Baker, a top cannabis tech platform, just acquired its largest competitor. And the competition is hot on its heels.
Baker, a Denver-based customer engagement platform sometimes called the 'Salesforce of Pot', acquired smaller rival Grassworks, in the latest merger in the maturing legal cannabis industry.
Both companies are so-called customer relationship management platforms, that help businesses track sales and customer relationships. The move adds 150 dispensary clients to Baker's roster of 700 in US states with legal cannabis as well as a handful of Canadian provinces and firms up Baker's foothold in the Pacific Northwest market.
Morgan Paxhia, a managing director at Poseidon Asset Management, a cannabis-focused investment firm that led Baker's $3.5 million Series A round in May, told Business Insider in an email that M&A activity is a "longer and larger trend," in the cannabis industry, and consolidation is a "likely path for well-positioned companies."
"We see the Baker deal as a significant and historic step in the industry as this could mark the start of well constructed ancillary deals," Paxhia added. The ancillary space — namely, companies that serve the industry but don't actually sell the plant — in cannabis is the hottest area of investment, as it bypasses the often byzantine patchwork of local, state, and federal regulations in the industry.
Cannabis is legal in a number of states, but it's still illegal under federal law, making some investors nervous.
Constellation Brands, the third-largest beer company in the US, in October said it paid $191 million for a 9.9% stake in Canopy Growth, which is the largest legal grower of marijuana in the world. And, Springbig, a loyalty marketing platform for cannabis dispensaries, last week announced a partnership to integrate its technology with Green Bits, a compliance platform, which serves to increase the company's footprint.
"Frankly, it’s exciting that there are companies worth buying," Baker CEO Joel Milton told Business Insider. Baker declined to disclose the deal value.
Milton added that the acquisition puts "substantial space," between Baker and its competition. "Right now, we have 50 full-time employees and we just bought our biggest competitor," he said.
Grassworks' senior management will join Baker in its new Seattle office.
As for the competition, Paxhia said that newer entrants in the cannabis tech space have a "big hill to climb."
"In the end, competition is going to happen as it is a natural part of the business and validating for our industry," Paxhia said. "It's going to be exciting to be front row and watching this industry continue to scale and mature."