In early August, Microcap Research.com and Research Analyst Seth Golden introduced you to Blue Line Protection Group (BLPG), a company that aims to transform and bring about a watershed moment to the Cannabis industry. As we further examine the potential for Blue Line and its shareholders, we become increasingly optimistic concerning the future results for all parties concerned. In this report, we will further explore the opportunity that lay ahead for Blue Line, while highlighting some of the advantages the Company currently maintains and will benefit from going forward.
Before we move forward, let’s briefly revisit the business of Blue Line to date:
Blue Line Protection Group provides consulting, armed security, compliance and investigations, transportation and secure vaulting services to banks, businesses and government entities who need to protect their assets, licenses and clients. Blue Line serves banks and credit unions by providing currency processing and transportation solutions, and its risk mitigation services help financial institutions serving cash-intensive industries comply with federal “know your customer” mandates. As of Q1 2016, some 84% of Blue Line’s revenues were derived from its armed protection and transportation services with 6% of total revenues coming from its compliance services business segment. The bullet points below serve to highlight some of the notable changes to Blue Line’s business since 2015 and under the regime of CEO Daniel Allen. These business modifications will serve to scale Blue Line’s business regionally and most importantly, profitably.
- Presently, Blue Line is the largest legal cannabis protection services company in the state of Colorado. They have expanded their operation to include a new 12,000 sq. ft. facility to service the regional expansion of the legal Cannabis industry. By early 2017, Blue Line will have satellite operations in Illinois, Oregon, Washington, California, Nevada, New Mexico and Arizona.
- The company has brought in a new CEO, Daniel Allen, more capable of advancing the Blue Line Protection Group business in accordance with the forecasted growth for the industry. Cannabis industry expected to grow at an annual rate of 30 percent. “The State of Legal Marijuana Markets” includes the prediction that the legal cannabis market will see a whopping $21.8 billion in total annual sales by 2020. http://www.arcviewmarketresearch.com
- Blue Line has received an investment from Hypur Ventures, a Delaware limited partnership (“Hypur Ventures”) and entered into an ISV (Integrated Software Vendor) agreement with Hypur, Inc. https://www.gethypur.com This newly established relationship with Hypur is launching imminently and this is where the Blue Line Protection Group business finds itself entering a new era of growth and opportunity that is unparalleled, even in the cannabis industry.
- Hypur’s software products, which were designed specifically to address the unique regulatory challenges presented by cash-intensive businesses, provide unprecedented transparency and accountability for financial institutions and regulators while offering legitimacy, safety and convenience for businesses and their customers.
As we continue to study and research the carefully monitored state of the legalized recreational cannabis industry, it becomes more apparent that the state of decriminalization is ever approaching. Several states will have an initiative to vote for the decriminalization of recreational marijuana on the ballots this November. Having said that, California as the country’s most populous state and the world’s sixth largest economy, will be voting on the issue of legalizing recreational marijuana this fall. Passing this legislation could encourage other states to follow and pressure the federal government to confront the issue head-on. Presently, California’s medical marijuana industry is already worth an estimated $2.7 billion. To reiterate, that is just the value of the medicinal marijuana industry in the state of California. Experts say that number would more than double if recreational use is allowed. Proponents say with a 15% retail tax on the drug, the California cannabis market could reportedly generate $7 billion a year. The opportunity for the state to collect additional tax revenues and for cannabis business operators to grow their existing medicinal marijuana business is undeniable.
The initiative to legalize recreational marijuana in the state of California failed to pass in 2010. But when Californians defeated the legalization initiative six years ago, it was during a mid-term election. A recent poll shows nearly 60% of voters now support the measure. Supporters say this year’s contentious presidential election is likely to attract younger, more progressive voters, which could help the initiative pass.
Should California pass the vote to decriminalize the use of recreational marijuana, the legislation will provide the following laws or guidelines for legislation: The Adult Use of Marijuana Act (AUMA) initiative would legalize the possession of one ounce of marijuana flower, or up to four grams of cannabis concentrates for those 21 years and older. The cultivation of up to six plants would also be legalized, in addition to hemp production and a taxed and regulated system for a recreational marijuana industry. Blue Line Protection Group and the implementation of their ISV agreement with Hypur will be at the forefront for driving compliance of cannabis business operators while facilitating the banking functions of said cannabis business operators. Currently, some 70% of cannabis business operators go unbanked due to regulatory, compliance and Federal criminal classification of cannabis as a Schedule 1 narcotic. Blue Line and Hypur have already spirited the technology to address these banking issues and will revolutionize the way banks engage cash-intensive business for the foreseeable future.
