The U.S. cannabis industry could reach $35 billion in size by 2020, according to GreenWave Advisors, if all 50 states legalize the substance and the federal government ends prohibition. Within the rapidly growing industry, investors have a number of different options when deploying capital, ranging from hands-on plays like Latteno Food Corp.’s (OTC: LATF) stake in Los Angeles dispensaries to hands-off plays like CannLabs Inc.’s (OTC: CANL) testing facilities.
Signal Bay Inc. (OTC: SGBY) has taken an innovative approach to building a cannabis conglomerate. After getting its start in consulting, the company launched a platform designed to connect expert consultants to cannabis companies in much the same way that Upwork connects freelancers. Management is now leveraging the connections made through this platform to springboard itself into lucrative subsets of the cannabis industry, like testing.
Building a Platform
Signal Bay’s Consultant Marketplace helps connect cannabis businesses with vetted industry experts who bring proven experience to the table. Consultants submit an experience profile and hourly rate, while companies post projects or request to build a team. The platform matches the best candidates to projects, manages the bid and selection process, and processes payments – while taking a percentage fee from the overall transaction.
The expert platform approach is great for two reasons. First, the company can directly participate in the industry’s upside in a scalable way by matching consultants with projects and taking a percentage fee from each project. Second, the company is quietly building an enormous database of both consultants and companies that it can subsequently reach out to with its own products and services launched down the road.
The latter advantage provides an instant source of both customers (companies) and partners (consultants) for its own products and services, thereby solving a key problem that many marijuana companies face within the industry. The platform provides a source of expertise not only for cultivators and retailers, but also to providers of ancillary services such as cannabis pricing as evidenced by the recent agreement with Cannabis Benchmarks™. Conceivably, its platform may evolve to a scalable enterprise version of consumer platforms like MassRoots Inc. (OTC: MSRT)
Branching into Testing
GreenWave Advisors called cannabis testing the single most attractive subset of the cannabis industry given its high barriers to entry, high-margin recurring revenue, and the growing number of states introducing stricter testing standards. Driven by evolving regulatory standards, the analyst projects that the market will blossom to over $850 million in size by 2020 with only a handful of publicly traded companies competing in the space.
Signal Bay plans to leverage its expertise and connections to build a sizable presence in the cannabis testing industry that it intends to scale into a multi-state model over the coming years. In early May, the company entered into a Letter of Intent to acquire a majority interest in an operating Oregon cannabis analytical testing facility to carry out statewide requirements – a model it can then replicate across many states. The facility currently provides testing for state licensed medical marijuana facilities, and is currently expanding operations under the guidance of Signal Bay to serve the new recreational market coming to Oregon October 1, 2015.
In establishing its testing presence, the company could leverage its Consultant Marketplace in order to partner with other consultants or reach out to companies that may be interested in cannabis testing services for their products. These dynamics – combined with strong demand for such services driven by ongoing regulatory changes – could help scale up its customer base and create immediate and recurring revenue streams for shareholders.
Signal Bay doesn’t plan on stopping its expansion at cannabis testing services, but instead, intends to leverage its expertise to expand into other areas including the wholly owned property, CannaIQ.com. The site serves as a B2B information portal and a sounding board that expert consultants use to provide thought leadership to the industry through published articles, research briefs, and even reference books like the Medical Marijuana Desk Reference.
By building a diversified conglomerate, investors benefit from low customer concentration, diverse revenue streams, and exposure to many different parts of the burgeoning industry – all backed by a platform providing a steady stream of potential partners and customers.
In mid-May, the company announced that it received approval from the Nevada Division of Public and Behavioral Health to transfer ownership of an interest of a licensed medical marijuana establishment. The approval enables the company to proceed with the acquisition of a minority interest in a licensed cultivation and production facility, thereby providing shareholders with exposure to another key area of the industry.
Moving forward, management has assembled a cannabis advisory board to navigate the strategic direction of the company as it continues its expansion. The board began through a strategic advisory agreement with Electrum Partners and has since expanded to include the co-founder of Oregon Retailers of Cannabis Association Casey Houlihan. Management plans to leverage these experts to guide it through other areas of the industry.
Signal Bay trades with a market capitalization of just $5.5 million, according to OTC Markets, which represents a fraction of its potential in the industry. With an existing expert platform that already serves as a LinkedIn (NYSE: LNKD) of sorts, providing connections to partners and customers alike, the company is quickly moving to acquire a cannabis testing facility and expand into other parts of the industry through minority and majority interests.
For more information, visit the company’s website at www.signalbayinc.com.
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