The COVID-19 pandemic has radically shifted the way consumers purchase products and retailers have been forced to adapt the new market environment. As case numbers continue to rise in major US markets, so too will the demand for cannabis delivery services, and companies like Driven (OTCQB:DRVD) are perfectly positioned to capitalize on this trend.
One of the factors that favor Driven is its structure of the operation. The business is comprised of four primary divisions that create value for one another, and the management team continue to find synergies between the divisions. The divisions include: Budee and Ganjarunner, which are same day express and scheduled delivery services; BrandBudee, a brand to consumer solution; and Weedwaves, a community for cannabis enthusiasts.
From an acquisition standpoint, 2019 was a banner year for Driven and we are favorable on the assets that were acquired over this period. Going forward, the management team is focused on consolidating all of its brands under Ganjarunner, which will help streamline the operation.
Between Budee and Ganjarunner, Driven services 92% of the California market with scheduled and express (less than 60 minutes) delivery. The company works with more than 40 brands and has formed strategic relationships with several industry leaders in the flower, concentrate, edible, and vape pen verticals. The breadth of the platform is wide and we expect to see continued improvements and enhancements made to it in the back half of 2020.
Another exciting aspect of Driven is the leverage that it has to some of the most attractive parts of the cannabis supply chain. Through BrandBudee, brands can convert web traffic to revenue by implementing a small e-commerce widget on their website. The platform helps simplify the consumer purchasing process and moving forward Driven plans to require brands to use it in order to be on the platform.
Developed in-house by the Driven team, Weedwaves provides brands the ability to acquire new cannabis consumers, create a better user experience, and access exclusive deals on Ganjarunner. Driven’s management team has effectively been able to enhance the platform through technological advancements and we expect this aspect of the story to play an important role in the long-term success of the business.
Driven has substantial potential catalysts for growth, and we are favorable on the moves it has made on the product side of the business. The company recently announced the acquisition of Mozen, a disposable vape brand. By acquiring strategic brands, Driven will be able to enhance margins and we expect to see additional acquisitions in the near future.
Over the next year, Driven plans to expand into new markets, produce in-house products, and start to offer a platform as a service solution. By developing products in house, Driven expects a more than 15% improvement in gross margins and we are favorable on the emphasis that the management team has put on profitability.
Currently, Driven has a $29 million run rate and these numbers are expected to improve on a quarter-over-quarter basis. The company is executing on a series of initiatives that will enhance the business from a revenue, profitability, and a fundamental standpoint. We believe that Driven is in the early innings of a major growth cycle and is a business that is just starting to ramp up.
BrandBudee Is Changing The Way Brands Acquire Consumers
Driven’s BrandBudee platform seamlessly integrates into brand’s website and has simplified the purchasing process for consumers. The technology that is associated with the platform has played an important role in how brands are able to convert website visitors into customers and we expect this to support the growth in the number of brands that sign up to be on the platform.
So far this year, Driven has seen a large increase in the number of brands that are on the platform. Some of the brands that Driven works with include: Alive & Kicking, Brite Labs, Dabblicious, Defonce, GKUA, Honey, House of Saka, Island, Kamatree, Orchid, Pure Beauty, Rebel Coast, Yummi Karma, Chill, Vet CBD Omura, Sunderstorm, and Mozen.
Since the launch of the program, these brands collectively saw a 23% increase in sales in May and 29% in June. In the second quarter, participating brands accounted for more than $990,000 in top line revenue and we expect Driven will continue to record impressive growth on a month-over-month basis.
In May, the program added more than 1,000 new customer acquisitions. In June, this number increased to 1,295 and brands that are on the platform reported to have initiated 1,404 customer orders with an $88 average order value. On a month-over-month basis, Driven has recorded above-average growth (when compared to the average cannabis company).
Earlier this month, Driven released additional functionality and paid service offerings for participating brands. These improvements are believed to have served as the catalyst for the number of brands that are joining the platform. From being able to have brands run statewide product promotions to customer feedback programs, the improved functionality will provide participating brands with valuable customer data and we are bullish on how these changes further differentiate the platform.
The most exciting aspect of the improvements is related to Driven’s robust data analytics and visualization engine, Driven by Numbers. Through this vertical, the company can gather valuable data and analyze against other third-party attributes such as location, order characteristics, competitive engagement, affinities and other demographics that play a role in a brand’s ability to reach its target market. By gathering valuable consumer purchasing data, Driven will be able to help participating brands target certain subsets of consumers, which is expected to attract even more brands to the platform.
Reports Strong First Quarter Financial Results
In early July, Driven reported first quarter financial results for the period that ended on March 31st. During the quarter, the company benefited from pivoting its dispensary-to-consumer delivery business into an online cannabis retail business with proprietary technology, data analytics and marketing capabilities. Driven owns its own infrastructure and directly serves the consumer in California.
We believe that the business in barely in the first inning of a major growth cycle. During the first quarter, Driven generated more than $2 million of revenue. Much of that revenue came from the company’s expanded operations, including sales from Ganjarunner (acquired in July 2019), as well as sales from Budee (acquired in February 2020).
Late in the quarter, the company noticed increasing demand for its delivery services, coinciding with the issuing of shelter-in-place orders across California. The outbreak has proved to be beneficial for the business as the company’s proprietary technology and marketing infrastructure allowed it to increase market share and reduce acquisition costs.
Over the next year, we expect Driven to continue to report impressive growth. As COVID cases continue to rise in California, we expect to see another surge in demand for the company’s proprietary technology solution and believe that the market does not fully appreciate this aspect of the story.
An Expansion and Execution Story in the Making
2020 has been a banner year for the California cannabis delivery platform and we believe that the opportunity is flying under the radar. While many cannabis companies have been negatively impacted by COVID, Driven operates a platform that is poised to continue to record incremental growth. We believe that the management team is focused on bringing the business down a path of profitability and are favorable on how the story has advanced so far this year.
One of the most important changes for Driven is related to the amount of leading cannabis brands that are transitioning onto the platform. By working with leading cannabis brands, Driven is well positioned to grow its customer base and we are favorable on the impact that this will have on the long-term story.
In the back half of 2020, Driven plans to expand into burgeoning cannabis markets in the US and we expect this to serve as a major catalyst for growth. Many of the brands that are on the company’s platform are selling product in markets across the US and we expect these brands to work with Driven in the new markets that it enters.
At current levels, we believe that Driven has a compelling valuation and a favorable risk-reward profile. Going forward, we expect the company to benefit from the changing landscape of the US market and believe that it is an opportunity to be aware of.
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