The company’s management is working with new ownership to determine if operations will reopen in 2025.

The largest cannabis delivery service in the nation may no longer be in business come 2025.

San Francisco-based Eaze Technologies Inc., which provides on-demand cannabis delivery services throughout California and Michigan, is “winding down” the operations of its plant-touching subsidiary, Stachs LLC, as the company transitions to new ownership, CEO Cory Azzalino said Oct. 6 on social media.

Azzalino said in a letter to employees that the company plans to close Stachs LLC fully by or around Dec. 31, 2024, due to ongoing challenges in California’s market. Roughly 500 union workers will be laid off, United Food and Commercial Workers (UFCW) Vice President Jim Araby told SFGATE.

The company’s uncertainty comes after Eaze’s assets were foreclosed on by its lenders and sold at auction on Aug. 6, 2024. Netscape co-founder James Clark, a computer tech billionaire, purchased the assets for $54 million through his company FoundersJT LLC, according to Green Market Report. Founded in 2014 to deliver medical cannabis to patients throughout California, Eaze was once valued at $700 million.

“Management is working with the new ownership group of the assets, who will determine whether operations will reopen after December 31, 2024,” Azzalino told Cannabis Business Times. “We will provide an update to employees on November 15.”

Clark and stockholder Thomas Jermoluk, who control Eaze through FoundersJT, issued a nearly $37 million loan to Eaze in 2022, according to Law360. Attached to that loan was the right to seize control of Eaze if monthly revenues did not meet certain targets. The controversial loan has led to lawsuits by other Eaze investors, notably Andrew Levine, a former owner of Green Dragon—a multistate retailer that Eaze agreed to acquire in August 2021.

As a result of the August 2024 foreclosure auction for Eaze’s assets, Azzalino said subsidiary Stachs LLC intends to dissolve as the company transfers its assets to FoundersJT over the coming months. The company will provide more clarity to Stachs workers next month.

“We want to express our deepest gratitude for your hard work, dedication and loyalty throughout your tenure at Stachs LLC,” Azzalino wrote to employees last week. “Your contributions have been invaluable. We understand that this news may be overwhelming, and we encourage you to reach out to your manager or HR representative if you have any questions or concerns. We will do our best to provide you with support and guidance.”

In addition, Azzalino said the company provided the UFCW notice and expects to engage with the union in bargaining discussions regarding the effects of the wind-down.

Specifically, UFCW local chapters 5, 135, 324 and 770 began negotiating with Eaze in August 2023, with more than 500 California delivery drivers voting in April 2024 to authorize a potential strike after those negotiations remained at a deadlock. The union’s negotiating team includes more than a dozen Eaze employees who represent workers from 11 delivery depots.

At that time, Azzalino told CBT that Eaze pays its drivers “fair wages,” averaging more than $25 per hour when considering tips. Delivery drivers in the industry typically earn between $15 and $22 per hour, according to cannabis industry jobs platform Vangst.

Eaze could potentially reopen certain California depots under new ownership in 2025 and rehire workers represented by the union, according to Azzalino.

Araby, who is also the UFCW Local 5 campaign director, indicated that cannabis business failures in California are largely attributed to broken promises by state and local leaders.

“We need action by the state in a real way in the cannabis industry,” Araby wrote Oct. 7 on LinkedIn. “The potential of a multibillion-dollar industry failing despite engagement of and between the labor movement and the business community shows that the lack of action and political will by the state to fix the problems with the regulated market [and] shows a real lack of leadership in Sacramento and local government from the governor on down.”

California led the nation with 78,618 cannabis jobs as of March 2024, according to Vangst. The Golden State also leads the U.S. with a projected $4.72 billion in sales for 2024, according to the California Department of Cannabis Control (DCC).

However, both of those figures represent a shrinking state market. California led the nation with 4,975 jobs lost from 2023 to 2024, or a roughly 6% decline, according to Vangst. Also, the 2024 sales projection represents a 12% decrease from a market peak of $5.35 billion in 2021.

Many of California’s market challenges are attributable to high taxes, including a 15% excise tax at retail that’s set to increase to 19% in 2025, sales taxes that range from 7.25% to 10.75% depending on region, and local burdens such as Sonoma County’s cultivation tax that levies $7.58 per square foot of canopy for indoor growers.

Also, California’s licensed cannabis businesses still struggle to compete with the unregulated market eight years after adult-use legalization, as 57% of the state’s cities and counties still prohibit dispensaries, according to the DCC.

“2025 needs to be different or the failure of the industry will be at the feet of the leadership at the state and local level,” Araby wrote on social media. “The promise of a new incumbent industry with the potential of thousands of jobs, birthing new entrepreneurs and reviving dormant cities across the state will be hung around those that didn’t act.”

Eaze’s struggle to stay afloat in California’s cannabis market comes after similar hardships, including the fall of Grassdoor, another delivery behemoth that began insolvency proceedings last November, the collapse of distribution giant Herbl, which was placed in receivership in mid-2023 after falling behind on a loan, as well as several others.

In the larger picture, the entire state industry faces a supply chain disruption with roughly 15% of California’s cash-starved cannabis retailers, distributors and other tax-obligated businesses in default for $243.5 million in tax obligations as of Dec. 31, 2023. Many of these companies in tax trouble often can’t pay their bills to fellow cannabis operators.

While Eaze has been a “great retail partner with solid payment practices,” according to Julie Mercer-Ingram, CEO of cannabis brand Proof, Stach LLC’s intent to dissolve leaves uncertainties for its business partners.

Those uncertainties also extend to the company’s workers and consumers who depend on delivery for access.  

Written by Tony Lange for cannabisbusinesstimes.com