ezGreen on the massive market for regulatory compliance in the cannabis sector – Part 2

Cultivators, LP’s, Dispensaries, Brands, Extraction. These are all cannabis verticals that investors are familiar with. One generally undiscovered sector is regulatory compliance. Compliance requirements are being put in place across the cannabis industry to hinder money laundering from illicit growers who have been stashing away cash waiting for cannabis to become legal and to support proper tracking and taxing of cannabis sales. ezGreen Compliance is the second investee company of FinCanna Capital Corp. (CSE: CALI | OTCQB: FNNZF) and it has the software in place to make compliance, tracking and taxing seamless for dispensaries in both the medical and recreational spaces across the United States. 

The innovative software is a proprietary HIPAA (Health Insurance Portability and Accountability Act) compliant, Point-of-Sale (POS) system whose architecture is derived from the technology of Automated Healthcare Solutions (AHCS) providers of one of the largest pharmaceutical grade POS systems in the United States.

Today, I sit with management of ezGreen Compliance, to discuss a little more about the Company, its addressable market and its competitive advantages. I hope you enjoy the read.

What does it mean to be a pharmaceutical grade POS system? 

ezGreen was created by AHCS, a software company that specializes in pharmaceutical dispensing in the U.S. With over 3,500 dispensaries under management and 16+ years in the space, AHCS has created a product to manage the biggest pain point in the retail dispensing space, managing patient information.  Patients in the U.S. market receive recommendations for cannabis through a medical physician with a DEA license number that allow for those physicians to be audited at any time by Health and Human Services. Each data breach costs between $5,000 and $50,000 under U.S. HIPAA guidelines, so dispensaries need to manage that patient database with a software product that will provide a data protection strategy to mitigate the risk of losing data or getting hacked by an outside group. 

What are your competitive advantages over the existing compliance and POS systems? 

ezGreen was developed by a software company that is an expert in managing patient data under HIPAA best practices. They helped write the code for the national PDMP (Prescription Drug Monitoring Program) which allows each state to monitor pharmaceutical purchases on a daily basis. They manage thousands of dispensaries every day and have operated for over 16 years with no HIPAA breaches. The company is also experienced in maintaining a product that is able to maintain the state compliance regulations while keeping the federal standards up to date. 

Why would the adult use market require a compliant grade POS solution like this? 

The adult use market is regulated on a state-by-state basis. Each state maintains consumer daily limits to ensure each user is not selling their personal purchase to others. ezGreen is able to provide an anonymous transaction while validating each user’s ID and linking that transaction to the ID and alert the dispensary if that user attempts to come back into that location and attempt to purchase over the daily limit. This is called smurfing in the industry, and large dispensary management companies have been shut down for turning a blind eye to this type of activity. All compliant dispensaries must also protect a copy of each customer’s photo ID in a database and there is an expectation that all personal information is protected against data breaches. 

What is your business model and how do you motivate the dispensaries to work with you? 

ezGreen mirrors the traditional pharmacy dispensing model and does not charge a fee to the dispensary, instead we charge a transactional fee to the patient or customer for HIPAA and data security. The transaction fee varies from state-to-state based on local rules and regulations but the numbers are staggering to both the dispensary and ezGreen. 

How do you position the total addressable market in the United States? 

The total addressable market in the U.S. is 5200+ licensed dispensary and retailers. Each dispensary has an average of 200 transactions per day, 6,000 transactions per month and 72,000 transactions per year with a total market average of 347,400,000 transactions per year. At an average transaction price of $1 this would represent a total addressable market of ~ $347,000,000. This market is on track to grow over 30% each year for the next 5 years in the U.S. Market Space.

[Publisher’s Note: Arlen Hansen is the President of Kin Communications Inc. Kin Communications provides investor relations for FinCanna Capital Corp.]

Herchak shares FinCanna’s ‘twist’ for the cannabis industry – Part I

FinCanna Capital Corp. (CSE: CALI | OTCQB: FNNZF) is one of two publicly traded pure-play Cannabis royalty companies focused in the United States. The market has witnessed other like-minded companies with their own twist, such as, Auxly Cannabis Group Inc. (TSXV: XLY | OTCQX: CBWTF) and Origin House (OH:CSE, ORHOF:OTCQX) do extremely well growing to a combined market cap of $750M CDN.

FinCanna has its financing obligations covered, a large non-dilutive injection of capital expected shortly, and its own unique ‘twist’ for cannabis businesses that it invests in, so I thought the timing would be right to sit down with Andriyko Herchak, CEO of FinCanna to discuss its model, its competitive advantage and where the blue sky sits for investors of FinCanna.

This is the first part of a 5-part interview series with the FinCanna team and its investee companies. Stay tuned for more one-on-ones with management.

Can you define the FinCanna Royalty Model and its advantages for investor?

FinCanna is a Royalty Company, which invests in U.S. licensed cannabis related companies to earn a percentage of their top-line revenues that can generate a high margin income stream for our shareholders.

Our model limits the Company’s downside risk as FinCanna registers a first charge on the assets of our investee companies and correspondingly holds large potential upside as our investee companies successfully mature and their revenues grow. We also have the potential for significant one-time gains, via the repurchase of our royalty, if a buyout of one of our investee companies were to occur.

All of the companies that we have invested in are privately held, which most investors would not have the opportunity to invest in directly. As FinCanna is a publicly traded company it provides our investors with the benefits of transparency and liquidity typically not associated with private companies. So, we really offer the best of both worlds of investing in a publicly traded company that provides you with indirect investment into a diversified portfolio of private US companies.

What do you see as your key competitive advantage in the burgeoning US market place?

Our competitive edge? I am a Chartered Professional Accountant, as is our CFO Rob Scott. We understand business and we understand how to protect our downside in our investments while positioning the company for exceptional upside as our investee companies mature.

We look down the road to position our shareholders for success. We are financing companies we believe are well positioned to be leaders in their respective sectors in the U.S., which is the largest licenced market in the world. As an early entrant in the U.S we have developed a very strong network and have access to excellent additional opportunities.

What are your cash requirements right now?

We have three active royalty investments in which our obligations are funded. In addition, we are expecting to receive approximately $3.9M USD as an early loan repayment from CTI, one of our investee companies, in December 2018 or January 2019, which we can put to very good use. We have a small burn, a very high margin projected revenue stream and a great pipeline of quality projects that we could potentially invest in, adding to our investment portfolio and expanding our future royalty income.

What can shareholders expect over the next few quarters?

It’s pretty simple. First, we expect our investee companies to begin generating cash flow that funnels its way to our balance sheet. Second, we intend to make additional investments with the non-dilutive funds received from the early loan repayment from CTI. Some of these potential investments would be immediately revenue accretive or have a short path to royalty revenues.

On another note, Canada as we all know, saw major valuation growth in the sector, which has yet to appear in the U.S. markets. We believe we are well positioned to participate in any future large-scale market appreciation in the U.S. as it may occur.

What types of businesses are you looking to finance?

There are numerous ancillary businesses that can be highly lucrative, and we believe there are very strong opportunities excluding growth and cultivation. That said, we have built a diversified portfolio across various verticals in the US cannabis sector, including extraction, manufacturing and technology, and we are looking to add selectively. One should note that the companies that we have invested in are private, which most investors would not have the opportunity to invest in directly, and we believe we represent great value for investors looking to participate in the U.S. licensed cannabis sector.

[Publisher’s Note: Arlen Hansen is the President of Kin Communications Inc. Kin Communications provides investor relations for FinCanna Capital Corp.]