Back on November 10, we highlighted Arizona based Singlepoint Inc (OTCMKTS:SING) as being a company to watch in the cannabis space. Our thesis was pretty simple – the company had developed a card based transaction system that allowed users (customers and retailers) to transact with credit cards, yet circumvent the Federal restrictions that surround cannabis product related banking. We pointed out that this system filled an unmet need in the recreational space, and that this unmet need would likely only serve to increase in size (from an opportunity perspective) as recreational cannabis consumption expands in the US over the coming few years.
We also noted that there was something of a time frame limitation on the technology’s utility, based on the idea that Federal regulatory efforts would likely render it unnecessary at some point in the future. Regulatory changes will likely take at least a couple of years, however, meaning that until they come in to play, Singlepoint could be a real winner.
At the time of our coverage, the company traded for $0.018 a share. On February 22, this had risen to $0.12 – a 560% appreciation in about twelve weeks.
Recent action has seen the stock correct a bit, and it’s currently trading around 40% off highs. We’re now asking the question, is this just a correction, and if so, are we likely to see a return to the upside action at some point near term?
The answer is yes, and we’re basing this not only on the above discussed thesis, but on some developments that have hit press over the last couple of months as supportive of the company’s fundamental standing.
The developments are rooted in capital structure and certain acquisition related activities. Back on February 7, the company announced that it had eliminated its debt, had raised more than $300,000, and had signed a Letter of Intent to secure additional funding of $1 million.
Taken alone, each of these developments is worthy of some upside momentum, and as a group, they put the Singlepoint in a very strong position from which to expand going forward. The company is debt free, which means any raised capital is going to go directly towards value-add expenses, which for a company this size, and in this space, is rare. With more than $300,000 cash on hand, and a further $1 million on the cards in additionally funding there’s also a decent runway before dilutive raises come into play.
The acquisition announcements relate to a company called Convectium, which has created a machine that allows for the rapid filling of electronic cigarette oil cartridges. The machine is already in use at various distribution facilities, and fill and package over 100 cartridges or disposable vape pens in 30 seconds. The demand for this sort of infrastructural technology is going to increase as the industry expands, and Singlepoint should close on the acquisition of Convectium, and by proxy, it’s tech, near term. The deal terms aren’t yet public (it’s actually more of a majority stake-take than it is an outright acquisition) but we know that Singlepoint plans to pay around $800,000 in cash and stock for a certain portion of Convectium. The $1 million LOI cash should go some way towards reducing the equity issue side of the equation, and as such, makes the deal more attractive for shareholders (by reducing dilution from the issue).
So, all in, we’ve got a debt free company that looks set to take advantage of a rapidly growing industry, but that has suffered a pretty sharp correction over the last few weeks. With a pending acquisition, a growth plan that incorporates an uplisting and plenty of cash on the books (relative to its size, that is), we think this correction is only a short term phenomenon, and one that should precede a return to some overarching bullish momentum over the next couple of quarters.
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Disclosure: We have no position in SING and have not been compensated for this article.