Making a Quick Buck from Pot Stocks?
If you want to make a quick buck in the stock market, few industries look more attractive than pot.
Just take a look at Akerna Corp (NASDAQ:KERN) stock and you’ll see what I mean. The company’s share price closed at $3.60 on November 13, and at the time of this writing, it’s trading at $8.70.
So in less than three weeks, Akerna stock more than doubled.
Now, you are probably wondering what the catalyst was behind that rally.
Well, first of all, let’s take a look at what Akerna does for a living, because this Denver, Colorado-based pot stock is actually quite different from other companies in the industry.
Who Is Akerna Corp?
Founded in 2010, Akerna is a regulatory compliance technology company serving the legal cannabis industry.
It essentially provides pot producers and government entities with a central data management system for tracking regulated cannabis products. And the system works through the entire supply chain—from seed to product to shelf to customer.
Since the company started, it has tracked more than $16.0 billion in pot sales.
Its business has been growing, too. In Akerna’s fiscal 2016 (its fiscal year ends on June 30 of each calendar year), the company’s software and services revenue totaled $2.1 million. (Source: “Investor Presentation October 2019,” Akerna Corp, last accessed December 2, 2019.)
In fiscal 2019, the pot company generated a whopping $10.7 million in software and services revenue. That translated to a compound annual growth rate (CAGR) of 73%.
To break it down, the growth was driven by a 70% CAGR in software revenue and an 82% CAGR in services revenue.
And because Akerna’s fiscal year ends on June 30, its fiscal 2020 first-quarter results are already available.
For the first quarter, which ended September 30, 2019, the company generated $3.2 million of total revenue, representing another 39% increase year-over-year. (Source: “Akerna Corp. Reports First Quarter Fiscal Year 2020 Results,” Akerna Corp, November 14, 2019.)
Akerna’s top-line growth was driven by its key commercial software product: “MJ Platform.” In the company’s most recent quarter, MJ Platform’s total revenue increased 36% year-over-year. Notably, the platform’s revenue from recurring sources grew 40% from a year ago.
And that brings up a very important characteristic about this pot stock: it has a recurring business.
This is because, rather than selling cannabis products like most other pot companies, Akerna relies largely on its recurring software revenue model. Over time, this model can add a lot of stability to the company’s business.
One More Catalyst for KERN Stock
That solid first-quarter fiscal 2020 earnings report was one of the reasons why investors warmed up to Akerna stock recently. In the trading session following the earnings release, KERN stock shot up 56.3%.
But the rally did not stop there. On November 26, Akerna announced that it had acquired a majority stake in Solo Sciences Inc., a privately held company with patented anti-counterfeiting and consumer engagement technologies. (Source: “Akerna Makes $18M Investment in Anti-Counterfeiting Technology Leader solo sciences,” Akerna Corp, November 26, 2019.)
On the day that Akerna announced its investment in Solo Sciences, Akerna’s shares surged another 26.6%.
With consumer safety being one of the main concerns in the cannabis industry, Solo Sciences could provide a lot of value. In particular, when a manufacturer uses Solo’s proprietary mark on their product packaging, consumers can scan that package with the Solo phone app to check if the product is real or fake.
And by taking a major stake in Solo Sciences, Akerna can extend its reach to the consumer, thus accessing a larger total addressable market.
“Akerna’s investment in solo is another step in our commitment to creating the pre-eminent global technology platform, addressing the entire supply chain and its regulatory bodies through accountability and transparency and will help us accelerate our growth and create a new industry standard,” said Akerna’s CEO Jessica Billingsley. (Source: Ibid.)
Under the terms of the deal, Akerna is acquiring an 80% controlling stake in Solo Sciences Inc for cash and stock. (Source: “Solo Announcement,” Akerna Corp, last accessed December 2, 2019.)
Moreover, Akerna also has a 12-month option to acquire the remaining minority stake of the company.
Akerna Corp (NASDAQ:KERN) Stock Chart
Chart courtesy of StockCharts.com
The combination of Akerna Corp and Solo Sciences Inc. should create a more transparent cannabis supply chain, which is something that legal pot producers, consumers, and regulatory authorities want to see.
In fact, the two companies have already won a joint contract with the state of Utah.
If Akerna successfully realizes the synergies of this major strategic move, it just might take KERN stock to a whole new level.