It is hard enough to start a business from nothing and get it flying, but social media startup MassRoots was dealt an atypical business problem late last year when Apple pulled the MassRoots app from its App Store. While iPhones (and other iOS devices) make up a modest-sounding 12-15% share of the smartphone/tablet market, iPhone usage is likely to be much higher in the exact demographic that MassRoots most wants to reach.
Denver-based MassRoots is a distinct first mover into what could become a valuable corner of the social media ecosystem—a community by, of, and for cannabis enthusiasts. A place to share photos and videos, find friends, proclaim your strain to be the best tasting ever, and maybe even find a date. And it operates on a semi-anonymous basis that fits a definite need in a world where cannabis users can’t yet be “out and proud” to all people in all places.
But while MassRoots wasn’t the only cannabis-based app to be booted from the Apple ecosystem last November, it was an abrupt reversal after the Instagram-esque app had been downloaded 120,000 times in over a year on the App Store. MassRoots, along with some other interested digital parties, penned an open petition to have Apple reverse the ban, which has received around 10,900 signatures to date.
MassRoots was founded by Isaac Dietrich, who is barely old enough to drink legally but already a veteran entrepreneur. He has worked on political campaigns and he has taken a page out of the book of one of his business icons, PayPal co-founder Peter Thiel, by skipping college and devoting himself to his passion right now.
In less than two years, MassRoots as a mobile app has grown from something Dietrich was just pleased to gain some traction with, to over 215,000 users, the vast majority connecting via smartphones. It has also raised over $600,000 in seed funding from investors like Dutchess Capital and the ArcView angel network, and filed an S-1 pursuant to a public offering, which should occur in the first quarter of 2015.
MassRoots’ Near-Term Operating Goals
For now, the company is doing what any able-bodied tech startup would do: focus on growing users (Dietrich wants to get to 1 million), keep them engaged and begin to monetize said engagement. MassRoots has yet to roll out its business advertising portal or distribute its developer API, so the company has yet to generate any revenues. Cash burn has eaten up somewhere around $1 million (per the S-1 filing), as capital expenditures need to keep pace with the technological demands of growing a network.
But as long as user growth continues, investors will be attracted to the audience MassRoots is building, as it is represents the apex of millennials (the vast majority of users are between 18 and 24) who are cannabis enthusiasts. To a legal cannabis business owner, it is your dream audience in terms of the conversion potential of an advertisement.
As Dietrich has put it, “we’re getting ready to launch our MassRoots for business portal here within the next few weeks, which will allow a dispensary in Denver to promote a post just about edibles to edible consumers within a 20-mile radius of their dispensary. It’s data that no one else has … Facebook, Instagram, and Google banned marijuana-related advertising on their networks. And we really feel that the users on our network are those hardcore consumers, where the value per consumer is hundreds or thousands of dollars to these dispensaries over the course of the year.”
Apple has been generally mum on the matter of which apps are ok for inclusion and which ones are not, but its proverbial line in the sand seems to be apps that promote recreational versus medicinal cannabis use. Even though MassRoots made some design changes (to make it easier to ascertain whether a user is in a state where consumption is legal) Apple would not reverse its call. And Apple’s rules are “fungible” enough to allow the company to remove pretty much anybody it wants. It is Apple’s house and Apple’s rules, and it is why the company has spent billions building out and protecting its ecosystem.
Because with all due respect to MassRoots, who has a legitimate beef with the company, Apple has zero to little incentive to stick its neck out on this one. Even if it is a sub-2% chance that the government would ever crack down on Apple for supporting illegal drug activity, why should it take the risk?
It is the same reasoning just about every financial institution in the country has taken with regards to allowing dispensaries and other cannabis-centric businesses to join the mainstream financial markets. Sure, there could be a few extra pennies of profit to be made here and there, but on a risk/reward level it is not hard to understand why established industries take the line that they do.
When will they change? When the collective weight of societal and cultural groundswells tip the monkey off the nation’s back, and not a second sooner. Nobody knows when it will happen, but when it does MassRoots will be waiting with its network to face the onslaught of competition from the likes of Facebook and Instagram.
Right now MassRoots users have engaged in over 50 million transactions on the company’s network. That shows impressive loyalty and a “power user” mentality. Investors will look to see the strength of that loyalty, along with the overall growth of the network, to determine how much revenue can be earned by MassRoots when the monetization valves are opened.