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CBD Integrated Companies on NASDAQ: Net Element (NETE)

NETE has been kicked around by the markets, but does a cannabis multiple give their strong technology new life?

“We are excited to launch a legal cannabis payment acceptance solution to meet the needs of sales partners and merchants for this emerging market.”

This news was announced by Net Element NETE and their President of Integrated Payments, Vlad Sadovskiy. This announcement sent the company’s share price rocketing upward and was followed shortly thereafter by Deloitte naming the company one of their Fast 500.

For shareholders of the stock, I doubt either of these events were greeted with anything less than expletives.

Be Realistic

Long-term shareholders once remember this stock to be over the $100 mark. It bottomed after rallying on Christmas Eve of 2018 and has been range trading since then. But, if the company can actually turn this announcement into business deals and its potential into profits, which has been Net Element’s Achilles Heel, there may be value.

Revenues certainly are a strong point for NETE. The company saw net revenues for the first 9 months of 2018 at $49.7 million, an increase of 11.5% over the prior year. The driver for this increase is growth in their North American Transaction Solutions segment, which experienced 16.6% growth over the prior year.

“Addressing the needs of our merchants is our number one priority and we work closely with various vendors to bring our merchants state-of-the-art payment acceptance solutions,” Sadovskiy.

Some might argue that NETE made the strategic move into the cannabis industry – just to clarify, they are specifically focusing on SaaS sales to CBD merchants right now due to regulations – just to attach itself to a burgeoning industry. Either way, it is smart and gives the company access to business owners who are underbanked and desperate for solutions.

Searching for Profits

Here was Oleg Firer on the last earning call regarding the matter, this quote came from a question:

“We had to fine tune our systems underwriting mechanisms, get the partnering bank to accept this type of business, because the biggest thing is to have the bank that is able to settle these type of transactions and we’re taking a very active approach there. We have people right now at cannabis convention Las Vegas, speaking to prospective merchants. And as I mentioned, we’re getting a big influx of interested parties calling us on a daily basis. And we are cautiously reviewing every single one of them, but optimistic enough to say that’s going to have an effect in the future.”

According to the company, NETE’s subsidiary will offer an app specifically for cannabis shop owners that has embedded compliance guidelines monitoring each transaction, and during that same call Firer said they were signing up merchants.

Net Element’s financial goals for this quarter is realistically to break even. Investors looking at NETE should see this stock in a kind of liminal place.

All told, the Miami-based company has been kicked around by the markets recently, but there is high-level potential in their payment processing technology that employs cloud and artificial intelligence innovations.

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