By Omar Sacirbey
A fast-growing social network for marijuana users is entering a key phase in its quest to get listed on the Nasdaq, which would mark a groundbreaking development for the cannabis industry and MJ stocks at large.
Denver-based MassRoots – which applied for a Nasdaq listing in August – passed its first major test Wednesday when its S-1 filing with the Securities and Exchange Commission became effective.
The company can now move forward with trying to hit nine benchmarks required to get listed on the Nasdaq. MassRoots already meets six of those requirements, according to company founder and CEO Isaac Dietrich.
The three remaining ones involve:
- Getting the company’s share price to $3. MassRoots began trading on the over-the-counter market in April, and its shares have recently been hovering around $1.50.
- Creating a corporate governance infrastructure. To do this, MassRoots must appoint an independent director and form audit, nomination and compensation committees.
- Raising at least $5 million in shareholder equity. The company is pursuing a registered stock offering of 6.4 million shares to raise $8 million in shareholder equity, which will give it a buffer.
If MassRoots is successful, it could further push marijuana into the mainstream and pave the way for other cannabis-related companies to trade on a major exchange.
To date, nearly all U.S.-based publicly traded companies are listed on the thinly traded, highly volatile over-the-counter markets.
Leslie Bocskor, managing partner at Electrum Partners, says MassRoots should be able to achieve the remaining requirements – barring any missteps.
“They’ve made a lot of good decisions,” Bocskor said. “There’s no reason they shouldn’t be able to raise the money necessary.”
Indeed, MassRoots predicts it can meet the Nasdaq’s requirements for shareholder equity in about one or two weeks, Dietrich said.
He expects to attract about 20 institutional players and high-net-worth individuals who will buy at least $100,000 and up to $1 million worth of shares. Dietrich doesn’t expect top 10 banks to buy MassRoots stock, but he said several hedge funds are showing interest.
MassRoots, which has about 46 million outstanding shares and a market capitalization of between $60 million and $70 million, now has about 2,200 shareholders. Of those, about 1,500 own 500 shares or fewer, and most are site users who “wanted to invest in something they believe in,” Dietrich said.
Should the company raise $8 million, the funding will go to sustaining the company’s operating expenses for two years and hiring several additional developers to create new features and products for the social network. MassRoots now has 24 employees, including 11 developers.
Perhaps the most difficult requirement that MassRoots will have to meet to list on the Nasdaq will be getting its stock price to $3 per share. That is in the hands of existing shareholders, and Dietrich said many of them fully support the company.
“I believe our investors want us to get there. If we’re able to generate new demand and if current investors don’t try and sell and cash out now, we should be able to do it,” Dietrich said.
He also pointed out that the stock hit above $7 earlier this year.
“We’ve been there. It’s just a function of supply and demand,” he added.
To get the share price up, Bocskor said Massroots will need to show that the company has demographic value, in terms of how its user numbers are growing and how those users translate into advertising revenue.
“It’s going to take people believing there will be continued growth,” Bocskor said.
If the stock price doesn’t reach $3, Dietrich said the company will do a reverse split – when it would cut in half the number of shares offered while doubling the stock price.
MassRoots’ business model is similar to that of Facebook and Twitter, which generate revenue through advertising. Other cannabis-focused social media networks have also cropped up in recent times, so it’s becoming a competitive niche.
Aside from money tied to ad revenues, Dietrich said the company also should be attractive to investors because of the data that it has collected about cannabis user consumption and spending trends. He also believes the many legalization referendums that will be voted on next year will also bring the company and issue much positive publicity.
“The media coverage about the issue in 2016 will be insane,” Dietrich said.
This month, MassRoots announced that it has surpassed 625,000 users, while its growth has accelerated from 50,000 new users per month in the summer to between 60,000 and 70,000 users per month now.
Dietrich cautioned that even if MassRoots does meet all of the Nasdaq’s listing requirements, the stock exchange still reserves the right to not list a company for any reason. So it could theoretically take issue with the fact that MassRoots focuses on the marijuana community – which is an issue the company felt it ran into recently in another area.
The exchange has denied listings in the past, usually when the company denied was involved in fraud or not fully transparent in its application.
But federal prohibition or marijuana shouldn’t hurt the company’s chances of making the Nasdaq.
“They have no exposure because they don’t handle the stuff,” Bocskor said.
If Nasdaq prevented MassRoots from listing, Dietrich said he would aim for the smaller but still respectable American Stock Exchange.
“Our goal is to be listed on a major American stock exchange before the end of the year,” Dietrich said.
Omar Sacirbey can be reached at [email protected]