It is being billed by some as “The First Weed Tech IPO” for cannabis, but the title is a bit unfair to the many publicly-traded companies focused on cannabis and whose sole value proposition is cemented in the technological products and services it has to offer.
What is more apt to point out is that MassRoots, which will begin trading on or around April 9, 2015, under the ticker MSRT, is set to be the first public cannabis company with a revenue model and a customer acquisition strategy built entirely around social media platforms.
Barely 2 years old as a company, MassRoots is the product of founder Isaac Dietrich’s admittedly haze-aided brainstorming. It was a simple proposition of creating a place where cannabis enthusiasts could meet like-minded souls, share photos, lobby for legislative reform, and otherwise “cannamingle” in a semi-private environment, outside of the all-encompassing eye of the Facebook ecosystem. The MassRoots demographic definitely skews towards active, daily cannabis consumers, and the mere mention of social media predisposes the demo to be Millennials.
In just two years the MassRoots app has grown to over 275,000 users, an impressive figure not just for its raw size, but because of the tough sledding Dietrich and company have had to deal with along the way. The most blatant blockade was the ban of the MassRoots app by Apple’s ubiquitous App Store late last year.
iPhone users are the most active social media demographic out there, and the ban was a big blow, one that spawned a powerful Internet response from nearly 11,000 MassRoots advocates. The ban was lifted earlier this year, and MassRoots seems to have picked up right where it left off, adding over 50,000 new users in the past couple of months. And the company has done this while having to iterate the software so only those located in one of the 23 states that allow, at a minimum, medical marijuana usage can access the MassRoots app.
IPO Details
MassRoots shares will trade on the over-the-counter marketplace, in what are commonly called the “pink sheets.” At the time of the last fundraising round last year (in which MassRoots raised $475,000), the company was valued at $5 million.
Pink sheet stocks are known to be low priced (under $1/share), illiquid, and extremely volatile. Short-term volatility should be expected in the stock because MassRoots is pursuing a “long dollar” strategy of growing the user base first—MassRoots wants to get to 1 million users—before turning on the monetization model.
This is very common in social media today, but even with a slim application there is much money that needs to be spent on development and IT infrastructure. According to the recently-released 10K filing, the company’s only current source of cash is through equity sales, and it burned through nearly $1 million in 2014, net of the cost of stock-based compensation.
MassRoots will require another $2.5 million for operating expenses through year-end 2015, and has stated that it will likely need to dilute shareholders further in order to attain that working capital.
Future Outlook and Revenue Model
The revenue pipes are not expected to be “turned on” until 2016. The plan is to roll out a MassRoots For Business environment for cannabis operators that want to pitch their wares to the MassRoots audience. We already know the MassRoots user base to be highly engaged (over 75 million interactions over the platform so far), so advertising space within the app should be a highly valued commodity at some point in the future.
In the meantime, MSRT as a stock will likely be valued solely on the user growth metrics; if it can hit new handles like 500,000 in a time frame that suggests continued rapid adoption, the stock should gain considerable investor interest, as it represents a solid “hands off the plant” play on cannabis.
There is also an attractive element to the stock based around Dietrich’s experience and passion around the cannabis prohibition movement. He has cut his teeth on political campaigns, and he is fired up about using the MassRoots platform for change in the key 2016 election cycle. If he is able to effectively mobilize the MassRoots audience behind key ballot measures and campaigns, it could create invaluable brand awareness around the MassRoots app.
