"It's a real game changer," commented William Waldrop, CEO of Signal Bay, Inc. "With a solid footprint already established in California we are moving to aggressively capitalize on this truly extraordinary market opportunity. The moment the last ballot was counted, the value of our company and its potential increased substantially."
Over the next five years the total California cannabis market is projected to grow at a compounded annual rate of 18.5%, from $2.76 billion in 2015 to $6.5 billion by 2020, according to a research report published by cannabis industry experts at ArcView Market Research.
Across the US the nation's legal cannabis industry is expected to climb to $23 billion in 2020, up from $5.7 billion in 2015. By comparison, at that point, the legal marijuana market would be bigger than the National Football League, which saw roughly $12 billion of revenue in 2015
In the cannabis testing space, California already boasted a $100 million market. With only 5% of the cannabis in California currently tested, there was $95 million in testing revenue up for grabs already, representing a wide open market for companies like Signal Bay's EVIO Labs. That was yesterday. Today, it just tripled overnight to $300 million.
Investors Look to Cannabis Testing
Of all the subsets in the cannabis space, cannabis testing might be the most attractive subset to investors. The anticipated growth of the industry is significant, while the risks are significantly lower than other subsets of the cannabis industry. With marijuana use still illegal at the federal level, increased state regulations and mandates on testing are to be expected. The more testing required, the more revenue testing leaders like Signal Bay can generate.
There are three main reasons make many investors and industry experts bullish on cannabis testing.
"First, there are high barriers to entry," continued Waldrop. "It's a tight knit relationship based industry, and the scientific expertise required to test cannabis in accordance with regulatory standards is significant. Second, increasing regulations mandated by the state for cannabis consumption are only going to grow as cannabis becomes a legal product like any other. Third, cannabis consumers themselves are increasingly demanding that their cannabis product—whether it is traditionally smoked or ingested as an edible—is tested for safety, purity, and quality just like any other consumer product in your home."
Cannabis testing also offers a high profit margin, which is evidenced by Signal Bay's projections to grow revenue to $45 million in annual revenues by 2020 from an anticipated 30 cannabis testing laboratories. The Company continues to aggressively acquire more of its cannabis testing "EVIO Labs" with 5 EVIO Labs now operating in Oregon and California delivering professional quality control to the cannabis farmers, processors and retailers.
There are a host of tests involved in the testing of cannabis including testing for pesticides, mold, e-coli, moisture content, and potency. If the cannabis product will reach the shelf in the form of an oil or an edible, additional tests, delivering additional revenues are required. The testing market in the United States is expected to balloon to $850 million in size by 2020.
Signal Bay: A Unique and Undervalued Company
There are only a handful of companies trying to capture the growing cannabis compliance testing market. However, these companies are mostly in the business of owning and operating independent labs, each of which provides core testing services. In simpler terms, each lab is its own centralized entity, operating as basically its own business. But the experienced management team at Signal Bay has developed a business model they liken to Quest Diagnostics (NYSE: DGX), an industry leader in clinical laboratory services.
A 'spoke & hub model, in each state Signal Bay operates on centralized testing laboratory with other ancillary testing facilities in local markets statewide. The core centralized lab handles the bigger, high dollar testing functions while the smaller localized labs handle collection, sampling, and other testing services. Couriers move back and forth between locations and the hub to maximize efficiency enabling the Company to develop networks of testing laboratories that operate efficiently within each state.
Despite recent acquisitions and increased market share, Signal Bay trades with a market capitalization far below many of its industry peers. However, in light of recent acquisitions and this game changing news in California, where Signal Bay plans to acquire 18 of its cannabis testing EVIO Labs by the end of 2018, investors looking to the growing cannabis testing market should take a very close look at investing in Signal Bay Inc (SGBY:OTCQB).
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