Benzinga recently analyzed if MassRoots Inc MSRT's acquisition of CannaRegs, Inc. for $12 million made sense.
On one side of the spectrum was Alan Brochstein, author of the 420 Investor, who argued that the price tag was too high and that this could be seen as a proxy of MassRoots’ weak standing. “While MassRoots now has a perhaps a more compelling story to tell, its challenging financial position requires it to raise capital again in the very near-term,” he wrote in a recent article published on New Cannabis Ventures.
On the other side was CannaRegs’ co-founder and CEO Amanda Ostrowitz, J.D., who contended that, even though the $12 million in stock that MassRoots paid for her company might seem elevated to the naked eye, the valuation had been based on a three-year EBITDA — the company projects $10 million to $15 million in sales within three years. In addition, she pointed out that the company is “not just buying CannaRegs, the software platform. They are buying a leadership team and the reputability that they bring.”
“They definitely see us as a very important part of the leadership future of this company. But we are also working side-by-side, bringing different skills, dividing and conquering,” she added.
When presented with Ostrowitz’s view of the transaction, Brochstein acknowledged she had a real opportunity to “influence [MassRoots’] culture positively.”
“I think it's a bit early to assume this will be successful, but to the extent Amanda is able to take on leadership role, it improves the odds. The company does need to raise cash ... and the departure of their recently hired CFO after the deal was announced certainly doesn't inspire confidence, especially since his hire was so heralded. This is a critical time for the company, and I wish MassRoots success,” the 420 Investor concluded.
However, in all of this discussion, we were missing one very important perspective: MassRoots CEO, Isaac Dietrich, who was ultimately responsible for pursuing CannaRegs’ acquisition.
The CEO’s Turn
Over the past four years, MassRoots has grown to become “one of the most widely-used cannabis apps and recognized brands in the industry,” Dietrich told Benzinga, pointing out that even Apple Inc. AAPL had had to reassess its policies regarding cannabis-oriented apps, ultimately accepting MassRoots in its App Store.
“We've now generated over $1 million in revenue from digital ad sales — over $1 per user, almost entirely from the Colorado and California markets,” said Dietrich. “Critics are missing the point: our business model is working and we haven't even started truly scaling it. We expect that, with new markets coming online in the near future, coupled with significant improvements to the MassRoots platform, our revenues will substantially scale in the coming quarters.”
As per back of the envelope calculations, MassRoots estimates that cannabis businesses in California alone will be spending about $500 million per year in marijuana-related software within three years.
“I think we are in a prime position to take a significant portion of that, and CannaRegs is the key to all of that because they have information that no one else has," said Dietrich. "They know exactly what’s been proposed and what’s been voted on; exactly how much economic impact that’s going to have on a particular local market, locality by locality.”
However, he added, the acquisitions of Whaxy, Odava and CannaRegs are not a pivot, like many analysts have interpreted them. Instead, “they're synergistic” with MassRoots’ existing business model.
“We're now able to offer companies a complete set of software solutions to operate their businesses: point of sale, advertising (with exposure to an app with the third-largest market share of cannabis consumers in the U.S.), and compliance management. MassRoots is quickly becoming a conglomerate of some of the most valuable software in the cannabis space, which we expect will be accretive to shareholder value.”
Some have expressed concerns around MassRoots’ financial position.
To date, the cannabis tech company has raised almost $20 million from about 25,000 shareholders, he mentioned. “We are incredibly grateful for their trust. In fact, existing and new shareholders continue to believe in the company and build equity positions,” he said.
“We aren’t a perfect company. Quite frankly, we should have monetized our 1 million users more, and sooner. But, we have succeeded in creating one of the top three cannabis apps in the country, which people recognize, and that has changed policy in some of the largest corporations in the world,” he added.
Right now, MassRoots is focusing its efforts on the California market, in anticipation of the recreational system kicking in. “I think everyone is about to realize the importance of California as it goes recreational. It's the single biggest event, ever, in cannabis.”
On top of this, MassRoots is one of the few tech companies in the marijuana space that offers investors an exit strategy, a liquid asset, Dietrich argued. But this is not the only value in the company; MassRoots is also invested in other companies, including High Times, which is set to start trading on the Nasdaq in October with a $250 million valuation through a reverse merger with Origo Acquisition Corporation OACQ.
“We are incredibly excited to see if the Nasdaq allows High Times, the most recognized brand in the cannabis industry, to trade. I think that if they are allowed to trade on the Nasdaq, we could realize significant return on our investment in them, but it could also set a precedent that allows us to list on the Nasdaq,” Dietrich said. “We want to do this the right way, though an S1, rather than a reverse merger or other ‘back door.’ I think that, especially after our acquisition of CannaRegs and our focus on compliance, MassRoots could become one of the first cannabis companies to trade on an exchange like the Nasdaq.”
When questioned about the company’s roadmap to profitability, Dietrich expects that “within six months of California implementing recreational cannabis, MassRoots will be cash flow positive on a monthly basis.”
One final concern among investors is the promotional activity seen around MassRoots’ stock. A couple of months ago, the OTC formally enquired about this, and the company denied any involvement. Nonetheless, some weren't satisfied with the standard response provided.
When asked about this, Dietrich walked us through each of the spikes seen in the stock since a segment on the company Time Warner Inc TWX’s CNN run in 2015, explaining why each rally was legitimate and not pumped by stock promotion. Long story short, his point was that “this has been a long journey where we’ve learned a lot, a lot. We have 25,000 shareholders who have invested their hard-earned money to ensure that we remain a company that is accretive to shareholder value and that’s exactly what we intend to do.
“There’s a lot of haters out there,” he said. “We are focused on doing things the right way. Now, third parties do what third parties do. So, while some take a short position in our stock and either bash the company or hire people to bash the company to profit from this short, others might take a position in our stock and then try to make it worth more money. But, we have absolutely nothing to do with it.”
More From Benzinga:
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.
All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.
Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.
Rate collection and criteria: Click here for more information on rate collection and criteria.