The recreational use ballots at the end of last year in the cannabis sector in the US brought with them what amounted to a gold rush of traders and investors looking to cash in on the potential growth of the industry. Of course, as the capital of said traders and investors searched for allocation, companies popped up in all corners of the space, purporting to be able to satiate the demand of said capital, and do so at an incredible rate of return.
Some have been able to action that claim, many haven’t. What we’re left with now, is an industry’s worth of fresh names, all trying to attract public market capital, which – for the time being, at least – seems to have lost its enthusiasm for cannabis related punt-type allocation.
In such a fast moving environment, half the battle can be in figuring out where certain companies fit into the equation. One that has flagged up on our radar over the past week or so is Singlepoint Inc (OTCMKTS:SING), and for the uninitiated, it falls into this latter noted category – what does this company do, and where is it trying to position itself in the cannabis sector?
We’ve taken a look at it, and here’s what we’ve come up with.
The company started out as an electronic payment type company. Basically, it developed and then licensed some technology that allows for retailers and customers to transact via mobile devices. It then, in anticipation (and correctly) of a wave of investor capital into the cannabis space, adapted this technology into a sort of cannabis retail package. Said package was branded as SingleSeed Payments (and it plays a key role in the company’s operations today) and it claims to solve the problem faced by many cannabis retailers – cash based payments and the legal restrictions on banking, cash holding/transfer, etc.
Subsequent this shift (or pivot in focus might be a better way to describe it), however, management decided to zoom out from the payment focus, and position itself as a sort of umbrella type entity, targeting the acquisition of stakes in, or outright acquisition of, companies within the cannabis space. This is no longer a cashless payment play – it’s a sort of full suite brand play.
The first real example of execution on this fresh strategy came mid-March, when SinglePoint announced the acquisition of a stake in a company called Convectium, which as far as we can tell, is a company that has developed a way to fill disposable vape pens incredibly quickly, as well as also offering a range of packaging solutions (some of which are going to be sold under the above noted SingleSeed branding.
So this leaves a couple of obvious questions unanswered.
First, what’s next, and second, is this a viable trade opportunity?
Looking at what’s next, the obvious answer is that we’re looking for execution on the stake acquisition strategy. Companies like this have the potential to grow if they can build a base of revenue generating subs, and as per management communication, Convectium ticks this box. The company projects full-year 2017 revenues of $3.5 million, an increase of 150% compared to revenue of $1.4 million for full-year 2016.
That said, we’re wary of the impact an aggressive acquisition strategy can have on a company (and more specifically, its shareholders), when said company doesn’t have much cash in the bank. Cashless acquisitions generally involve equity issue, and said issue is generally dilutive to the shareholders that are taking a position early days.
And this plays into our answer to the second question – what’s this one like as a trade prospect. Our answer – as a potential trade, it looks interesting. We’ve seen it can move, and with management reportedly set to announced a partnership or acquisition over the next few weeks, we could well see a near term run. As a long term holding, however, we’re far less optimistic. Not because it doesn’t have the potential to appreciate, but because there’s basically nothing available in terms of information on which we can form a long term bias specific to the company.
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Disclosure: We have no position in SING and have not been compensated for this article.