Moreover, California is just one of many states that will vote on the decriminalization of recreational marijuana in November of 2016. The states of Nevada, Maine, Florida, Massachusetts, Arizona, Missouri and Michigan will all vote on the initiative in November, after acquiring the necessary signatures to get the issue on the ballot. Additionally, Arkansas is currently gathering signatures. Arkansas has an August 25th deadline for the Secretary of State to certify initiatives.
If we extrapolate the potential regional growth in legal recreational cannabis operations we can easily recognize the potential for Blue Line Protection Group over the next decade. But even if we limit Blue Line to the existing medicinal marijuana business operations in nearly half of the United States presently, we can understand that the company will be servicing more and more clients over the course of the coming years. More importantly, the services that Blue Line will offer clients will come with greater profits than ever before.
Blue Line Protection Group’s ISV agreement with Hypur will serve to add legitimacy to the legal cannabis industry and facilitate cannabis business operator’s ability to bank. Hypur’s software solution will add levels of financial security for financial institutions and the cannabis business operators they hope to service for years to come. With 70% of cannabis business operators failing to achieve banking and financial industry partnerships, the risk to their business has been great since the decriminalization of recreational marijuana sales commenced a few years ago. Prior to Hypur’s software solution, financial industry participants that include regional banks and credit unions desired to service cash intensive businesses, but were unable to validate transactions occurring within the business and thus refused to service the cannabis industry. Hypur’s software products, which were designed specifically to address the unique regulatory challenges presented by cash-intensive businesses, provide unprecedented transparency and accountability for financial institutions and regulators while offering legitimacy, safety and convenience for businesses and their customers.
For banking institutions aiming to participate in the lucrative cannabis industry, Hypur’s technology enables the banks to know their customer’s customer (KYCC). Hypur’s Commerce solution tracks the source of every dollar coming into a cannabis bank account. Blue Line’s ISV agreement with Hypur Ventures and its ability to vault and deposit the cash directly to the Federal Reserve on behalf of each financial institution, creates a chain of cash custody and a level of transparency that financial institutions have not had access to previously.
But of course Blue Line and Hypur Ventures aren’t the only enterprise aiming to provide banking solutions for the cannabis industry, right?
Where there is money to be made there will always be a competitive environment. With that understanding in place and historically proven to be the case, let’s further discuss these elements of competition and how Blue Line Protection Group is best insulated against the threat of competition.
Firstly, Blue Line’s integration of Hypur’s SaaS platform offers a complete solution of physical and software compliance tracking for each transaction taking place from their marijuana clients’ businesses. No other competing product offers a total solution and with that Blue Line has advantaged its business model. Blue Line offers all aspects of security and transporting assets for cannabis business operators while implementing all aspects of Hypur’s compliance based software solution to the benefit of both the cannabis business operator and financial institution. It is with this full-scale solution that Blue Line has distanced itself from competing solutions aiming to bank the legalized cannabis industry.
Kind Financial is an industry participant that has attempted to create a software and hardware solution that would take aim at the pain points of banking the cannabis industry. The company has attempted to incorporate kiosks that can be placed at dispensary locations. Customers would be able to deposit cash in the Kind kiosk to pay for their purchase, in theory. Unfortunately what we have discovered with regards to Kind Financial is that the hardware solution/kiosk require the banks to underwrite the kiosk. Additionally, the capital needed to place these kiosks and timelines for underwriting each kiosk have proven to be impediments to the Kind Financial business model. This has forced Kind Financial to adjust its business model and focus more on compliance software. Kind Financial has teamed up with Microsoft to market this software to state and local governments that are trying to build compliance systems. Microsoft has no plans to participate in the cannabis commerce/retail industry and has openly stated it will not go near the cannabis plant, which means it will not participate with Kind kiosks. But even with the supportive relationship of Microsoft, to date Kind Financial has not secured a single government contract.
With the limitations of Kind Financial having been assessed, we better understand the barriers to entry when it comes to successfully banking the cannabis industry and why Blue Line and Hypur Ventures have integrated their respective physical services and software solutions.
