A Deep Dive Into Medbox’s 2014 Operating Results

Medbox Inc. (MDBX) filed their financial and operating results for the 2014 calendar year today and the stock is seeing a favorable reaction from the market. The company’s report was extensive and Medbox provided readers with a detailed look into the risks the company faces.

Shares of Medbox are down nearly 75% during 2015, and the stock that once traded for $200 a share is now trading for less than $2 a share. Medbox has faced a lot of scrutiny a negative press during the last 12 months and the company is currently the subject of a number of lawsuits. Here are some of the highlights from the report.

Financial Results

Medbox’s revenue model changed during 2014. MDBX moved away from focusing on obtaining licenses for clients for a one-time, upfront fee. The company’s new model is focused on providing ongoing management and support services to their clients so the company gets paid over a longer period of time. This is a strategic move because MDBX will be able to generate more revenue over the course of the customer’s life.

• In 2014, MDBX saw its net loss increased to $16,541,334 from $3,791,440 in 2013.
• During 2014, MDBX consolidated net revenues decreased by $1,432,951. This was primarily due to the company generating less revenue from consulting and build outs.
• During 2014, operating expenses increased by $7,089,385. This was primarily due to an increase of $6,652,770 in general and administrative costs (due to the new stock-based compensation plan which accounted for $4,415,799 of general and administrative costs).
• Legal costs increased significantly and the company spent over $1 million during 2014 due to the SEC and Department of Justice investigation into MDBX’s financial reporting
• Other income (expense) changed significantly during 2014. In 2013 MDBX had approx. $7,000 in other income. In 2014 MDBX had over $3 million in other expenses.
• At year end, MDBX $101,182 in cash on hand, a decrease from $168,003 in 2013.

Operating highlights

Medbox is transitioning the business to a recurring revenue model. The company will enter into additional turn-key service agreements with their clients as the relationship develops and evolves. MDBX plans to generate additional revenue by providing ongoing turn-key services. These services are, real estate acquisition and leasing, licensing, management and operation, financing, and compliance.

• During 2014, MDBX hired a new CEO and CFO and reconstituted its Board of Directors.
• Medbox plans focus on selling a portable line of vaporizers in the second quarter of 2015.
• MDBX plans to manage business locations on a day-to-day basis for a percentage of the management fee.
• In 2014, MDBX submitted 36 license applications in 5 states for clients. As of February 13, 2015, MDBX entered into 5 letters of intent for real estate purchase contracts and two leases to open dispensary or cultivation centers.
  • 5 license applications are pending and 12 licenses were approved (Oregon, Illinois, Nevada and Washington). Most of the current dispensary and cultivation sites are expected to begin conducting business in 2015 and 2016.

Medbox operates through 6 subsidiaries. These are:

1. Prescription Vending Machines. They distributes MDBX products and provides related consulting services
2. Vaporfection International: They distributes vaporizing products and accessories.
3. Medbox Property Investments: Specializes in real property acquisitions and leases for dispensaries and cultivation centers.
4. MJ Property Investments: Focused on property acquisitions and leases for dispensaries and cultivation centers in Washington.
5. Medbox Management Services: They provide management oversight and compliance services to licensed dispensaries for cultivation, dispensing, and marijuana infused products. They have this subsidiary in California, Nevada and Arizona.
6. Medicine Dispensing Systems: Distributes Medbox dispensing system and provides related consulting services in the State of Arizona.

Outlook

Management believes that the cash balance on hand, cash flows expected to be generated from operations, proceeds from current and future expected debt issuances and proceeds from future share capital issuances will fund cash requirements through March 2016. However, in order to execute the long-term growth strategy, MDBX will need to raise additional funds through public or private equity offerings, debt financings, or other means.

Technical420 is favorable on this report from a transparency perspective. The company highlighted risks, concerns, and future expenses very well which show that the new management team is trying to turn things around. From a financial and operating perspective, this report is very concerning. The company already spent over $1 million in legal fees and they are still facing 7-10 lawsuits.

Dilution remains a major risk for shareholders because the company will have to raise capital for operations and to fight the lawsuits. The company will burn through its cash on hand quickly and Technical420 expects to see them raise capital during the second half of 2015. 

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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