Cannabix Technologies (BLO.C): Can they turn me around?

A few weeks back, I got a call from Kal Malhi, one of the folks who have been long holders (and made good money in doing so) of Cannabix Technologies (BLO.C).

It was unexpected, because I’ve beaten Cannabix hard for some time, but Kal figured I was overlooking a few things and might be interested in new progress, so we met for coffee.

Cannabix seeks to develop and produce a marijuana breathalyzer device that could be used by law enforcement to determine if a driver is under the influence of weed when behind the wheel of a vehicle.

It’s a noble pursuit, and one that someone is going to make a lot of money on, because right now existing tech can only show if someone has ingested weed in the last three weeks. To make an impaired driving charge stick, you need to know it’s in the system now – and in quantities high enough to impair judgement – and only blood tests can do that using presently available tech.

Cops do not like running blood tests on drivers.

This is the epitome of a long term project. The existing tech for detecting THC on breath exists mostly in an academic setting, and a year back consisted of a room-sized piece of equipment that, clearly, wasn’t workable in the field. Cannabix later said they got that down to desktop-sized device mid-year, which is helpful but still too big for the highway.

Last week, they announced they’ve got a 2.0 device that is handheld sized.

This, obviously, is big news. If it’s real.

And that’s been my problem with Cannabix over the past few years. The stock runs hard at weird times, then it comes back, then there’s news and it’s off again. And if you dig down into that news, you have to believe it’s real, because there’s no way yet of proving it is.

“The tech works,” says Malhi. Okay, we’ll take that on faith, to a point.

The pictures of the Cannabix device are of a black box with a pipe sticking into it. What’s inside that box is anyone’s guess, but that’s what we have – guesswork.

Why? Because business, that’s why. To show the inner workings would be to give away proprietary info to their competitors, and Cannabix does have a competitor in US based HoundLabs.

HoundLabs has the mo’ right now, because it says it’s out in the field running trials with sheriffs. What? That’s crazy! Actual field trials? The race is over and HoundLabs has won, right?

Malhi rightly points out, ‘working with sheriffs on trials’ could mean anything from a fully fledged law enforcement department-wide pilot program to a ‘my buddy is a deputy and he’s making drivers blow into a box without any means of taking a positive result to court.’

Or it could mean ‘we’ve called the sheriff’s department and offered the device and they’re talking about it.’

Or it could mean the boss is a reserve deputy sheriff and sneaks it inside his backpack on weekends when nobody is looking.

To really run a full testing pilot, you need a lot of data coming back. You need a real law enforcement body prepared to sign on as a partner and use your system city- or state-wide. You need academics in the background processing the data and designing the testing protocols so they bring about information that’s useful. And you need all of that because, you can’t put someone in jail with extensive, deep, professional, real testing having been done and reliability in your results.

‘My buddy Joe in Arizona is shoving it in people’s mouths a few times a week when he pulls them over under the railway bridge’, is not that, and short of any actual detail about what HoundLabs is doing, that’s what you have to assume is up.

You also have to take Cannabix’s black box as a cynic. What lies beneath could be complex electronic machinery that standard nerds would kill a midget for, or it could be an old 2400 baud modem card with a couple of loose nuts rattling around, bundled in dollar store tape and buried in a half ounce of glitter.

I’m guessing somewhere in the middle, but that’s actually a nice piece of progress. Cannabix does have legit academic pointyheads behind the scenes working on the miniaturization of their tech, and they will get to a place where the device is usable in practice, but the interesting thing Malhi mentioned to me was something that may make that task a little less urgent; Cannabis doesn’t see law enforcement as the be all/end all of their device. In fact, the path to acceptance on that front is one that may well be arduous enough to all but leave to HoundLabs.

HoundLabs themselves concedes on their website that national standards for what constitutes a stoned driver may take years to sort out.

How long it will take is difficult to predict because each state may take a different approach to legislation. Fortunately, we can look at the development of alcohol driving standards as a model. […] The Hound™ breathalyzer will also enable data collection of measured breath levels that will ultimately lead to per se laws based on driving impairment.

In other words, even if the tech works and is available, laws will take a long time to work through fifty states, so don’t hold your breath. (see what I did there?)

What Cannabix wants to do is make their machine small enough to place on a desk in any office that oversees heavy machinery.

Consider this: The International Union of Operating Engineers represents 400,000 employees in the US today. If you factor in those in the job that aren’t in the union, that figure could be as much as ten times higher. Factor in taxi operators. Factor in moving companies. Factor in  lifeguards and doctors and nurses and air traffic controllers. Factor in judges and lawyers, and anyone an employer could want to ensure isn’t handling money or people’s lives or heavy machinery or expensive equipment while stoned and you’re looking at tens of millions of people across the US who, right now, if the equipment were available and tested and ready, would need what Cannabix is selling.

I’m not talking what they’ll sell when the thing can fit into an iPhone sized case. I’m not talking what they could sell if that black box is filled with high tech right now. I’m talking what they could sell based on the size of their device six months ago.

If I’m a crane operator and I’m starting my shift, my boss has tools to make sure I’m not drunk. The health and safety folks have what they need to ensure I’m alcohol-free. But not weed-free. Not THC-free. And they need that, now.

