On January 1, 2018, good news arrived at marijuana companies operating in the state of California. From now on, dispensaries with a license from the state can sell marijuana to the people over 21.
Many in this sector are celebrating the new regulatory framework:
“I know this sounds crazy, but we’re looking forward to Jan. 1,” said Lori Ajax, who heads the state’s Bureau of Cannabis Control, which will license dispensaries and some other cannabis businesses.
We have been talking about the cannabis opportunity for months. There are many companies operating in this industry in Canada and some states of the United States, and all have seen how their stock prices increased in 2017. The fact that the demand for marijuana has spiked up is not the only reason to explain the share price appreciation. Many in the market seem to believe that the number of licenses given by the Governments is still very few, which means that a few operators will be controlling a multimillion dollar market. We encourage readers to read our other articles on the subject. They will help understand what’s coming to California.
The interesting fact is that the new regulation will not be only pushing the share price of marijuana companies, instead, other businesses that help the sale of cannabis function well should also profit in 2018. Among these firms, we find Blue Line Protection Group Inc (OTCMKTS:BLPG), which was revealed in 2017 as a critical provider of compliance and currency transportation services for the legal cannabis industry. The most interesting in this company is that while it is focused in Colorado, it is also operating in the state of California.
Some market participants were able to identify this company and collected astonishing share price returns in a short period. The share price spiked from below $0.05 to hit the one-year highs of $0.10. On the top of it, the trading volume was also quite high. More than 5 million shares changed hands some days. Have a look at it:
Blue Line Protection Group is headquartered in Denver, Colorado, and was founded in 2006. It provides armed protection and transportation, banking, compliance, and training services for businesses engaged in the legal cannabis industry. During the year ended December 31, 2016, approximately 90% of the company’s revenue was derived from armed protection and transportation services. The remaining 10% of its revenue was derived from compliance (5%), and other services (5%). The company owns subsidiaries in Nevada, Colorado, Illinois, Washington, and California.
Check the following video wherein the business is well explained. Please note the vast amount of cash that is already being transported by the company. Also, note that BLPG seems to have accumulated a significant amount of expertise in dealing with marijuana operators. We believe that it is one of their most important assets.
BLPG seems to be well-known in the sector and is seriously working for increasing brand awareness. It has been featured in news articles and video documentaries at the Wall Street Journal, USA Today, Fortune, and CNBC. Such type of efforts often pays in the long term, as investors and market participants get to know the business model.
In December 2017, the market got to know that BLPG had been able to transport over $400 million in 2017. It is an astonishing figure which showed that the company is becoming the leading currency processor for Colorado’s legal cannabis industry.
“No other armored courier fulfills the needs of this cash-heavy industry like we do,” said Daniel Allen, Blue Line’s CEO.
The growth seems to be very significant. From just 124 locations served in January, this number went to 1,200 by the end of November 2017, increasing its transportation revenue by over 900 percent. It is a tremendous increase, which shows that the company has accumulated a lot of expertise in the field. In our opinion, it will help the company develop its business in California.
“As we expand our footprint into other states, we’ll continue to assist banks and credit unions with our on-site, independent, compliance assessment services,” said Daniel Allen, Blue Line’s CEO.
What’s the key business driver of BLPG?
We go to know that the company has developed a three-tier approach to address the unique needs of the legal cannabis industry: protection, compliance, and transportation. With this new approach, the company seems to be able to mitigate the risk that comes with millions of dollars coming from banks and credit unions. As noted, we believe that if this is working in Colorado, it will work in any other state in the U.S. and Canada. That’s not all. The fact that the company has commenced early in this business will be a very significant asset in the future. Other industry entrants will have to learn everything that the company has done in the last year. It will serve as a barrier to new competitors.
The company released in January 2017 that the new plan is to expand the business in new cannabis markets throughout the West. Daniel Allen, Blue Line’s CEO, noted that the company is “on track to process half a billion dollars for this industry this year.” If this is confirmed in 2018, readers should be expecting attractive stock returns in the share price.
“We expect tremendous growth in our currency processing and compliance investigations activities.” said Daniel Allen, Blue Line’s CEO.
There is more.
The company also released that the cannabis industry is facing greater scrutiny from federal law enforcement agencies. Check this memorandum for all United States attorneys rescinding guidance specific to marijuana enforcement that had previously been issued through several memoranda by the federal government since 2009. This means that the guidance recommendations outlined in the 2013 Cole Memo have been rescinded.
What does it mean for the business of BLPG?
It is good news, as the compliance services provided by BLPG will be much more critical in the new year; 2018. The company will have to continue educating licensed cannabis businesses about the importance of adhering to the spirit of the priorities listed in the new regulatory environment. To sum up, we believe that it will help the company increase the services provided, which should enhance the top of the P&L.
Currently trading with a market cap of $9 million, BLPG is an exciting story among small caps. With $1 million in revenues reported in the last quarter and $2.8 million reported in the year 2016, the income statement shows incredible revenue growth. Additionally, the company confirmed $0.3 million in assets and $2.4 million in liabilities in the last quarter. In our opinion, raising capital to reshape the balance sheet is the right thing to do now. Many market participants should be interested in financing a business showing such growth.
To sum up, we expect more surprises, so be ready to assess the future news from this company.
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Disclosure: We have no position in BLPG and have not been compensated for this article.
Image courtesy of Flickr