$DIGP Builds Revenue in Attractive Nevada Market

Cannabis testing services are the most attractive subset within the industry and could generate close to a billion dollars in revenue by 2020, according to GreenWave Advisors’ Matt Karnes. Government mandated testing generates predictable recurring revenue at 60% to 65% gross margins, while the significant upfront costs to setup a laboratory and contractual agreements with clients create a high barrier to entry for new competitors.

DigiPath Inc. (DIGP) is well positioned to capitalize on both of these trends with its high-tech Las Vegas testing facility. Since opening almost a year ago, the laboratory has already attracted 14 of the state’s 23 licensed cultivators. The lab – headed by Dr. Cindy Orser, PhD – is capable of delivering results in as little as 48 hours with unparalleled consistency and a higher capacity than any other lab operating in the city.

CannabisFN recently sat down with DigiPath Inc. CEO Todd Denkin to discuss the Nevada market and the company’s progress to date.

Near-term Catalysts

DigiPath is poised to capitalize on several near-term catalysts within the Nevada market, including a deadline for provisional licenses and recreational legalization.

The Nevadan cannabis industry began rather slowly as legislators struggled to agree upon rules and pass necessary legislation. By taking their time, the state has developed one of the most comprehensive cannabis legalization frameworks in the nation. The pace is likely to pick up over the next 30-45 days as licensed cannabis cultivators setup operations in order to avoid losing their provisional license by the May 5th deadline – a move that could triple the market.

Recreational legalization could also have an enormous long-term impact on the market. In November, voters will determine whether or not to follow in the footsteps of states like Colorado and Washington State in legalizing adult-use marijuana. The move would open the door to the state’s 42 million visitors each year to purchase and consume marijuana legally, potentially raising tax revenue and creating huge opportunities for businesses.

Solving Key Issues

Many states have been struggling with contaminated cannabis that has been recalled due to safety issues for consumers. The problem with these states is that they started their programs without strict testing requirements and companies were free to use pesticides of their choice. Since the drug is federally illegal, the USDA and FDA haven’t issued any guidelines that apply to other agricultural crops and ensure safety for consumers.

Nevada’s framework permits only 22 pesticides at very low levels. If a cultivator’s test crop is positive, they must destroy the entire affected production output, which can be extremely costly to growers. Colorado, California, and other states are starting to address these recall issues with their own cannabis testing guidelines. While new states are likely to follow in the footsteps of Nevada when drafting their own regulations as a best practice.

DigiPath’s experience in this market could prove invaluable as it expands its presence into other states. After securing a Colorado license, they are actively seeking funding to open a lab in that state. Management is also looking at acquiring pathology or environmental labs in states that have legalized marijuana as a low-cost way to expand into new markets, create a footprint across the nation, and eventually become a clear market leader.

Looking Ahead

DigiPath represents a compelling opportunity in the cannabis industry with its presence in Nevada’s burgeoning market. With cannabis testing expected to reach a billion dollars in revenue by 2020, investors may want to take a closer look at the space.

Investors in the cannabis industry, including companies like Greengro Technologies Inc. (GRNH), GrowBLOX Sciences Inc. (GBLX), or Kush Bottles Inc. (KSHB), may want to take a closer look at the stock and industry subset.