MassRoots, which operates a social network for marijuana enthusiasts, is crying foul over Nasdaq's decision to reject its request to sell stock on its exchange. Nasdaq cited concerns that law enforcement could consider the company as aiding and abetting the distribution of an illegal substance.
The Denver-based company plans to appeal the decision to the Nasdaq Listing and Hearings Review Panel. According to MassRoots CEO Isaac Dietrich, MassRoots is being treated unfairly by the exchange, which has listed four biotech companies that extract compounds from the cannabis plant for scientific research.
"With this decision, the Nasdaq has set a dangerous precedent that will prevent nearly every company in the regulated cannabis industry from listing on a national exchange," Dietrich said in a press release. "If we were a social network for tobacco users or alcohol consumers, the Nasdaq would likely be moving forward on our application even though alcohol and tobacco cause far more deaths and societal damage than cannabis ever will."
A Nasdaq spokesman said it was against company policy to discuss listing decisions.
MassRoots has requested the Nasdaq denial letter in writing and will file an 8-K with the Securities & Exchange Commission within four days of its receipt. It has put its plans for a reverse stock split, a move designed to reduce the number of shares outstanding, on hold pending the outcome of its appeal.
The company is considering listing on other exchanges, though for now it will continue to trade over-the-counter under the ticker MSRT.
Even if it prevails in its dispute, the road ahead for MassRoots won't be easy easy.
For one thing, the company's auditors have raised "substantial doubts" about its ability to continue as a "going concern" because it has yet to generate significant cash flows from operations. During the three months ended March 31, NetRoots reported a net loss of $2.6 million, or 6 cents per share, versus a loss of $505,000, or 1 cent per share, a year earlier. Revenue rose to $93,385 from $941.
"Like most young technology startups, MassRoots has a monthly cash burn of several hundred thousand dollars and has operated under a going concern opinion since inception over three years ago," Dietrich said in an email.
Between January and May 2016, MassRoots expanded its user base from 725,000 to 900,000. During the same time, the company's Web platform generated 2.26 million page views, versus 487,000 previously. MassRoots, however, declined to release its monthly active user figure, a common Internet business metric.
If MassRoots' users and Web traffic continue to expand at their current pace, the company "could be cash flow positive on a monthly basis by the end of 2016," Dietrich wrote.
Even though pot has been decriminalized in five states and allowed for medical purposes in more than two dozen others, executives in the cannabis industry have complained that banks and other institutions have refused to take them on as customers because of marijuana's hazy legal status.