Jeremy Raper discusses POSaBIT $POSAF

Episode Summary

Executive Summary: The episode analyzes Poseidon/Posabit (PBIT/POSAF), a cannabis-focused payments and POS company, as a high-growth niche investment. Jeremy argues the stock is mispriced due to its backwater Canadian OTC-origin listing, but its moat comes from state-by-state compliance, high-risk payment economics, and sticky POS/customer relationships. He sees major upside if it keeps scaling before federal legalization and industry consolidation.

Main Topics: Business model and what Posabit does (Priority: 5/5): Jeremy explains Posabit as a vertically integrated payments-processing and POS provider to cannabis dispensaries, handling merchant services, payment routing, and related infrastructure. Cannabis payments market structure (Priority: 5/5): The discussion focuses on why cannabis transactions remain special: state-by-state legality, banking restrictions, high cash usage, and the need for compliant local banking partners. Moat, competition, and switching costs (Priority: 5/5): They compare Posabit to competitors like Transact First and Square, arguing the niche market, regulatory complexity, and POS stickiness create meaningful near-term protection. Federal legalization and industry risk (Priority: 5/5): A major theme is whether federal legalization would compress economics or attract large incumbents; Jeremy argues the impact would be gradual, not immediate, because cannabis remains a high-risk category. Valuation and growth outlook (Priority: 5/5): Jeremy lays out a fast-growing revenue profile and argues the stock trades at a discount versus comparable payment companies, despite strong organic growth and improving margins. Red flags: reverse takeover and exchange listing (Priority: 4/5): They discuss the company’s RTO history and weak Canadian exchange listing as a reason for the valuation discount, while viewing a future exchange upgrade as a catalyst. Product expansion beyond payments (Priority: 4/5): Posabit is trying to become a broader ecosystem provider with POS hardware, handheld devices, loyalty, onboarding, and B2B services to deepen merchant relationships.

Key Arguments: Posabit benefits from a three-layer growth setup: cannabis market growth, conversion from cash to card/digital payments, and company-specific share gains. Cannabis retail is still highly cash-driven, so even modest payment conversion can significantly expand addressable transaction volume. The regulatory environment functions as a moat because compliant cannabis payments require state-by-state banking relationships and high-risk underwriting. Even after federal legalization, cannabis would likely remain a high-risk vertical, so payment take rates should not collapse to normal retail levels immediately. Transact First is the main competitor, but its long-term contracts may create merchant dissatisfaction and switching opportunities for Posabit. Posabit’s POS offering and broader merchant ecosystem could increase switching costs and make the business stickier over time. The valuation discount is driven partly by legacy listing issues and the company’s reverse takeover history rather than fundamentals alone. If the company keeps growing quickly and improves margins, the stock could re-rate materially toward peer payment multiples.

Data Points: Stores served: 300+ dispensaries - Jeremy says Posabit is currently in more than 300 dispensaries and still expanding. US dispensary market size: 8,000+ dispensaries - Used to frame the fragmented competitive landscape. Revenue growth: 200%+ - Jeremy describes Posabit’s recent revenue growth as roughly 200% and says one quarter was 230%. Revenue growth next year: 130% - Jeremy says the company is expected to grow top line about 130% next year. Current year revenue: ~$22 million - Jeremy estimates current-year revenue near $22 million. Next year revenue: > $50 million - Jeremy projects north of $50 million in revenue next year. Enterprise value: ~$200 million to $215 million - Approximate EV at a share price around C$1.85. Current valuation: ~9x current-year revenue - He says the company trades at about nine times this year’s revenue. Forward valuation: ~4x next-year revenue - He says it is about four times next year’s revenue. Gross margin today: 30% to 32% - Jeremy cites management guidance for current gross margins. Potential gross margin: mid-40% range - He argues margins could improve meaningfully as scale rises and partners are brought in-house. Take rate: north of 5% - He says high-risk payment processing economics remain above 5% all-in. High-risk industry take rate: well north of 5% - Used as a comparison against cannabis payment economics. Cash vs card in cannabis: ~10% to 15% non-cash today - He contrasts cannabis with typical retail, where card/non-cash is dominant. Typical day-one card conversion: ~30% - Jeremy says stores often move from nearly all-cash to about 30% digital/card immediately after onboarding. Cannabis retail market size: $25 billion - He says retail cannabis is currently a $25B opportunity. States with legal cannabis: 39 states - He states cannabis is legal in various forms in about 39 states. Competitive contract length: 3 to 5 years - Transact First is described as using longer merchant contracts than Posabit. Future scale threshold: $500 million and $1 billion gross transaction sales - Jeremy says management has described margin kickers at these scale levels.

Pivotal Quotes: "This is a smallish company in a very fast-growing regulatory young industry, Cannabis." — Jeremy Raper: He opens the business description by framing the industry as both high-growth and highly regulated. "The core of the investment is if they don't even do that well on the third leg... even if they simply ride the wave of those first two legs... this will be a home run." — Jeremy Raper: He summarizes the three-part bull case: market growth, cash-to-card conversion, and share gains. "The day after, or even in the immediate aftermath of federal legalization, it's unclear to me exactly what is going to change very rapidly." — Jeremy Raper: He argues legalization would not instantly erase Posabit’s economics or moat.

Implications: Listeners should view Posabit as a high-risk, high-upside niche payments play whose key variables are regulatory timing, merchant acquisition, and exchange re-rating. The stock could benefit if cannabis remains fragmented and payments stay high-risk.