The legal cannabis industry generated about $2.7 billion in revenue in 2014, according to ArcView Market Research. With that figure expected to grow at a double-digit rate over the coming decade, there has been no shortage of companies entering the space. Some companies, like Cannabis Science Inc. (OTC: CBIS) and GW Pharmaceuticals (NASDAQ: GWPH) are focused on pharmaceutical opportunities, while others like Agritek Holdings Inc. (OTC: AGTK) are focused on branding and real estate.
Vape Holdings Inc. (OTC: VAPE) is primarily focused on the manufacture and distribution of healthy and sustainable vaporization products. Since it’s not involved in the manufacture or sale of cannabis – a Schedule I Controlled Substance – the company has the opportunity to commercialize its products over the near-term rather than waiting for regulatory changes to materialize. And unlike many competitors, its products are backed by robust concepts from chemistry and a team of respected industry experts.
In this first article, we’ll take a closer look at the performance of the company’s core business of ceramic vaporizers, and where it may be headed over the coming quarters following the hiring of its new Chief Science Officer.
Vape Holdings’ flagship brand, HIVE Ceramics and HIVE Supply, manufacture and distribute a proprietary blend of ceramic vaporization element for all types of vaporization devices with a number of design and product crossover within existing and emerging markets. With a network of over 1,100 authorized shops in the US, Canada, Europe and South America, the company has already amassed a large wholesale distribution network for its products that has been generating consistent revenue for several quarters.
In early 2015, the Vape Holdings launched its HIVE Supply division, focused on wholesale supply to dispensaries of compliant packaging, high end equipment, branding and merchandising, and top tier consulting services as a competitively priced one-stop shop for all medical and recreational cannabis facility needs. With the recent acquisition of the talented members of a top tier LA based web design, branding and marketing team, VAPE Holdings now offers a breadth of new services for dispensaries nationwide. This could create another solid revenue stream for Hive Supply that leverages its existing brands and could further expand market awareness for its own product line-up synergistically over time.
During the fiscal year ended September 30, 2014, the company reported revenue of $841,724 and a gross profit of $383,337. These revenues appear to be rapidly accelerating with Q1 2014 revenue of $386,643 (a $1.5 million annual run rate) and gross profit of $236,757. On the bottom line, the company swung to a profit during the quarter with net income of $582,910, or $0.05 per diluted share (due in part to derivative valuation), which sets it apart from many others in the space.
On May 4, 2015, Vape Holdings announced the addition of Mark A. Scialdone, Ph.D., as Chief Science Officer (“CSO”). With two decades of world-class experience in product development and fundamental science research at E.I. DuPont de Nemours (NYSE: DD) and his consulting firm BetterChem LLC, he brings a wealth of experience in chemistry, with a focus on botanical extracts. These dynamics make him an ideal hire to target the burgeoning cannabis industry and the explosive growth that it’s seeing in specialized cannabis extracts, the power of which was recently featured by CNN in the last of their 3 part series WEED 3.
Dr. Scialdone will lead the expansion of the company’s intellectual property portfolio into fundamental and licensable interest in plant extracts and related products. As the inventor or co-inventor of 25 issued U.S. patents and the author of 15 publications in scientific literature, Dr. Scialdone has both comprehensive and highly applicable experience in building valuable intellectual property that could pioneer an entirely new business model for the company over the coming quarters.
A licensing business model focused on the cannabis industry could help accelerate high-margin revenue growth over time. In addition, a growing portfolio of intellectual property could make the company an attractive target if and when cannabis goes mainstream nationwide. The Vape Holdings business model may be comparable to small-cap biotech stocks that out-license their technology to larger pharmaceutical companies, generate significant revenue, and eventually end up being acquired.
Vape Holdings represents an attractive potential investment opportunity within the cannabis industry given its profitable vaporizer business and the potential to enter into a new high-margin vertical – intellectual property licensing. Despite this unique combination of short-term revenue and long-term value, the company trades with a market capitalization of just $6.4 million, putting it at the inexpensive end of the cannabis spectrum compared to some larger players in the space.
Investors in the cannabis space, including vaporizer stocks like Vapor Group Inc. (OTC: VPOR) and VaporBrands International Inc. (OTC: VAPR) and mCig Inc. (OTC: MCIG), may want to take a closer look at the stock, particularly given the accelerating growth of HIVE Ceramics and HIVE Supply. In addition, investors interested in the licensing angle may also want to keep an eye on the stock as Dr. Scialdone works to amass patents on plant extracts and build a valuable IP portfolio.
For more information, visit the company’s website at www.vapeholdings.com.
Disclaimer: Except for the historical information presented herein, matters discussed in this article contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC dba TDM Financial, which owns CannabisFN, is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Emerging Growth LLC dba TDM Financial, which owns CannabisFN, may from time to time have a position in the securities mentioned herein and will increase or decrease such positions without notice. For making specific investment decisions, readers should seek their own advice and that of their own professional advisers. Emerging Growth LLC dba TDM Financial, which owns CannabisFN, may be compensated for its Services in the form of cash-based and/or equity- based compensation in the companies it writes about, or a combination of the two. For full disclosure please visit: http://www.cannabisfn.com/legal-disclaimer/.