Cannabis e-commerce platform Dutchie launched its long-awaited payments solution on Wednesday. Called Dutchie Pay, it is an automatic clearing house (ACH) solution and a vital part to Dutchie’s plan to create a closed loop e-commerce, POS and payments system for cannabis businesses.

“We saw an opportunity here to basically lean into our mission, which is to provide safe and easy access to cannabis and provide a digital payment solution,” said Zach Lipson, co-founder and Chief Product Officer at Dutchie, told Cheddar News. “So think of it as kind of that third piece of this ecosystem, and it really completes [that loop].”

Dutchie, which is like the “Shopify meets DoorDash” for cannabis, according to CEO Ross Lipson, teamed up on an ACH integration with payments provider Hypur in 2020. Dutchie Pay represents the company’s first in-house, integrated payments solution and is one of the first products to come out of the $100 million that Dutchie executives committed to invest in research and development, according to TechCrunch. It works by linking customers’ bank accounts to an ACH network that permits direct debiting to purchase cannabis products. Zach Lipson described it as a “seamless” solution that integrates with the company's e-commerce and POS systems and only requires customers to input banking information once.

Because cannabis is federally illegal, banks and credit card companies are reluctant to work with these companies. That has contributed to a cash-heavy industry that, at best, is a headache to consumers and stumbling block for business. At worst, it puts cannabis dispensaries at risk of opportunistic crime. The popular bipartisan Secure and Fair Enforcement (SAFE) Banking Act could solve these problems by providing a safe harbor for banks to service the cannabis industry. The bill has passed the House of Representatives six times, but faces barriers in the Senate. In the interim, companies like Dutchie have risen up with solutions to help with the cannabis cash problem.

“When legitimate businesses in populated areas have to deal in cash, it can create a really serious problem. You know, we're excited to kind of do our part with Dutchie Pay to bring a safer way to handle payments to the space. And in the future, I think we're excited to continue to push towards a more normalized payments environment,” Lipson said.

Several months in advance of Dutchie Pay’s official launch, the company began testing the technology with dispensary partners. Lipson said that on average the payment solution increased order values by 30 percent and decreased cart abandonment rates by 32 percent. There was also some early indication customers using Dutchie Pay return more frequently, as well, he said.

“The convenience of that feature and the fact that they're not limited and held back by cash is definitely a major contributing factor to this,” Lipson said. “If our dispensary partners can see customers coming back more frequently because of the payment methods that we are offering, that's an amazing indicator as well.”

For now, Dutchie Pay only works for online purchases, but Lipson said the company plans to roll out the feature for dispensaries to use in-store in the future.

The product launch follows a report from Forbes that some Dutchie investors were looking to sell their shares of Dutchie at a valuation of $1.7 billion, which is a 55% discount to the $3.7 billion valuation the company earned when raising its $350 million series D in October 2021. Lipson confirmed reports the company laid off 8 percent of its staff, but denied the valuation had tumbled.

“Our valuation is completely unchanged since our series D,” he said.

Alongside other sectors like tech, cannabis stocks have taken a major hit in recent months amid soaring inflation, Russia’s war with Ukraine, and a possible recession. Experts at cannabis advisory firm Viridian Capital Advisors wrote in a report that a coming recession with “wallet-busting prices” could be “less favorable for cannabis” than the last, which boosted the industry with money from stimulus checks and the essential status granted to cannabis businesses in many states.

AdvisorShares Pure US Cannabis ETF (MSOS), which tracks major U.S.-based cannabis companies, has dropped 54% since the start of the year. Canopy Growth and Tilray, Canadian cannabis companies with U.S. exposure that trade on the NASDAQ, have tumbled 70% and 50%, respectively, year-to-date. Capital raises in cannabis are down 63.5 percent year-to-date, according to Viridian Capital Advisors, which tracks debt and equity raises for cannabis companies in the public and private markets. 

Private investment, more specifically, has also stagnated compared with 2021. According to PitchBook, cannabis companies have pulled in $670 million in venture capital across 82 transactions through July 19, 2022. That’s a fraction of the $2.58 billion and the $2.98 billion cannabis companies attracted throughout the full years of 2021 and 2019, respectively. In terms of private equity, cannabis companies have attracted $13 million across four transactions year-to-date, versus $23 million and $70 million in 2021 and 2019, respectively.

Jeffrey Finkle, CEO of Arcview Group and Arcview Ventures, said the cooling funding environment indicates a “supply and demand imbalance for capital.” 

“When investors see a big pullback in the public markets, they know that the ultimate exits of private companies could be impaired until that corrects,” Finkle said. 

A downturn can create opportunities for investors to buy the dip, putting money back into public stocks, but market pullbacks can also impact valuation, even in the private market. Mismatched expectations between investors and entrepreneurs can stunt investment if entrepreneurs don’t recalibrate their valuations.

“Because valuations at the public markets have been depressed, that has an effect on setting valuation all the way down the stack. When this happens, and it happened in 2020 also, entrepreneurs spend too much time trying to raise money at their lofty, euphoric-era valuations,” Finkle said.

When it comes to Dutchie and its valuation, Finkle said “the market is going to speak to it or is speaking to it now.”

Snoop Dogg-backed investment firm Casa Verde has been an investor in Dutchie since 2018, according to TechCrunch. The firm also participated in the October raise which valued Dutchie at $3.7 billion. Casa Verde managing partner Karan Wadhera said the firm is “still happy with that decision” and would “absolutely” invest again. 

“Zooming out, thinking about the long-term value of what Dutchie has to offer, their dominance in the market and what can come from being the dominant POS, e-commerce player in the space, absolutely I think the business is going to be valued, eventually, a lot more,” he said.

Lipson said Dutchie is not looking for fresh investment again soon, but companies that need to fundraise will likely find themselves in a more hostile market than a few months ago. 

Despite the challenges, firms are still investing in the right opportunities at the right price. Wadhera said Casa Verde is actively investing in businesses that will be “foundational to the cannabis ecosystem over the long term,” even after federal legalization.

“In this moment, in this time, you need to really be able to walk us through your ability to make all these dollars last through potentially another year, and then you would have a more vibrant funding environment,” he added.

Both Finkle and Wadhera agree the industry’s unique catalysts make it particularly resilient, even in the face of economic challenges.

“The stair steps of growth in our industry have a lot to do with what states are coming online. So New York, Connecticut, New Jersey are all coming online next year. It’s going to be an amazing opportunity to sell product to operators in that market. That's not happening in tech,” Finkle said.