Kind Financial found the cannabis commerce side of the industry to be more than it could handle and with this discovery has found itself more aligned with government solutions. It is possible that with the DEA failing to reschedule marijuana from its restrictive Schedule 1 narcotic status that Kind Financial will partake in further government compliance measures as the DEA has offered to take steps to make it easier for scientists to study the plant. When one door closes…
Tokken is another company taking aim at the potential billion dollar opportunity that comes with banking cash-intensive businesses like that of the cannabis industry. Like Kind Financial, Tokken has also developed a software solution…with a monetary twist. Somewhat like PayPal or Venmo, Tokken will use the electronic money transfer system in the United States known as the Automated Clearinghouse, or ACH, to move money from the bank account of a dispensary customer to Tokken’s bank account. Tokken will then keep subaccounts for each dispensary, making it unnecessary for the banks to deal directly with dispensaries. Tokken transactions will be recorded on the ledger underlying the Bitcoin system known as the blockchain. Tokken clients can use funds to pay others in the Tokken system, such as vendors and contractors, or it can liquidate the funds for a fee. While Tokken is a software driven solution, the company will still have to partner with brick and mortar banking institutions for its bank accounts. Bitcoin usage is less of a solution to an existing problem and more of a work around to the existing problem. The stigma that is often associated with the use of Bitcoin is akin to black-market operations, something done underground, between the lines and circumventing the legitimacy of legal monetary practices. Additionally, Bitcoin and the blockchain have been hacked on numerous occasions over the last several years. Most consumers won’t associate themselves with such currency constructs for all the reasons mentioned and it is why we don’t envision this Bitcoin business model of Tokken to be a long-term solution that will achieve the scale of Blue Line Protection Group. Like Kind Financial, Tokken may carve out a small niche in the market for itself, but it will be of little consequence to the cannabis industry. Lastly, Tokken has yet to launch, but will initiate a beta test of its software technology over the coming weeks in the Denver area.
There remain a few other, smaller private companies attempting and/or building their own version of “solutions” for banking the cannabis industry. These entities will find themselves disadvantaged when or if they ever come to the market as Blue Line Protection Group solidifies its first-mover advantage and leading edge service solutions. It is often said that anybody can make a smartphone or coffee maker or an automobile. While that may be true that doesn’t mean they will be successful or profitable in doing so. The first-mover advantage is often the greatest advantage a business model has when developing a new product or service solution. As the first-mover builds a satisfied customer base, the first-movers brand is simultaneously established and tends to dominate a category or industry for years and decades to come. Amazon.com faces competition from every which direction imaginable, yet it remains the dominant e-commerce brand for consumers. Fitbit faces competition from brands like Apple, Garmin and Under Armor and yet the company’s name has become synonymous with fitness tracker devices. Fitbit’s first-mover advantage still finds the company garnering some 80% of fitness tracker sales in the United States, even when faced with competing products from Apple and Samsung. The first-mover advantage is a dominating economic moat around a business, especially when management executes soundly and delivers on their customers’ needs.
As we conclude these additional points of interest surrounding the Blue Line Protection Group business operation, we highlight that Blue Line and its ISV agreement with Hypur Ventures have already begun securing long-term contracts (3-year period) with cannabis business operators and financial institutions. Since our original initiation of coverage and reporting on Blue Line Protection Group, the firm has continued to secure additional banking contracts to service the cannabis industry in the most secure, traceable and compliant manner. In the state of California and only last week, Blue Line Protection Group has landed a service contract with it’s first major banking institution. This summer and hence forth, the cannabis industry will be bankable and find financial support more achievable than ever before. And Blue Line Protection Group shareholders will appreciate the service fees generated by Blue Line Protection Group’s services as follows:
- For every $1 secured and/or transported by Blue Line from the cannabis business operator to the financial institution or Federal Reserve, Blue Line will assign a fee rate or basis points. Some of the contracted financial institutions already signed on with Hypur will require Blue Line to secure and transports tens of millions of dollars every single month. In California alone, the Company will be securing and transporting roughly $100mm a month.
With Blue Line Protection Group’s core business to date already growing revenues in the mid to upper 20% range, these additional revenue generating services will find the company in a strong financial position going forward. And don’t forget to keep an eye open when it comes time to vote. If only one state decriminalizes recreational marijuana sales during the fall, this could mean our modest sales forecast for Blue Line may be revisited to include additional revenues.
The business model that Blue Line Protection Group has evolved into is scalable and found to be with significantly improved gross profit margins when scaled. And scale is what Blue Line Protection Group is aiming to achieve with its dedication to expanding its business into the states of California, Nevada, Illinois, Oregon, Washington and New Mexico in the coming months. Blue Line Protection Group is not only paving the way for legitimate cannabis banking commerce, but it is solidifying its brand to be synonymous with cannabis commerce as a whole. In the near future, when cannabis business operators discuss banking they will likely open the conversation with, “Who’s your Blue Line Bank”?