SANTA MONICA, CA / ACCESSWIRE / June 12, 2017 / The novelty of the legal cannabis market is fading to a degree, leaving some upstarts in its initial wake while others ride the wave to establish leadership positions that should continue to grow for decades to come as the industry matures. An area of particular interest is cannabis testing, an industry segment that without it, will leave the broader movement in a chaotic state.
Thanks to governments enacting and enforcing regulations, the evolution of a structured legal marijuana environment is taking shape. It's the importance of the analysis market segment underpinning safety that has analysts at MarketsandMarkets forecasting the global cannabis testing market will reach $1.42 billion by 2021 from $822 million in 2016. There are many drivers according to MarketsandMarkets, with limiting factors including things such as the high cost of equipment and dearth of skilled professionals in the space.
In order to capitalize on the opportunity, Signal Bay Inc. (OTCQB: SGBY) and its life sciences testing division EVIO Labs have already established a footprint with five operating labs, four in Oregon and one in California.
As explained by Signal Bay CEO William Waldrop in a conference call discussing the fiscal second quarter ended March 31, 2017, "With four labs in Oregon, we have access to almost 100% of the legal cannabis clients available in the state." Waldrop estimates the revenue potential for Oregon testing market at approximately $15 million, with expectations of continued growth.
The California market is considerably larger, especially now that marijuana for recreational purposes was passed on November's ballot, making both medical and recreational cannabis legal in the nation's most populous state, home to over 38 million citizens. The revenue potential in California is more than 10x that in Oregon - exceeded $150 million annually, says Waldrop.
Demand is, of course, key, but that seems to be in Signal Bay's favor as it builds its brand. One key is staying out in front and keeping on the right side of stringent testing regulations, such as those implemented in Oregon in October. That means being nimble enough to quickly adapt and meet specifications to ensure safe products are reaching consumers.
"The market demand for clean cannabis through our Compliance Science program has exceeded initial expectations," said Waldrop during the call. He added that many cultivators and processors across California see the future - new testing regulations go into effect in January 2018 - and want to remain proactive in establishing themselves as providers of clean cannabis products ahead of the deadline. As such, they're turning to companies like EVIO as a core part of business.
In that lane, the company spent nearly half a million dollars on new equipment recently, making it possible to do all their pesticide testing in house, rather than outsourcing. The cap ex should deliver an ROI through improved margins and hastened turn-around times once the equipment is in full operation, which is anticipated by the end of the month.
To further bolster margins, Signal Bay bought three new courier and sampling trucks. This means no more paying mileage and fuel to drivers to use their own vehicles involved in these operations.
Overall, constraining factors noted by MarketsandMarkets don't seem to be affecting Signal Bay much. The company has grown five-fold from its first year and is on track to repeat that metric again. Management is tight-lipped on certain development and value catalysts, such as a collaboration with a major University in the Pacific Northwest, for confidentiality reasons, while others are kept hush-hush to maintain a competitive edge over rivals.
Testing services revenue during the recent quarter totaled $745,426, while advisory services brought in another $87,297 for combined revenue of $832,723, according to SEC filings. That's up 696% from combined revenue of $104,606 in the year prior quarter. From a sequential quarter view, revenue was up 25% from Q1. Not surprisingly, the upstart is not yet profitable, registering a net loss of $469,434 for the quarter, versus a net loss of $335,483 in Q2 fiscal 2016, as SG&A expenses rose significantly.
Gross margin surged 279% from a negative margin in Q1 fiscal 2016 to $218,723 in the recent quarter.
Signal Bay also improved its cash position to $264,590, compared to $57,486 a year earlier.
Looking ahead, Signal Bay plans to employ organic and inorganic strategies to maintain its steep growth curve. This means building company-owned labs from the ground up and acquiring existing cash-flowing labs. This is all part of a corporate goal to have 18 EVIO Labs operating by the end of next year, a milestone which Waldrop says that are on target to meet.
Signal Bay's top executive concluded by advising that announcements on developments are anticipated for the near future, words that should keep investors on the lookout for the next move for Signal Bay and EVIO to establish an even stronger market presence.
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