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Thursday, October 29, 2020

Today’s Marijuana Spotlight Shines on Signal Bay Inc (OTCMKTS:SGBY)

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Signal Bay Inc (OTCMKTS:SGBY) is the OTC embodiment of a roller coaster ride in recent weeks. If one imagines a hypothetical “Super Trader” capable of catching inflection points with perfection, then one would want to imagine it here. We’ve seen a rally of just under 6,000% followed by a drop of 78%, itself then followed by another jump of as much as 208%. And that was just the Q3 action.

Why is this stock so difficult to nail down? Why has the market cap gone from $340k to $22 mln and back to $11 mln in just a matter of a few weeks? We would argue that it has mostly to do with a vicious combination of short term worries and long-term greed. If you mix together a revealing recent 10-Q along with the incredible prospects for growth in the marijuana space at present, and the aggressive acquisition spree the Company has been on so far this quarter, the action makes perfect sense.

Signal Bay Inc (OTCMKTS:SGBY) bills itself as a company that provides advisory, management, and analytical testing services to the legalized cannabis industry in the United States.

The company offers industry research; business and market intelligence; and advisory and consulting services, including license application support, regulatory compliance, market forecasts, and operational insights.

It also publishes industry information through online media, research reports, and publications; and operates CANNAiQ.com, a business to business information portal, as well as MarijuanaMath.com, a general interest informational Website.

In addition, the company provides Cannabis Consultant Marketplace, an outsourcing freelancing matching platform to enable cannabis companies to post projects and hire consultants.

Further, it provides operating services; and operates CR Labs, Inc., which offers analytical testing services, such as residual solvent analysis, pesticide screening, microbiological screening, terpene analysis, and cannabinoid potency profiling of cannabis and cannabis infused products to growers, processors, and dispensaries.

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Here is how we look at SGBY (and suggest you do as well): The only data point that really matters right now is Market Share. The market for what this company does is going to expand, and expand, and expand, and expand.

Their strategy is to stick a flag in more and more of the pie, no matter what the short-term cost is, so long as they can stay alive. That pie will grow. And the effort will be well worth it down the line provided we don’t run into any major change in the legislative landscape.

CEO William Waldrop stated, “We’ve seen multiple articles and editorials suggesting that a backlog of accreditation applications could cause some disruption in the cannabis market across the state. Overall, the cannabis testing market may experience some shortcomings, but EVIO Labs is fully prepared to take on the work. We’ve already seen a significant uptick in new business. As one of the few accredited options for testing at this point, we want to assure cannabis operators across the state that we are staffed and ready to handle any and all new business that comes our way over the next few months. For example, we are already preparing for fall harvest by working with large outdoor growers to coordinate testing with clients harvest schedules.”

As of mid-summer, the company had already exceeded 700 total business accounts and captured significant market share.

Since then, we’ve grown accustomed to seeing and expecting more actual and anticipated acquisition activity from the Company, particularly in California, where the LATimes recently predicted an easy win in November for a measure set to take the largest state economy onto the recreational marijuana map. Cowen & Co recently put out a piece that estimates that vote alone will more than triple the total size of the legal marijuana market segment in the US by itself.

We have a reasonable basis to assume a long-term positive ROI for all M&A investments in the space that feed into the Company’s EVIO segment, which suggests the market will likely discount this reward as legislative risk is gradually weeded out of the equation. That said, nothing is guaranteed here. In addition, the float is big (over 450 mln shares) and some dilution is likely coming at stakeholders through both all-stock purchases and convertibles rolling off.

Earning a current market cap value of $12.5M, SGBY has an extremely small store of cash on the books (<$50k), alongside total assets approaching $2.2M, which is balanced by a hefty $1.1M in total current liabilities facing the Company. The last time we looked at this one, we noted the very strong sales growth. But in absolute terms, the numbers are still not moving the needle…yet. With the acquisition spree, SGBY stands to be a very important player as the overall industry pie grows. And we will likely be there to frequently update the outlook. For continuing coverage on SGBY and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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