Growth Stock Insider

Posabit

( POSAF - $0.33 )


    Posabit is the leading provider of credit card payment services to the cannabis industry.  The company is registered in Canada but operates in America.  Shares currently are traded over the counter in the U.S.  An American listing is slated for November.

    The company now operates in 15 states.  Federal law prohibits ordinary credit card transactions.  Posabit cleverly avoids that obstacle.  It provides cryptocurrency workarounds that have been approved by bank regulators in all those states.  Obtaining authorizations on a state by state basis provides a major competitive deterrent.  No challenges to the method's legality currently exist.

    Posabit had more than 300 dispensary customers at the end of the March quarter.  An updated figure is expected when third-quarter results are published in November.  Significant gains are expected.  Multi-store chains are being added at an accelerating clip.  Those reference accounts, in turn, are making it easier to land other chains.  Posabit is likely to finish 2021 with over 400 dispensaries.  That figure could double next year as industry acceptance proliferates, new stores open in existing states, and new jurisdictions legalize marijuana.

    A majority of the 9,000 dispensaries in the U.S. still operate as cash only.  Some use other payment mechanisms.  But credit cards remain scant due to the fear of federal law enforcement.  Posabit's success is alleviating those worries.  Operators also are moving to the company's platform because average sales go up when customers use cards instead of cash.  They also simplify bookkeeping and reduce the amount of money that just disappears.

    Delivery service is reinforcing  demand.  Most dispensaries supply customers either in-store or curbside.  Many states restrict delivery to residences.  The pandemic, however, has altered that dynamic.  Regulations are easing to facilitate door-to-door service.  Dispensary owners and drivers alike prefer credit card payment.  Consumers appreciate the convenience, as well.  The percentage of transactions paid with cards already is rising.  That trend promises to continue.

    The major credit card processors, like Square, have no plans to enter the cannabis market.  Start-up costs would be high.  The size of the market is relatively modest, at $20-$25 billion.  And regulatory complications might emerge, jeopardizing other areas of their business.  If marijuana eventually is legalized the majors certainly will pursue the marijuana market.  But that might prove easier via partnerships or outright acquisitions.

    Federal legalization is a diminishing risk.  Many investors guessed legalization was right around the corner after the last election.  The new administration's political capital is being used up a blistering pace, however. The president has more than enough on his hands already.  Outright legalization has grown much less likely.  Posabit appears to have several years, if not longer, to exploit its first mover advantage, and entrench itself as the industry's payment processing leader.

    Sales are booming.  Revenue surged 127% in 2020 to $7.8 million.  Management guidance issued at the end of the June quarter predicted a sales advance of 125%-145% this year to $17.5-$19.0 million.  We estimate they'll attain $20 million, bolstered by the recent uptick in multi-store deals.  Earnings are likely to remain near breakeven, held back by a 100% increase in employees, R&D spending, and a marketing push into new geographies.  Another 3-4 states could be penetrated by year's end.

    Margins promise to widen next year and beyond.  Same-store sales continue to rise as credit cards consume a growing share of each dispensary's volume.  Basic revenue per dispensary is trending higher, too.  Posabit's gross margins currently are low by industry standards, held back by contracts it signed when it was smaller.  As volume expands quantity discounts could help gross margins widen from 30% now to 40% in 1-2 years.  Longer term, 45%-50% is realistic target.

    We estimate Posabit will report positive earnings in 2022 as margins expand and sales leap forward by another 100%.  Over time the company might sell stock to raise money for ancillary acquisitions.  But organic growth should be self-financed for the foreseeable future.  Dilution is unlikely.

    In 2-3 years sales could achieve $75-$100 million to provide fully taxed earnings of $.06-$.10 a share.  Posabit has sizable tax loss carryforwards, so reported income should be greater.  Applying a PE multiple of 30x to the midpoint of the fully-taxed range suggests a target price of $2.40 a share, potential appreciation of 600% from the current quote.  Limits are advised when placing orders.

    ( Pres. & CEO:  Ryan Hamlin.  Address: 1128 8th St., Kirkland, WA 98033.  Telephone: 855-767-2248.  Website:  www.posabit.com )




Popular posts from this blog

Image
Growth Stock MAM Software (Nasdaq - MAMS) $8.00       MAM Software is a leading provider of software used by the automotive aftermarket industry.  Customers include tire dealers, service centers, collision repair shops, and parts retailers.  The company also supports wholesalers and e-commerce operators.  The aftermarket business is a massive industry with hundreds of thousands of locations.  Several chains use modern internally developed systems.  But a majority of the industry still relies on character-based programs that are slow, hard to use, unreliable, and difficult to maintain.  MAM converted its technology to a cloud-based format in 2010.  That design improved reliability.  It also made innovation easier, while cutting costs. The company's initial emphasis was on smaller customers.  Penetration was strongest in the United Kingdom, where the company gained a 75% market share.  MAM developed an enterprise v...
Read more
Growth Stock Insider   XS Financial ( XSHLF - $0.16 )     XS Financial is a leading provider of equipment leasing services for the U.S. marijuana industry.  Cannabis dispensaries often have difficulty financing their operations.  The product remains illegal at the federal level.  Most banks and large leasing companies tend to avoid the business.  Those that might be willing to lend are put off by the industry's unconventional (all cash) practices, and the perceived risk of non-payment.  XS Financial has obtained approval from banking regulators in the 15 states where it currently operates.  The company works with both medical and recreational retailers and growers.  It emphasizes larger chains with multiple locations.  Those customers tend to be well financed with solid banking relationships.  They also generally have professional operating procedures.  Risk is low as a result.  To date, XS Financial has experienced ...
Read more
Image
Growth Stock Northern Technologies ( NTIC $12.00 )      Northern Technologies is the leading provider of systems that prevent rust and corrosion while products are in transit.  The company's unique packaging releases a protective vapor that protects steel and other ferrous metals from the elements.  Northern Tech also sells packaging that inhibits oxidation on aluminum, copper, and brass.  The packaging is removed once the products reach their final destination.  The protective vapor molecules disappear within two hours, leaving a pristine final product.  Northern Tech invented the technology before the turn of the century.  The basic patent has expired.  The company continues to hold an estimated 50%-75% of the market, though, due to superior marketing, customer service, product development, and dependability.  Customers include a large proportion of the S&P 500 universe.  Competition consists mainly of local op...
Read more