The cannabis industry saw the first marijuana-software company emerge on the public markets today. Akerna (NASDAQ: KERN) began trading on Tuesday, surging up almost 30 percent on it’s first day of trading.
Not only is the Denver-based company one of the few tech firms to cater to the cannabis sector, it also happens to be backed by one of Facebook’s earliest investors, Roger McNamee.
Unlike most other companies, which choose to go public through the time-consuming and expensive route that is a traditional initial public offing, Akerna took a different route, choosing to merge with a special purpose acquisition company called MTech Acquisition.
MTech began trading last February as a blank-check company with minimal operations. These types of businesses exist for larger companies to buy them, essentially offering a simpler way for a company to go public through the acquisition.
The resulting entity, now called Akerna Corp, shot up 28 percent on Tuesday in its first day of trading, ending the day at $15.35 per share. Currently, the stock is valued at only $71.9 million with around 145,000 shares changing hands, according to MarketWatch.
Akerna consists of a subsidiary called MJ Freeway, which is best known for offering two different types of software products. The first of which is a seed-to-sale platform that’s required by a number of states like California and Washington to help track cannabis all across the companies supply line, from initial shipment to its eventual sale. They also offer an “enterprise resource planning” software that’s meant more for smaller, non-vertically integrated companies, such as cultivators, dispensaries, and manufacturers.
“MJ Freeway was born 9½ years ago — we invented the concept of seed-to-sale tracking,” said Jessica Billingsley, CEO of MJ Freeway. “It didn’t exist outside of cannabis. There were other models that had pieces of it, but nothing that pulled together all those pieces. It did have to be built from the ground up … we also built in compliance across the entire supply chain in every legal jurisdiction.”
Currently, MJ Freeway’s software systems are used in 29 out of the 33 states that have cannabis legalized, and a further 14 countries outside of the U.S. In total, the company had around $10 million in revenue for 2018 with losses of $4.5 million.
Half of that revenue figure came from the state governments of Washington and Pennsylvania. At the same time, Akerna/MJ Freeway is waiting to see how it’s bids in Florida and New Mexico turned out but are expected to turn out well.
The only state that doesn’t have a good history with Akerna’s software is Nevada, which saw the company terminate a contract with them when the state refused to increase payments as recreational cannabis volumes skyrocketed.
Overall, the current plan for the company is to use the cash and public stock to fuel a strategy of aggressive expansion in the industry. Billingsley argues that technology providers are in a great position to consolidate, especially as the cannabis sector continues to grow at a rapid pace.
Akerna is the only cannabis company listed on a U.S. exchange that focuses on providing technology to the sector. As such, it’s not surprising to see the stock continue to surge in the weeks to come due to its unique nature.