Grassroots Funding

04.06.15 9:25 AM ET

The First Weed Tech IPO

This week, Mass Roots—a sort-of Facebook for weed lovers—will be one of the first canna-businesses to go public.

Depending on your appetite for certain leafy psychoactives, you may or may not be aware of the quiet revolution that is happening with marijuana-based social media apps. From dating sites like High There and My420Mate to invite-only networking platforms like KushCommon, a recent David and Goliath-like victory from one of their kind has opened the floodgates.

It all started when Mass Roots, an upstart “Facebook for stoners,” took on the mighty Apple after being banned from the app store last November and, somehow, managed to beat the behemoth.

“We were trending under social networks in the app store, and Apple came after us saying, ‘We don’t want an app for a bunch of people being high; we don’t think that type of content belongs,’” explained Mass Roots CEO Isaac Dietrich. “So they put in a rule that said all marijuana social networks were prohibited. For dating, anything.”

This led to three months during which iPhone users couldn’t sign up, a troubling situation for the burgeoning social superstars.

“Existing users could still use the app, we just couldn’t register new people, which killed our growth, and that would have killed the company over the long term,” Dietrich noted. Bucking the pushover stoner stereotype, however, team Mass Roots wasn’t about to take this lump lying down.

“So in January we united the cannabis industry against this policy,” he said. “Over 10,000 of our users sent personal emails to Apple saying why they loved Mass Roots, ranging from ‘I just met my husband on here’ to ‘I suffer from anxiety, I need a social support network’ to 'I’m a Colorado resident and you are violating my right to free speech.’ A private company doesn’t have a right to tell me what app I can and can’t download on my phone."

Dietrich then got the marijuana investment fund ArcView Group and the National Cannabis Industry Association to write a letter to Tim Cook arguing that his policy was hampering innovation in the cannabis industry.

And, somehow, it worked. In late January of this year, Apple shifted its rules and once again allowed pot social network apps back into its app store, so long as they could guarantee that their users were located in one of the 23 states where marijuana use is legal for at least prescribed medicinal use. Mass Roots won the war, but their victory had a few unintended consequences.

“So they started allowing all of these other marijuana social networks in,” Dietrich noted, with just a hint of frustration. “So we went pretty much from having zero competitors to having five competitors, overnight.”

But adversity bred opportunity for Mass Roots. This week, they’re going public. Appearing under the ticker symbol MSRT, it will be one of the first cannabis-related IPOs from the Securities and Exchange Commission, which sounds impressive, but it's also par for the course for the collective of tech-savvy college dropouts, all of whom are under 23 years old. The numbers behind their ascension to the top of the social weed pile are dizzying, but here’s Dietrich’s quick breakdown:

“We launched a minimal viable product in the app store in July 2013,” an idea, he is quick to point out, he and a friend came upon, naturally, while smoking weed. “Our app had so many bugs at first, half the stuff didn’t work, but people used it anyway. That’s how we knew we had a market. People used the app to post about what and when they’re smoking, and to follow their favorite dispensaries. It’s an all-purpose cannabis network. We raised $150,000 in seed round from the ArcView Group in the fall of 2013. We invested those funds growing to a 100,000 users by March of 2014. Then we raised a $475,000 series A round at a $5 million valuation, and we used those funds to scale to 175,000 users by September 2014.”

Dietrich says Mass Roots is now home to 275,000 users, which may not sound like much in the parlance of conventional social networks, which scale to millions and billions. But then, Mass Roots and its users aren’t exactly conventional. At least not yet.

“All our users are within the 23 states that have legalized medical cannabis,” he said. “So while it’s only 275,000 users, 9 out of 10 people aren’t interested in our app because they don’t consume marijuana on a regular basis. And of that 10 percent that is interested, we can only register people in just under half the country.”

As the repeal of cannabis prohibition continues to gain steam on a national level, the fact that the SEC is allowing companies directly related to the pot industry is worth noting.

“It’s interesting, because most of the time the SEC declares a registration effective after it clears the comment period,” he explains. “Well, since our company could be deemed as aiding and abetting an illegal activity, they reverted back to a policy that they haven’t had in place for 30 years. So basically, since the SEC didn’t object to anything that we stated after 30 days, our registration was allowed to go through. It’s actually a policy that they’ll now be applying to all marijuana-related companies.”

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And for the slowly eroding prohibition, well, expect to be hearing a lot from Mass Roots in 2016.

“We’re just having the time of our lives. It’s not really work, it’s what we love doing, and we’re making a real difference,” said Dietrich. “And in the 2016 elections, where there’s cannabis prohibition on the ballots, well, we’re gonna be active in every single one of those elections.”

Industry experts place the domestic cannabis biz at an estimated $10.2 billion by 2018. That’s roughly the same as, say, the much more established and ubiquitous, construction industry, or 1/9 of the $90 billion liquor market. Mass Roots is poised and willing to take its fair chunk of this green pie.

“We built a user base of 275,000 people, and it was originally consumer to consumer. So finding smoking buddies, posting pictures of yourself smoking. Then we started adding in dispensary profiles, which is where we’re at now. And as soon as regulations allow, we’re going to start allowing order ahead and delivery,” he said. “We’ll just move in to that stage, which will be easy to do, since we’re essentially creating a distribution channel with our social app.”

But as Dietrich and company slowly climb the stoner corporate ladder, they don’t lose sight of their own roots.

“We got the idea for Mass Roots while we were smoking–all of our features, what we’re doing, all of this stuff–comes from smoking,” he said. “A company like ours could never be run by a big corporation, with the suits and their corporate style.”

In the meantime, Mass Roots continues to charge ahead, founded on what may be one of the universal truths:

“I don’t want my mom to see a picture of me taking a bong rip every time she logs on to Facebook, you know?”