Dotz Nano to benefit from multiple growth drivers
Dotz Nano Ltd’s (ASX:DTZ) entry into the anti-counterfeiting industry via a licensing agreement that provides exposure to the burgeoning Canadian cannabis industry is very timely, and from a commercial perspective there appears to be scope for significant growth through the provision of its products and expertise.
Dotz Nano is an advanced technology company developing, manufacturing and commercialising tagging, tracing and verification solutions.
These molecular markers are provided as concentrates in oils, inks, varnishes and bulk liquids, or loaded on different fillers and polymers, providing the company with the opportunity to apply the technology across a diversified and comprehensive range of products.
Dotz to grant partner exclusive rights
The group has entered into a licensing agreement with a Canadian company to finalise development and sale of the BioDotz in-plant end-to-end anti-counterfeiting solution.
The partner, Slalom Capital Inc., is a Canadian private equity firm with extensive interests in the Canadian cannabis sector, will pay a non-refundable one-time payment to Dotz of $296,000 within 60 days, to finalise the development of the BioDotzTM technology on cannabis plants over the next nine months.
Under the terms of the agreement, Dotz will then grant the partner exclusive rights to sell BioDotz in Canada, assuming annual wholesale targets are reached.
The first annual wholesales target will consist of a minimum of $370,000 income for Dotz.
The parties will then negotiate annual sales targets, consisting of at least the higher of either 125% of the prior year’s target, or 105% of the prior year’s actual sales.
Canada is the largest country in the world to have legalised medicinal and recreational cannabis since 2001 and 2017 respectively.
Based on analysis from bdsanalytics.com, the cannabis market in Canada is set to grow at a Compound Annual Growth Rate (CAGR) of 44.4% from US$569 million in 2018, the first year of adult-use sales, to nearly US$5.2 billion by 2024.
Right industry, right product
While all of the cannabis industry numbers stack up well for Dotz Nano, there is another aspect of the company’s broader operations that is also worth considering in terms of the group’s growth potential.
Patent management and protection, along with a wide range of commercial security products and services is a fast growing industry in its own right.
While smart technology and innovation has been central to the success of companies like Dotz Nano, there is the constant threat of issues such as patent breaches, the substitution of look-alike inferior products and internal tech hacking.
There are a number of large and small ASX listed companies that are benefiting from their ability to protect enterprises from such threats, and these have experienced substantial share price momentum in 2019.
Some of these high flyers are the $1.6 billion IPH Ltd (ASX:IPH), Xenith IP Group Ltd (ASX:XIP) and WhiteHawk Ltd (ASX:WHK).
The share prices of those companies are up 60%, 80% and 50% respectively.
Consequently, Dotz Nano is very much a right space, right time story and this agreement shapes up as just the first chapter in what could be a very lucrative venture.
Protection of both brands and market share
Commenting on the partnership agreement, Dotz CEO Uzi Breier said: “This is a logical next step in us commercialising our pending patent for the use of BioDotzTM as a direct taggant (a chemical or physical marker added to materials to allow testing) of cannabis and other high-value or restricted plants, and our work with Israeli medicinal cannabis producer Seàch.
“Our Canadian partner is very keen to ensure that finalisation of product is expedited, and to work with us as the exclusive distributor of our product in Canada.
“While regulation does vary from province to province in Canada, there are strict general rules regarding promotion, packaging, advertising and supply, which mean licensed producers in that country need to ensure they can track-and-trace cannabis to prevent illegal cannabis from being introduced into the legal market, as well as legal cannabis being diverted to the illegal market.’’
In expressing his confidence in Dotz Nano’s ability to successfully provide brand and market share protection for growers, Slalom’s Sukhmohan Athwal, said, “We are excited to be partnering with Dotz to help finalise BioDOtzTM for cannabis and be their exclusive distributor in Canada.
‘’The Canadian cannabis market is due for prodigious growth as it increases the number of licensed growers of both medicinal and recreational products, improves the retail location network, addresses supply issues and provides a better selection of non-flower products as the legitimate growing market takes hold.
‘’To protect their market share growers will be very keen to ensure they can protect their brands throughout their supply chain.”