In comparison, there are 1.1 million police officers in the US, but most of those aren’t working traffic stops. In California, the state with the largest highway patrol in the country, 7200 officers are keeping their eyes on drivers. If the average US state has 2000 cops on the roads, that’s a target market of 100,000 for HoundLabs and their sheriff friend.

Now, Taser has a market for its products, because every cop, security guard, woman who walks home at night, and soldier has one of their items. But those guys aren’t running traffic stops.

Cannabix has done its homework and identified a far larger market, and realized that market is just fine with saying ‘step up to the machine’ instead of ‘let me put the machine in your mouth.’

Added to which, Malhi says, the money to be made in their field is through maintenance and peripherals, not the machine proper. Like printer ink, if you get the hardware inexpensively but have to by the disposable mouthpieces from the manufacturer on an ongoing basis, there’s going to be profits had.

In addition, if you can tweak the device to detect other things in the breath – such as other chemical stimulants or even medical problems (see their sister company, Breathtec (BTH.C), for more on that front), there exists a pipeline for upgrades and shared costs down the line even, after the initial purchase. Imagine if Breathtec could use Cannabix’s sales pipeline, or share costs on hardware development, or test the medical potential at the same time as testing for THC..

Beyond even that, there’s the market for vehicle use, with ignition limiters based on negative breath tests already a big business in the alcohol world.

Okay, so if it sounds like I’m a believer right now, let’s gear it back about 20% there, friend. I’m not out buying BLO stock just yet. There are a few things that I’m in ‘wait and see’ mode on.

First, I look at the $40m current market cap on BLO and think, that’s a little elevated. On the other side of that, every weed stock is elevated right now, yet we continue to buy.

Second, Cannabix has a long track record of ups and downs. In fact, it made a lot of people rich on its first run from $0.05 to $0.50, followed by the inevitable comeback, then when it hit another run early this year, from $0.14 to $0.35, it drifted again, and now it’s on another roll.

The Cannabix team has been good at getting media coverage, no question. But that promo-heavy history has been a bit of an anchor, says Malhi, who has heard potential investors point to it as a reason to be wary.

“You can’t control what a stock does,” he told me. “You can only go do what you’re supposed to do. We got a lot of media coverage in mainstream media outlets – CBC, CTV, etc. That’s a success. If your stock goes on a tear on the back of that, you kind of hope it stays reasonable but if the story picks up steam and goes on a run, you just have to let it settle where the market wants it to settle.”

The market right now is liking Cannabix. I’ve been abundantly cautious with it, but there’s no doubt I missed the chance to double my money several times on this thing over the past eighteen months. It’s one hell of a liquid stock, and there are a lot of CEOs who would break a puppy’s arm to be in the same position.

If you want to invest in marijuana breath testing, Cannabix is your best option. Houndlabs is private, and – oddly – is asking people to donate money to it to help promote cannabis-free driving. It claims to have the ‘first handheld THC breath tester in the world’, but there are no images of it that I can find.

Added to which, the CEO of the company claims he’s also an ER physician, venture capitalist, deputy sheriff, and SWAT team member. Yeah, and I’m a fire engine.

When HoundLabs says it’s testing with sheriffs, do they mean the CEO is taking it with him on weekend patrol? Is he slipping it to buddies in Alameida County and getting them to use it without clinical trials Is it being used to arrest or ticket drivers, without that work being done? And if not, what possible use is he extracting other than ‘it looks like it’s on’ and ‘the pipe didn’t fall out.’

Cannabix says it’s moving to clinical trials first, which is where the reality will meet the investor. Clinical trials are important to be able to know if the tech works, and if it works to a level that people can be convicted with it – rather than playing weekend warrior and using sheriff department facilities and man hours under the table to help keep a company valuation afloat.

On the HoundLabs website, the language is disturbingly non-committal, yet makes broad claims that it never backs up.

We have been testing the Hound™ breathalyzer for several months and have verified it functions well in the field and that law enforcement officers can easily capture breath from suspected drivers. We want to test in real situations so we can gather feedback from law enforcement about the prototype’s performance.

Wait, didn’t you just say you’ve already been testing it in real situations? Is the field testing you claim to have been doing simply figuring out if the machine catches breath? Geez, you know what else captures breath? A Ziploc bag. A balloon. A cardboard box with a drinking straw poked through the side.

Did you test the prototype with Alameda County, as previously announced?

We are working with multiple law enforcement agencies, but some have asked for confidentiality at this point.

In other words, no, Alameida County is not affiliated with our testing and nobody else has done so publicly and we probably shouldn’t be telling people otherwise.

Because Dr. Lynn is a reserve deputy sheriff with Alameda County, however, he is always receiving feedback from colleagues and has been able to incorporate their ideas as the prototype has evolved.

And we go back to ‘I have buddies on the force and they love it!’ definition of ‘we’re testing it with law enforcement.’

Right now, there are far more law enforcement agencies interested in testing our prototype than we can support.

Yet none of them will allow us to use their names.

We will be doing larger pilot programs with select agencies later in 2016, and if it’s mutually agreeable, we’ll announce some of our other testing partners at that time.

It’s late 2016, guys.

In the interim, we are consulting with law enforcement agencies around the country about feature sets and device specifications.

Sure. And I’m consulting with banks about giving me $10 million for my old Judge Dredd comics, but I wouldn’t bet on any of them saying yes.