Cannabis stock expert Michael Berger, president of Technical420.com, highlights one of the highest-q...
MassRoots: A Misunderstood Story
05/17/2016 10:25 am EST
Focus: CANNABIS INVESTMENTS
Michael Berger is a leading expert on the cannabis sector, a market that is just in its early stages of development. Here, the Associate Editor of MoneyShow.com highlights MassRoots following the release of its first quarter earnings.
After the market closed, MassRoots Inc. (MSRT), the “Facebook of the marijuana industry”, reported financial results for the first quarter of 2016.
From the outset, the results raise some red flags, especially since its independent registered public accounting firm expressed doubt about the company’s ability to continue as a going concern.
We, however, are of the opinion that many investors and cannabis analysts do not fully understand the financial report as well as what has happened since the quarter ended on March 31st.
Election Will be a Catalyst for the MassRoots Network
MassRoots currently has approximately 900,000 users and 10,000 cannabis business on its business-to-business platform. Of these businesses, 2,500 are actively posting on its network.
MassRoots is poised to benefit from the 2016 elections as it has the potential to significantly increase the company’s total addressable market. Apple (AAPL) policies only allow MassRoots’ app to be downloaded in states where some form of marijuana is legal.
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.
A Misunderstood Story
MassRoots clearly has a lot of supporters. It is not easy to get a company like Apple to reverse its policies. After Apple banned all cannabis related apps from its app store in November 2014, over 10,000 MassRoots users sent personal emails to Apple saying why they loved MassRoots.
In January 2015, Apple changed its rules to allow marijuana social network apps back into its app store. Unfortunately, the company also has a lot of “haters” and we expect to see several marijuana media firms bash MassRoots’ fundamentals, cash position, and viability.
Reports $2.6 Million Net Loss
The numbers reported by MassRoots were neither impressive nor pretty, but the market has seen this before; it takes time for social media businesses to monetize and it is not something a social media company should rush to do.
MassRoots’ main business model remains focused on generating digital advertising sales. The company only recently started to monetize its platform and will release new features in the near future.
During the quarter, MassRoots reported a $2,636,323 net loss and generated $93,385 in revenue. MassRoots also signed advertising contracts and generated ticket sales for an additional $347,222 in revenue that was deferred to future quarters.
What the Market is Missing
As of March 31, 2016, MassRoots had $413,610 in cash on hand. The current cash on hand will be able to fund operations through June 2016.
MassRoots will need to raise an additional $2.5 million over the next fiscal year to sustain operations. Management expects to raise the majority of these funds through warrant exercises.
As of March 31, 2016, there are warrants to purchase up to 3,400,275 shares common stock with an exercise price of $0.40 per share and warrants to purchase up to 2,310,699 shares of common stock with an exercise price of $1.00 per share, which, if exercised, would bring in approximately $3.67 million in cash.
Read Between the Lines
Although the going concern warning is an issue, it has to be noted by an accounting firm when the company’s fundamentals and liquidity do not look sustainable. We expect to see shares trade lower today because many cannabis companies, investors, and analysts are not favorable on MSRT.
We remain favorable on its shares, though, and believe the company’s financial position has improved since the time of this filing.
After March 31st, MSRT filed its S-1 registration statement for its Nasdaq application and MSRT rallied more than 20% over the next 20 days. Not only did the shares rally but MassRoots also saw the average number of shares traded increase by more than 500% (when compared to the previous three months).
For this reason, we believe that a number of warrants were executed during this time, which would have significantly improved the cash position.