Stem Holdings’ Latest Move Puts Delivery in the Driver’s Seat

Stem Holdings’ Q4 deal to acquire Driven Deliveries does more than simply provide the vertically integrated company a new suite of consumer-centric technology: It recasts the Florida-based multi-state operator as an outfit focused on data and last-mile logistics in a changing economy.

One easy takeaway: Delivery is a new and important cog in a cannabis portfolio.

RELATED: Which States Allow Cannabis Delivery?

The all-stock transaction clocks in at C$41.3 million ($31.5 million U.S. dollars) between the two publicly traded companies, both of which list on the OTCQX and the OTCQB, respectively, and will be now known as “Driven by Stem.” The combined market capitalization is expected to be (USD) $54 million based on the closing market prices of both companies’ shares, according to the official announcement from Stem Holdings.

“We will apply Driven Deliveries’ technology, footprint, and distribution capability to all markets, and leverage our own licenses and retail dispensaries to service more consumers in every state in which we operate,” Stem CEO Adam Berk said in a public statement.

Stem Holdings’ portfolio includes cultivation, processing and retail assets in Oregon, California, Nevada, Oklahoma and Massachusetts (as well as hemp cultivation assets in New York and Pennsylvania, and corporate headquarters in Florida). The company is perhaps best known for its ownership of TJ’s Gardens and Yerba Buena in Oregon.

Driven Deliveries has built a network that serves 92% of the California population with its Ganjarunner and Budee platforms, according to the company. Since Driven was founded in 2013, the direct-to-consumer retail landscape has changed dramatically.

In May 2020, Driven Deliveries reported it notched an 18% increase in new consumers over April and a more than 20% increase in gross collections. No doubt, the social effects of public health policies have led cannabis users to pursue delivery options for their purchases—much like fast-growing food delivery services are seeing.

“Home delivery continues to expand at a rapid pace in cannabis, along with other sectors,” Berk said in a report to investors following the acquisition announcement. Berk’s background as CEO of Osmio (now known as Grubhub) provides him and the Stem team with experience on the vanguard of changing consumer habits. Berk joined the Driven Deliveries board of directors in March 2019.

The story of cannabis M&A in recent years has been one of market share and multi-state expansion. Now, with capital markets running dry and a global pandemic continuing to exert economic pressures across the board, the strategy is tightened. Technology assets can help build a vertically integrated portfolio in different ways than pure geographic reach.

Earlier this year, Stem began collaborating with Driven Deliveries out of the recently acquired Foothill Health and Wellness, a dispensary located east of Sacramento. By integrating Driven Deliveries’ platforms, Berk said, the dispensary saw its retail reach quickly expand beyond its local customer base in El Dorado County.

In California, the rapid acceleration of delivery is a tangled business. A high-profile acquisition of cannabis delivery platform Eaze by Caliva fell apart in the spring of 2020 when Caliva decided to partner with electronic payment service Hypur and simply develop its own delivery platform. In June, Hightimes Holding Corp., which only recently entered the cannabis retail space, entered into an agreement to acquire Mountain High Recreation Inc., a Sacramento-based delivery service from which Driven Deliveries acquired a license and additional assets one year earlier.

“We see this as the new paradigm of cannabis brands and supply chains in the U.S. market,” Berk said. “Connecting to consumers with an omnichannel solution is the future.”

Eric Sandy is digital editor for Cannabis Business Times, Cannabis Dispensary and Hemp Grower.