Cannabis e-commerce startup Tokr, which just raised $1 million in seed funding, explains how it plans to broaden its appeal beyond hard core users

  • Tokr is an e-commerce startup that sells CBD and cannabis products direct-to-consumer.
  • The company recently raised $1 million in a seed funding round led by cannabis-based private equity fund Merida Capital Partners.
  • According to Tokr's founders, the biggest question from potential investors was about the company's marketing strategy.
  • As publicly traded cannabis companies struggle, Tokr Chief Operating Officer David Mukpo told Business Insider the key to success in the field is being well-capitalized.
  • Mukpo also said the cannabis industry will not consolidate around a single, Amazon-like platform for now.
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Tokr is an e-commerce platform for cannabis and CBD products that looks to stand out in an increasingly fractured field by using behavioral data to personalize recommendations to consumers.

In July, the company secured a $1 million seed funding round led by cannabis-focused private equity firm Merida Capital Partners, whose portfolio also includes dispensaries in California, Michigan, Florida, and Maryland. It previously received smaller investments from Canada's Cannabis Growth Opportunity Corporation and Arcadian Fund of California.

Read more: Cannabis startup founders share 4 critical lessons they learned while raising money in the unique industry

Legal US cannabis sales hit approximately $10 billion in 2018, and the estimated total demand is greater than $50 billion. Tokr does not directly sell cannabis or CBD products but provides a space for third-party vendors.

Tokr's co-founders told Business Insider that the topic raised most often by cannabis investors isn't their products or backgrounds but their marketing strategy. The 3-year-old startup seeks to introduce CBD and THC to people outside the heavy marijuana user demographic. But that's hard with Facebook and Google's ban on cannabis, CBD, and ingestible hemp product ads.

"The most common question we get is, 'How do you plan to speak to consumers in a real way?'" said Tokr chief operating officer David Mukpo.

Tokr claims to market its partners' products by using behavioral data to personalize the shopping experience

Tokr's founders said it gets around these regulations through sponsored events, partnerships with existing brands, targeted display ads and emails, and its core product, an app and website that aims to provide a tailored experience to people new to cannabis.

Another complicating factor, according to Mukpo, is that most Amazon customers already know what they want to buy when they visit the site, while many cannabis consumers need a significant amount of education and guidance before making purchases.

To that end, Chief Creative Officer Brian Campbell, a former Apple Music creative director, said he drew on Apple's ethos to simplify the shopping experience by sorting products into lifestyle categories like "Active Lifestyle" and "Sex & Sexuality" and targets users based on interest.

To avoid the struggles of publicly traded cannabis companies like Canopy Growth and MedMen, startups need to be well-capitalized

Mukpo said the company plans to move into series A fundraising next year, adding that Tokr looks to avoid the financial struggles of big, buzzy cannabis companies like MedMen, which recently parted with its chief marketing officer amid a stock slide, and Canopy Growth. Last week, beer giant Constellation Brands posted a loss of nearly $500 million on its investment in Canopy Growth.

Noting that most of the top publicly-traded cannabis companies have less than a year's worth of cash on hand, Mukpo said the key to success in this industry is to be well-capitalized, even at the expense of some shareholder equity.

Mukpo said he didn't think there would be an "Amazon of weed" anytime soon because the industry is still too fragmented and hyper-localized because of laws that differ widely by state. Mukpo predicted the industry could consolidate, but only after US legal policy becomes more uniform. The market must also evolve beyond its current state in which most distributors claim to offer their own unique brand of products, he said.

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