Dutchie Raises $100M at $400M Valuation, An 89% Discount from Last Valuation

Several sources have confirmed that Thrive Capital, in combination with existing investors, have recently invested $100M into cannabis POS company Dutchie at a $400M post-money valuation. That would be 89% lower than Dutchie’s last valuation of $3.8B set in the market frenzy of 2021. 

From this piece:

In October 2021, Dutchie announced that it had raised a $350 million Series D at a ~$3.8 billion valuation led by D1 Capital Partners with participation from Tiger Global, Dragoneer, DFJ Growth, Thrive Capital, Gron Ventures, and Snoop Dogg’s Casa Verde Capital. In total, the company has raised $603 million. Forbes estimated that Dutchie had ~$45 million in ARR in 2021, which meant that the Series D was conducted at a ~83x trailing ARR multiple. Publicly traded horizontal and vertical software companies trade at 2.7-11.6x revenue as of April 2023, though they previously reached highs of ~70x in 2021.

In April 2022, it was reported that some existing Dutchie investors had explored selling their shares at a $1.7 billion implied valuation, less than half the ~$3.8 billion valuation it had achieved in October 2021. Some investors were reportedly offering to sell their shares at valuations under $1 billion.

Imagine raising $700M to be worth $400M.

If true this might be one of the biggest erosions in shareholder history, particularly in retail tech.

(NYSE Olo is close, having raised $520M to be worth… ~$520M).

Ouch.

This meltdown stems from Dutchie’s mismanagement: they raised at unsustainable rates and prayed the call option on payments would hit. Further, they bought a number of competing products to roll up market share but some of those are still operating as separate business units.

Frankly, someone wasn’t giving them sage financial counsel. 

Payments will hit eventually, but we could realistically be looking at ~5 years from now. And that might be conservative. 

Dutchie was creative in their workarounds to try viable payment modalities, but the duopoly of the card schemes determined there was too much reputational risk and defined Dutchie’s crypto creativity as layering (PS: Visa and Mastercard really should get legislated as utilities). 

We were told Dutchie was burning upwards of $50M annually and the deal was done at 6x revenues: assume Dutchie was earning $70M of ARR, with maybe $15M of that associated with payments from Dutchie’s debit rail.

And as readers likely know, all debit retails, Dutchie’s included, were unceremoniously shut down in August of 2023 as the card schemes decided to fight the debit rails that were routing cannabis transactions. 

What happens to Dutchie and cannabis from here?

Our hot take.

First, Dutchie employees are screwed: their shares are crammed down and underwater. Thrive Capital resets the cap table and earlier, non-participating investors also eat crow. If you were an employee at Dutchie you had better negotiate higher cash compensation because your equity is worthless.

The founders are probably hosed, though we wouldn’t be shocked if the ouster-in-Chief from Toast magically ended up fine after the recapitalization.

Second, this opens the door to a new POS leader in cannabis. Dutchie will likely catch a bad reputation, and we have to imagine Dutchie gets desperate to drive some residual value, which likely means their customers get hosed as Dutchie takes more cues from Toast, who similarly faced disenchantment with their $1 fee foisting.

We already have early indications of dispensaries leaving Dutchie for alternatives as some of Dutchie’s marquee multi-store clients are out with RFPs for POS). Smaller operators are also leaving Dutchie, frustrated with Dutchie’s performance and lack of support.

On the aggregate, after peak cannabis in 2021, the market needs consolidation. There are simply too many vendors chasing too few dollars: this was abundantly clear to us after attending MJ Bizcon this year.

But with cannabis highly likely to be rescheduled to a Class III in 2024, dispensaries will finally enjoy the tax deductions for ordinary operating expenses that every other industry enjoys, and that will lighten some of the financial constraints and usher in new investment in the market.

It might actually be the right time to double down in cannabis, as contradictory as that may feel.

Just be careful who you double down with.