Boasting over 1 million users, MassRoots (or “MSRT”) is one of the hottest cannabis social networks out there, and functions as a platform with capabilities similar to those of Instagram and Yelp where users can post marijuana-related pictures & videos and local businesses can advertise their goods and services. The app and website have come a long way since MassRoots’ inception in 2014. Overcoming numerous obstacles (e.g. the difficulties of obtaining funding due industry’s nature, being banned from app stores, etc.), MSRT has made great strides since having only 100K users in early 2014, constantly and consistently improving, and has been on a fundraising tear having recently raised over $7 million of fresh capital since October last year (when cash in the bank dipped to a paltry $126k). Yet while we are excited about the industry’s overall prospects, we believe the marijuana industry is not yet ready for social sharing of cannabis consumption, due to the fact that people are not yet comfortable posing with a still federally illegal substance. As a result, the social network effects won’t take root with MassRoots.
First, the positives. The legal cannabis market is expected to grow to ~$24 billion by 2025 according to New Frontier Data, a projection that assumes no new states will pass legalization legislations. And there are numerous exciting ongoing developments for cannabis social networks. MassRoots was recently approved for listing on Google Play, opening up the android market again after a compliance review, and is set to imminently launch a revamped website and app. MassRoots also plans to provide a business portal that will consolidate many online marketing functions for cannabis-related businesses in one central platform. When medical cannabis becomes legal in a state, MassRoots expands into it, gaining new social and business users.
Yet, cannabis social networks are stuck in low gear (and at an early stage), and won’t change unless there is more comfort surrounding marijuana usage. The main reservation we have about MSRT is that with the federal illegality of cannabis still being the strong status quo, users do not yet feel comfortable fully portraying themselves and their colleagues in the cannabis related content they publish. Simply open the app and you will see the lack of diversity in posted content where pictures are often close up shots of different strains of marijuana or smoking materials, all of which can get boring quickly. Mediums like Instagram has a wider and richer diversity of pictures. Some of the pictures on MassRoots are not necessarily visually appealing either, like a quick snapshot of an edible item or a pipe, and can be of low quality. Social networks rely on having a critical mass: because MassRoots cannot be downloaded in states without legal medicinal (or recreational) marijuana, there are challenges to it achieving viral customer growth.
For a variety of additional reasons, we think Massroots will have limited traction:
- Dispensary visits by customers are often done discretely: as a result, the creative potential of MassRoots’s user base is limited and you won’t find too many pictures of people out on cannabis adventures and activities. This is a fundamental characteristic of a social network that is lacking in MassRoots (or very weak).
- Illegal use mode as network for banned activity (such as finding black-market dealers through use of app): the only legal venues for marijuana purchase are licensed dispensaries or caregivers in accordance with state regulations. Simply look through the comment sections of a few pictures and you might come across the contact information of black-market cannabis dealers trying to get referrals. While the company has made initiatives to combat this, it is difficult to moderate this kind of behavior, and it can continue to drive MassRoots into legal gray issues. NASDAQ cited this as one of the main reasons denying MassRoots a listing on the exchange.
- Sharp slowdown in user growth: it took MassRoots 8.5 months to get their last 100k users (bringing them to over 1 million total users as of March 20, 2017). It took them a little less than 4 months to go from 800k to 900k users and 2 months to go from 600k to 700k, so the trend is one of decelerating growth. We find this a bit surprising given the backdrop of the large amount of publicity surrounding the very successful marijuana referendums in November; that publicity has not translated to faster user growth. Might this be because most people are already familiar with the products in available markets and excitement for the app is waning? Why doesn’t Massroots share more relevant figures measuring the amount of its users’ engagement, such as the number of active users who have logged on over the past month, a metric frequently used to measure internet traffic?
Non-social platforms like Leafly are substantially more popular, with more than 8.4k ratings in Apple’s App Store (11.4k for Weedmaps) compared to 1.5k ratings for MassRoots. While the App Store does not release number of downloads, sites such as SensorTower have estimated that Leafly and Weedmaps have received 5-10x more downloads and do not restrict user access based on location (both Leafly and Weedmaps allow downloads in any state but MassRoots only allows downloads if the user’s state has legalized marijuana).
MassRoots had to reduce headcount by ~30% and cut salaries in Q3 2016 because of lack of profitability, noting in their filings that their accounting firm “has expressed doubt about our ability to continue as a going concern” (read: the business needs to raise money or will go out of business; fortunately it was able to raise money). If implementing marijuana rules gets delayed in the handful of states that legalized it in November, advertising revenue and user growth may slow further for MassRoots. And while we are confident there will be space for successful cannabis social media networks, we aren’t yet MSRT believers or sure MSRT will be the winner. Clearly the first mover advantage MassRoots has in social media is very valuable, and we would like to say that no matter what, they will continue to grow along with the industry but…remember MySpace? MySpace investors could have reaped a massive payday, being invested in one of the first and, at one point, largest social networks by user count. Yet it wasn’t until Facebook came along and played its cards right (both in designing the proper social network and then later transitioning to mobile) that the true market bore fruit. Is MassRoots just another MySpace?