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MassRoots (MSRT) is one of the largest and most active technology platforms for cannabis consumers, businesses and activists with over 775,000 users. After MSRT completed a $1.4+ million capital raise late last week, we believe the company now meets all Nasdaq listing requirement and we expect to see an S-1 filed in the very near future!
Investment Thesis
We are favorable on MSRT and see upside to current levels because of the following reasons: 1) The number of users and businesses using the platform continues to grow even though it faces several hurdles, 2) Continues to upgrade and improve its product and service, 3) MassRoots continues to raise capital and strengthen its balance sheet, 4) Started monetizing its platform and we expect to see top-line and bottom-line growth on a quarter-over-quarter basis, and 5) Valuation has improved.
Meets all of the Nasdaq’s Listing Qualifications
In late August, MSRT submitted a listing application to the Nasdaq Capital Markets with the goal of becoming one of the first cannabis technology companies to be listed on a national exchange. MSRT currently meets many of the key criteria for the Nasdaq—including the corporate governance requirements (this was met when the former Coca-Cola executive Terence Fitch joined MSRT’s Board of Directors in December 2015)—and expects to commence trading on the Nasdaq during 2016.
On Friday, MassRoots filed an 8-K which stated that the company completed a private offering with certain accredited investors on March 17th. Under the offering, MSRT entered into a securities purchase agreement with the investors who agreed to purchase notes and warrants. Chardan Capital Markets acted as the sole placement agent for the offering.
MSRT agreed to sell to the investors six month secured convertible original issue discount notes with principal amount in the aggregate of $1,461,333, together with five year warrants to purchase shares equal to the number of shares issuable upon the conversion of the notes in full. The warrants have an exercise price of $1.00 per share
We think this update is extremely significant because we believe that MassRoots now satisfies all Nasdaq’s listing requirements. According to the Nasdaq’s listing requirement, MSRT needed to have more than $3 million in shareholder equity and we believe that this raise helped them meet this requirement. Over the next few days we expect to see an S-1 filed with the Nasdaq.
User Base Continues to Grow Despite Hurdles
MassRoots was founded in 2013 and is considered to be the “Facebook of marijuana.” MSRT has over 725,000 users and only operates in the states where medical marijuana is legal (23 states). Its apps let people discuss their cannabis-related experiences, learn about dispensaries, and keep up with state-by-state campaigns to liberalize drug laws.
At the start of 2015, MSRT had over 200,000 users and its app was on the list of App Store’s banned applications. After thousands of users and the cannabis industry complained to Apple, Inc. (AAPL), MSRT’s application returned to the App Store in mid-February.
During 2016, at least eight states are expected to have some form of cannabis legalization on the ballot including California, Arizona, Massachusetts, Nevada, Florida, Ohio, Maine, and Michigan. These states have close to 40% of the United States population and this would significantly increase MSRT’s total addressable market.
Since cannabis-related companies cannot advertise on websites such as Google (GOOG) or Facebook (FB), MSRT provides a great outlet for marijuana-related businesses to advertise, given the targeting opportunities and the lack of prohibitions often found on general-interest sites.
MassRoots Business Portal Continues to Improve and Grow
The regulatory nature of the cannabis industry has benefited MassRoots’ Business Portal and it currently has more than 5,500 businesses on the platform. Dispensaries, glass shops and cannabis brands use the company’s business portal to advertise their products to MSRT’s user base. MassRoots plans to starting charging businesses a monthly fee to access real-time market data on their given region or specialty.
MSRT has many plans for its business platform and will release several new features during 2016. MSRT’s timeline for the introduction of new services on its business platform is as follows:
- First Quarter: MSRT plans to release localized advertising features. This will allow dispensaries to target ads toward users that are within a specific distance.
- Second Quarter: MSRT plans to release personalized advertising features which will let businesses target users based on previous posts.
- Third Quarter: MSRT plans to integrate a point-of-sales system into its platform. This will let businesses target users based on their purchasing history at a particular dispensary.
These new features will improve the service offered by MSRT and should expand the number of businesses utilizing the company’s advertising solutions.
Continues to Improve User Experience by Enhancing its Platform
After MassRoots user base broke through 450,000 users, activity on their application became overwhelming and this started to negatively impact user experience. In mid-September 2015, MSRT began migrating its infrastructure to Amazon Web Services and this improvement led to a significant increase in the number of page views and sessions.
In late November, MassRoots released its new Web interface which will open public content on MSRT’s network to search engines such as Google for the first time. In a short period of time, some of MSRT’s blogs became one of the top results on Google for several cannabis-related searches. Once the company’s network is fully indexed on Google, MSRT will see search engine traffic increase significantly on a monthly basis.
Over the next few months, MSRT plans to release new features which will help keep users on the app. Some of the new features include direct messaging (expected in March 2016), dispensary discovery and live inventory (expected in April 2016), and a strain and tagging guide (expected in May 2016).
MSRT plans to introduce new features and improvements on its Web platform every two weeks. The company’s Web interface presents an opportunity for MassRoots to start breaking into older age groups and expand well beyond the stoner demographic.
One of the reasons why MSRT has been able to quickly scale its business is because the company recruited a talented in-house development team during 2015. MSRT has nine full time programmers working out of its corporate headquarters in downtown Denver and CEO Isaac Dietrich believes that the quality of MSRT’s development team will play a huge role in the new features and improved systems introduced in 2016.
Expect Continued Revenue Growth During 2016 and Beyond
In mid-August, MassRoots started generating revenue through advertising and reported $60,000 in revenue by September 30. Since then, MSRT has been increasing revenue by approximately 20% on a month-over-month basis. The company’s burn rate has also decreased on a monthly basis. This is a trend that we expect to continue throughout 2016 and beyond.
On February 22nd, MSRT announced that from February 15th to February 19th, it entered into two social media advertising contracts that it expects will generate $77,000 in annual revenue.
Valuation has Improved
With marijuana legalization continuing to open new markets and MSRT continuing to improve its service through new features and new developers, we think shares possess significant price appreciation potential.
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