MassRoots Inc., the cannabis-centric technology and social media company, has cut more than 40 percent of its workforce and recently defaulted on debt payments, the Denver-based firm disclosed.
MassRoots officials said they received notices of default after not being able to make required payments on an outstanding principal of $966,000 owed to creditors, according to a filing made Sept. 21 with the U.S. Securities and Exchange Commission and first reported Tuesday by BusinessDen.
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In a separate filing made Monday, the company disclosed that it shed vendor agreements, cut 14 of 33 full-time jobs, and implemented new technology to save $146,000 a month.
“It’s not an ideal situation, by any stretch of the imagination,” Isaac Dietrich, MassRoots chairman and chief executive officer, said in an interview Tuesday morning.
Dietrich said he is confident that MassRoots will be cash-flow positive by the end of the year and has strong potential for long-term growth. The company, however, is reeling from events that occurred earlier this year, he said.
In March, MassRoots took out $1.42 million in convertible secured promissory notes from several institutions to fund operations, Dietrich said. As a public company, that debt — with a six-month term — was secured against MassRoots’ common stock.
Between then and Sept. 14, when the aggregate outstanding principal of $966,384.27 came due, MassRoots’ business was dealt heavy blows, he said.
“It was a missed opportunity more than anything,” he said.
Then came the bad news from the Nasdaq.
In May, MassRoots announced that its plan to uplist its stock to the Nasdaq was denied by the exchange. If successful, the move would’ve opened up MassRoots’ shares to more institutional investors, Dietrich said at the time.
Instead, the stock lost nearly half its value and shareholders lost a lot of confidence, he said Tuesday.
“This is kind of the worst-case scenario, in many regards,” he said.
From July to September, MassRoots instituted the cost-cutting measures while adjusting its business focus. The company pulled back on its media and content offerings and doubled down on development and features such as a dispensary finder, product reviews and live menu pricing, he said.
In a letter sent Sept. 26 to investors and filed with the SEC, Dietrich said he was confident the company would reach cash-flow positive off MassRoots’ existing user base and traffic. If other marijuana-friendly ballot initiatives pass in states such as California and Florida, “it will cause the growth rate to accelerate even faster.”
MassRoots’ user base grows by about 30,000 users per month, generating about $1 per user in revenue, according to the letter.
“The problem over the past year was not our user base, it was that our product was failing to connect users with products and dispensaries effectively,” Dietrich wrote in the letter. “We believe that once product reviews and menu prices are released within the next few weeks, our mobile applications will offer similar capabilities as both (competitors) Leafly and Weedmaps within a unique social experience.”
(Disclosure: Weedmaps’ store mapping function is utilized by The Cannabist.)
As for the debt, Dietrich said he is confident that MassRoots will be able to rectify that situation. Several of the debt-holders have chosen to convert that debt into shares of MassRoots common stock, he said in the interview.
Others, however, have not, he said.
As of Tuesday, there have been no actions taken against MassRoots by the debt-holders who have chosen not to convert, he said.
“I don’t think that these creditors want to see the company fail,” he said.
Shares of MassRoots (OTC: MSRT) were up a penny, or 2.26 percent, to 44 cents in midday trading on Tuesday.
In 2015, the company reported a net loss of $8.5 million on revenue of nearly $214,000. A year before, the company tallied a net loss of $2.4 million on a little more than $9,000 in revenue, according to the company’s annual filing.