MassRoots Inc. (MSRT) is a technology company poised to revolutionize the supply-chain of cannabis with its products and services. While other companies struggle to compete in a saturated seller’s market, MSRT is finding ways to control the distribution of cannabis so sellers can focus on their core business.
To that end, the company recently released updates on its planned acquisition of COWA Science Corporation, a privately held provider of products and services for cannabis cultivators, distributors and other ancillary companies, for approximately $5.78 million.
Learn more about the numbers behind this proposed deal and how both companies are leveraging the other’s expertise to bring new solutions to small- and mid-sized businesses in the regulated cannabis industry.
The planned acquisition will be a stock-based transaction with 50 million shares issuable to COWA Science shareholders upon its close. Based on MSRT’s closing price at $0.07 per share on April 12, 2019, the combined market capitalization is estimated to be $16.3 million at the close of the acquisition.
There are two contingencies to the acquisition: 1.) COWA Science must achieve annual revenue milestones of $2.5 million and $7.5 million; and 2.) COWA Science must complete its audited financial statements. If the agreement is not reached by May 15, 2019, MSRT has the right to terminate the acquisition.
Based on its historical performance and despite the contingencies, MSRT CEO Isaac Dietrich is optimistic about the company’s future.
“MassRoots’ management team has been observing COWA Science and their growth trajectory for several years and are impressed with the book of business they have built with minimal outside capital investment,” Dietrich stated in a press release announcing the planned acquisition. “This acquisition will be immediately accretive and allow us to better diversify ourselves in the rapidly emerging cannabis industry. Going forward, MassRoots is confident that the addition of COWA Science will increase overall revenues and expand our market presence, with the goal of generating positive cash-flows from operations.”
A New Frontier
Regulation in cannabis is dependent on the state and neighborhood of operation, but many city officials require local ownership of a business before granting a license. With 9,397 active licenses in the U.S., there is significant opportunity to capitalize on services that meet the needs of the small business operators in the industry.
COWA Science’s products and services are designed to help its customers run their business in the highly regulated legal cannabis market. From roughly 50 cannabis and hemp-focused clients, the company recorded fiscal full-year 2018 revenues of $1.5 million (unaudited). In January 2019, the company received purchase orders totaling $275,000 (It’s important to note that not all sales orders have been fulfilled and there can be no assurances COWA Science will realize the revenue of these orders).
The company is headed by CEO Chris Alameddin, who is passionate about commercializing technology to generate a strong cash flow. From what he has seen of MSRT’s growth, Alameddin agrees with Dietrich that the acquisition will allow both companies to hit 2020 revenue goals and create significant synergy.
Alameddin foresees the creation of a network that utilizes new technology for every step of the cannabis supply chain. From the time the plant is grown to the moment the consumer walks away with their purchase, Alameddin would give small business owners a way to organize every step of the process.
Ultimately, COWA Science can lighten the burden of a busy small-business owner who doesn’t have time to monitor the supply chain side of their business. Alameddin says the company is fully committed to adding value to MSRT’s shareholders, and has pledged to work tirelessly to find the best applications for this emerging market space.
MSRT anticipates that the acquisition will enable both companies to expand their client-bases by offering customers a complete suite of cannabis-centric products and services, including:
- Advertising services, including listings on MSRT’s dispensary finder and WeedPass Rewards Program;
- Growing supplements and nutrients, including white-labeled supplements and growing materials;
- Consumer packaging compliant with industry-specific regulations;
- Process and product development;
- HVAC resources tailored to the unique needs of regulated cannabis businesses; and
- Miscellaneous office and cleaning supplies, lab equipment, and bulk chemicals.
Dietrich has seen companies in this market trading at up to 25 times forward annual revenues and said he is confident in COWA Science’s team to grow the company to new heights. Instead of opening retail stores or building grow facilities, MSRT keeps its overhead low. The company provides services to sellers, so sellers don’t have to deal with the logistics of distribution. While MSRT may partner with regulated cannabis sellers, it’s not dependent on the success of individual sellers.
MSRT’s acquisition of COWA Science may be dependent on its financial performance, but the preliminary evidence is strong enough to be hopeful. As the companies head into the latter half of 2019, both teams are in the perfect position to bring new solutions and big revenues in cannabis companies in 2020.
About the Author
Stuart Smith is the CEO and Founder of SmallCapVoice.com. SmallCapVoice.com. is a recognized corporate investor relations firm, with clients nationwide, known for its ability to help emerging growth companies build a following among retail and institutional investors. SmallCapVoice.com utilizes its stock newsletter to feature its daily stock picks, audio interviews, as well as its clients’ financial news releases. SmallCapVoice.com also offers individual investors all the tools they need to make informed decisions about the stocks they are interested in. Tools like stock charts, stock alerts, and Company Information Sheets can assist with investing in stocks that are traded on the OTC BB and Pink Sheets. To learn more about SmallCapVoice.com and their services, please visit https://www.smallcapvoice.com/the-small-cap-daily-small-cap-newsletter/