The U.S. cannabis industry is expected to reach $2.6 billion in 2014 compared to $1.5 billion last year, according to ArcView Market Research, driven by the legalization of medical marijuana in 23 states and Washington D.C., as well as the potential for adult-use legalization in Alaska and Oregon. With these rapid growth rates and catalysts, investors have been increasingly drawn to the industry.
In Canada, the Marihuana for Medical Purposes Regulations (“MMPR”) framework has created a clear pathway for companies like Tweed Marijuana Inc. (OTC: TWMJF) (TSX-V: TWD) to operate legally. The U.S. has taken a different approach where cannabis remains illegal on a federal level, but certain states have legalized the production and use of the substance.
In this article, we’ll take a look at DC Brands International Inc. (OTC: HRDND)* and its plans to become a leading provider of consulting services and financing within the cannabis industry. (* after October 6th, 2014 the ticker symbol will revert to HRDN)
U.S. Exposure to the Cannabis Industry
DC Brands International has taken a unique approach to the U.S. cannabis industry, which provides investors with direct exposure and limited risk. By providing consulting and financing services, the company operates under variable rate contracts that grow with the revenue of their clients. These dynamics provide investors with exposure to the market without the risk of direct ownership.
In early September, the company announced a binding letter of intent to acquire Colorado-based Lotus MMJ Consulting LLC. Founders Erik Santus and Hung Nguyen are also involved with Lotus Medical LLC, which operates a medical marijuana dispensary in Denver, Colorado. The team’s experience running a live dispensary sets it apart from many competitors in the cannabis consulting space.
“I believe that partnering with executives who have started and grown one of the premier Colorado MMJ dispensary operations and then started their consulting business because people across the country began reaching out to them, will be invaluable to the success of this venture,” said DC Brands International CEO and CFO Bob Armstrong in the press release announcing the deal.
Near-term Cash Flow Potential
DC Brands International reported revenue of $40,000, during the quarter ended June 30, 2014, through its 80% ownership interest in DC Brands Green Investors LLC. With the model proven by early revenue, the company believes that its Lotus MMJ Consulting LLC agreement will scale the model to new levels over the coming quarters, potentially bringing the firm closer to a breakeven point.
“We are very pleased to announce revenues from our new business direction,” said Mr. Armstrong in the July press release. “This is the first step in achieving anticipated positive cash flow and continuing to provide value to our debt holders and shareholders. After attending WeedStock in Denver earlier this week, I am very excited about our business model and the direction of the marijuana industry.”
Through its DC Brands Green Investors LLC agreement alone, management anticipates generating between $1.5 million and $2.75 million over the first three years through a 5% interest in Venture Investment Partners LLC’s EBITDA. The agreement with Lotus MMJ Consulting LLC could significantly expand these figures given its existing contract with a Denver dispensary and the team’s experience.
DC Brands International has a market capitalization of less than $60,000, according to OTC Markets, as it remains in its early stages. With the potential for over $1 million in 2015 revenue and cash flow positivity, investors may want to take a closer look at the company as a way to gain exposure to the U.S. cannabis industry without taking on a lot of the regulatory risks associated with other ventures.
In particular, investors in the medical marijuana space, including companies like Medical Marijuana Inc. (OTC: MJNA), or ancillary product providers, like GreenGro Technologies Inc. (OTC: GRNH), may want to take a closer look at the company as a way to diversify, particularly given that its contracts provide a virtual revenue interest in active dispensary operations.
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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 may increase or decrease such positions without notice. For making specific investment decisions, readers should seek their own advice. Emerging Growth LLC dba TDM Financial, which owns CannabisFN, may be compensated for its services in the form of cash-based compensation or equity securities in the companies it writes about, or a combination of the two. For full disclosure please visit: http://www.cannabisfn.com/legal-disclaimer/.