Cannabis social media, blockchain, seed-to-sale company MassRoots (MSRT) had an unarguably tumultuous year in 2017. The founder Issac Dietrich lost control of the company he created, only to wrestle it back and replace the board with friendlier members. Dietrich immediately embarked on a strategy to get the company righted and in doing so awarded himself a hefty bonus even as the company reported extreme losses.
MassRoots filed its annual report on Tuesday but didn’t get around to the company’s financials in the filing until page 24. Gross revenue for the year fell 54% to $319,242, while the net losses ballooned 146% to $44 million. The net loss per share for 2017 was 46 cents. The company said in its filing that the “Decline is primarily related to prior management’s decision to make MassRoots’ dispensary finder, its main source of revenue, free for dispensaries to use with the goal of getting them to upgrade to premium features, which did not materialize.”
Payroll and related expenses increased $991,528 to $3,104,407 during fiscal year 2017 from $2,112,879 during fiscal year 2016. MassRoots said that the increase was mainly a result of added personnel in 2017. However, the company actually slashed personnel and currently only has five full-time employees, two part-time and one full-time independent contractor. MassRoots also hasn’t paid its taxes. The company has payroll tax liabilities of approximately $1,599,489. However, the company did settle with its previous landlord following an eviction. That settlement was $145,000 and the company is now using a WeWork space.
MassRoots is dependent on the sale of stock to fund its operations and the company said in its filing that it has does not have sufficient capital to become cash-flow positive from operations. “We expect to need to raise additional funds to continue to fund operations.”
In all of this mess, CEO Isaac Dietrich awarded himself a bonus of $190,659 on top of his salary of $96,971. While Mr. Dietrich’s monthly salary was decreased from 2016, his total compensation jumped from $107,917 in 2016 to $287,630 in 2017. Of course, every CEO is entitled to compensation for their hard work and numerous hours. The optics of a hefty bonus as the company’s revenues plunge don’t look good.
In addition to that, the company said it has been on a travel whirlwind attending over 50 conferences during 2017 and racking up expenses of $718,693 over 2016’s travel expenses of $188,723. That’s $14,373 per conference. That is outrageous. While there are certainly numerous cannabis and blockchain conferences to attend; 50 conferences in one year is almost one per week. Granted some of this travel could be related to meeting new investors, however, the filing states that it was conference attendance. Yes, conference booths can be expensive to set up and run, along with flights and hotels. Still, in light of the board struggles that occurred during the year how was MassRoots still managing to attend 50 conferences a year?
All of this spending is occurring as the company tries to figure out what it is. It is part social media, part dispensary finder, and part blockchain. MassRoots believes users will come to it for dispensary information versus WeedMaps or Leafly because of its social component. However, with consumers becoming more concerned about privacy issues that could be a disadvantage. Plus, Leafly and WeedMaps are well-funded established players in the space.
MassRoots also faces competition on its seed-to-sale retail plans from more entrenched companies like MJ Freeway and BioTrack THC. Both have greater resources from a financial and marketing standpoint. The filing didn’t mention Metrc as a competitor, which is probably gaining the most traction of all in this space. MassRoots is also trying to enter the point-of-sale retail space, where it too faces a competitive environment with much stronger players.
The stock was lately trading at 28 cents, down from its 52-week high of $8.25. Many investors have jumped ship, but some still remain and the stock has moved higher from trading at 22 cents in early April.