabis is the fastest-growing industry in the U.S., it faces significant legal and PR challenges due to the country’s decades-long War on Drugs. Prior to legalization on a federal level, it remains to be seen just how much the industry will expand in the coming years. Even should the market size increase, Leafwire’s margin levels are necessarily moderate, and there’s no guarantee that workers will continue to gravitate to such a niche business platform. Leafwire has seen significant traction among cannabis and hemp workers thus far and enjoys a public reputation as the “LinkedIn” of cannabis. Still, the company’s future success looks uncertain at this time. Therefore, Leafwire 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.

Analysis written by Benjamin Potts.