Jay-Z invests in Flowhub, a cannabis payment company


Billionaire hip-hop artist and entrepreneur Shawn “Jay-Z” Carter has made another investment in the cannabis industry. But instead of selling hand-rolled joints for $ 50, his most recent investment is in a tech company that helps marijuana dispensaries process payments.

Jay-Z has invested in Flowhub, a Denver-based cannabis point-of-sale software company. The billionaire businessman turned music mogul participated in a strategic $ 19 million fundraiser that values ​​the company at $ 200 million. Flowhub has raised a total of $ 50 million to date. Headline and Poseidon Asset Management investment firms led the way.

Flowhub, which was founded by Kyle Sherman in 2015, helps dispensaries process transactions, track inventory, and comply with state cannabis laws. Each year, Flowhub processes more than $ 3 billion in marijuana transactions for more than 1,000 companies in 14 states.

“When Jay says, ‘I’m not a businessman, I’m a business, a man,’ that’s right,” Sherman said, referring to one of Jay-Z’s most quoted lyrics. “He has a strong business acumen, he really knows how to surround himself with brilliant people and build great companies.

Thanks to cannabis still illegal at the federal level, big federally insured banks like JP Morgan Chase and Wells Fargo are not serving space companies. Neither do credit card companies like Visa and Mastercard or payment processors like Paypal and Square. This means that most transactions in the industry, which reached $ 20 billion in sales last year in 36 states that allow some form of legal sale of marijuana, are done in cash. By 2030, the industry is expected to reach $ 100 billion in annual sales, according to Cowen.

“We’re still a cash industry and it’s 2021,” Sherman says. “It’s hard to believe when we run out of cards in our pocket with Apple Pay. ”

Most cannabis companies have limited access to the traditional financial system. The only banks that will serve cannabis retailers are local credit unions, which allow dispensaries to set up a bank account and pay their vendors, employees, and taxes by check, instead of bags of cash. As for customer transactions, most dispensaries put an ATM at the front of the store.

But Flowhub’s point-of-sale tools help dispensaries hide the complexities of a cash-hungry industry. Flowhub’s software allows customers to use their debit cards at checkout, but the transaction is not a debit transaction, it is technically an ATM withdrawal. “It’s not really a flow, but it feels like it,” Sherman says.

Emily Paxhia, co-founder and managing partner of cannabis fund Poseidon Asset Management, first met Sherman at a pitch competition in Denver in 2015. She was impressed that Sherman, before setting up her software company, had realized that the biggest problem for dispensaries was that they had to manually report their total inventory and end-of-day sales to the Colorado Department of Revenue. If a government official passed by the company and the data in the government database did not match the inventory on the shelf and the amount of money in the safe, the dispensary could lose its license and face millions of dollars in fines. Sherman convinced the state to open its database to software companies to automate the reporting process.

“Sherman changed everything,” Paxhia says.

The Paxhia fund, which she manages with her brother, was Flowhub’s first investor.

For now, other payment processors will not serve the industry, giving Flowhub and its competitors a leg up in one of America’s fastest growing industries.

“Flowhub is the square of the cannabis space,” says Paxhia, referring to the payment processing company founded by Jack Dorsey. (Jay-Z has sold the majority of his music streaming service Tidal to Square and now sits on the board.) “There will be a few tech companies that will be the leaders in our space and Flowhub will be one of them. they. “

Jay-Z’s investment in Flowhub is just his latest move in the cannabis industry. In 2019, Jay joined California-based cannabis company Caliva as chief brand strategist, where he developed his premium luxury cannabis brand Monogram.

In November 2020, Caliva, Monogram and Left Coast Ventures, which own cannabis brands for musicians like Marley Natural and Mirayo by Carlos Santana, were acquired by a SPAC. The new company is called The Parent Company, a name Jay-Z came up with. Jay runs The Parent Company’s social venture capital fund, which invests in cannabis companies owned by Blacks and Browns.

Cannabis is just a fragment of Jay’s business empire. In 2019, he became the first hip-hop artist to become a billionaire. Jay-Z, who grew up in Marcy Housing Projects in Bedford-Stuyvesant, Brooklyn, has built a fortune from his music catalog – he’s amassed 14 No.1 albums and 22 Grammy Awards – and also owns Armand Champagne. de Brignac and part of Le cognac D’Ussé, not to mention his entertainment company Roc Nation and significant holdings in companies like Uber and Robinhood.

Flowhub has built a strong social equity arm. To date, Flowhub has distributed $ 1 million in free software to companies belonging to groups that are under-represented in the cannabis industry, including dispensaries owned by Black and Brown, women or veterans.

For now, banking reform efforts are stuck on Capitol Hill. The Secure And Fair Enforcement (SAFE) banking law, which was passed by the House for the fifth time last month, would allow state-regulated marijuana companies to access the traditional financial system, take out loans from banks and facilitate the payment of taxes. The Senate has not yet seized it. Until SAFE Banking is passed or cannabis is legalized federally, the industry is stuck in its current state of dependence on money.

Sherman says that the industry’s exclusion from the traditional financial system is its biggest obstacle. And waiting for financial institutions or the government to change their policies is not an option when an industry with tens of billions of dollars in annual sales needs help now.

“These banks are not engaging in the cannabis industry and federal legalization may not even solve this problem because a lot of these banks are playing the moral police,” Sherman explains, explaining that many banks and payment processors do not. do not do business with certain industries, especially those that have been culturally stigmatized, regardless of the laws.

Flowhub will soon be launching new tools that will help dispensaries and customers transact as easily as if they were selling coffee and donuts. These types of solutions, he says, will help spur the legalization of cannabis.

“Technology is going to take us to the next chapter,” Sherman says. “I think [the financial institutions] will start to wake up when they realize that multi-billion dollar businesses are being built around providing services to an industry that lacks support. “

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