Signal Bay (SGBY) Builds Presence in $850 Million Cannabis Testing Industry

Signal Bay Inc. (OTC Pink: SGBY), a leading provider of cannabis consulting, licensing, compliance, and laboratory services, has been actively building its presence in the $850 million cannabis testing industry. After already capturing about 75% of Oregon’s market, the company plans to extend its reach to include all of the state’s market before moving on to Northern California’s Emerald Triangle – the largest cannabis producing region in the U.S.

In this article, we will take a detailed look at the company’s expansion plans and where the stock may be headed over the coming quarters.

Covering All of Oregon’s Market

Signal Bay recently announced the acquisition of a majority stake in Kenevir Research of Medford, Oregon – a top 100 private cannabis company in Ackrell Capital’s industry report – following its acquisition of Oregon Analytical Services on May 25 and the spin-out of EVIO Labs on April 20 to focus on the testing vertical. The acquisition puts EVIO Labs in reach of 75% of the Oregon cannabis marketplace – making it the largest player in the space – and complements its existing Eugene and Bend laboratory presence.

Over the coming months, the company plans to identify a prospective location in the Portland metropolitan area in order to provide cannabis lab testing services to 100% of the Oregon cannabis market place and generate an estimated $10 million in annual testing revenue. With a market capitalization of about $475,000, the generation of such a significant amount of added revenue could translate to a much higher share price.

Oregon is expected to generate about $43 million in tax revenue from recreational cannabis this year, which is sharply higher than its original estimates of just $2-3 million for the year. The state’s Liquor Control Commission is worried that there is a lack of marijuana testing laboratories in the pipeline for licensing given the surging demand for the drug. As of October 1, 2016 there will be increasing testing requirements going into effect which should lead to increased revenues for laboratories operating in the state.

Moving into the Emerald Triangle

Signal Bay announced a letter of intent to expand its cannabis testing services to the Emerald Triangle in Northern California earlier this year. Under the terms of the agreement, the company will operate a cannabis testing laboratory and provide analytical testing services to the largest cannabis producing region in the U.S. Management hopes to leverage its expertise in Oregon to provide immediate value in these regions as testing becomes a necessity.

The move marks the company’s expansion into the Western United States, where cannabis legalization has built a robust foothold. In addition to California and Oregon, Colorado represents the first state to have legalized recreational marijuana and Nevada could soon become a leading cannabis tourist destination. These markets have become considerably larger than Central and Eastern states so far as they have embraced legalization.

In addition to being the largest cannabis producing region in the U.S., California’s cannabis market is the largest in the country at $1.3 billion per year. The company believes that the California cannabis testing market would exceed $80 million per year with the passing of a recreational ballot initiative in November 2016. The recent passing of AB 243, AB 266, an SB 643 also highlight the demand for independent testing to ensure safety for MMJ patients.

Potential Bottom Line Impact

GreenWave Advisors believes that cannabis testing is the most attractive subset of the industry with the potential to reach $850 million in size by 2020. With cannabis remaining federally illegal, cannabis testing represents a lower risk subset of the industry that is driven by a growing number of statewide regulations and demand for safe product from consumers. These services also tend to command a relatively high profit margin with high barriers to entry.

Signal Bay trades with a market capitalization of about $475,000, which represents a fraction of its potential and is significantly below many of its industry peers:

Ticker

Market Cap

Revenue (Latest Q)

P/S Ratio

DIGP

$4.15 M

$141,000

N/A

MYDX

$3.78 M

$161,000

6.93x

CANL

$12.53 M

$470,000

12.32x

SGBY

$475 K

$171,000

0.98x

With its newly minted acquisitions, the company could experience significant revenue growth over the coming quarters. These growth rates could draw attention to the stock, which has flown largely under-the-radar of investors with just $12,000 in daily dollar volume, and eventually help move the price closer to its peer valuations. Over the long-term, the company is also likely to benefit by its growing footprint and regulatory demand for cannabis testing.

More Information

Investors interested in learning more about Signal Bay should check out the company’s website at www.signalbay.com.

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