Buried within POSaBIT's recent earnings call transcript lies a tantalizing detail that seems to have slipped past most analysts: a point-of-sale licensing deal that could yield a staggering $32 million payout in just three years. While the company navigates the turbulent waters of the cannabis payments landscape, this unassuming agreement could be a quiet engine driving POSaBIT towards not just profitability, but a significant financial windfall.

Let's rewind to over a year ago. POSaBIT inked a deal licensing its point-of-sale software to a major player in the cannabis tech industry. The initial year saw a $5 million upfront payment, bolstering POSaBIT's coffers and validating the strength of their software platform. But the story doesn't end there.

Starting just two months ago, a steady stream of monthly cash payments began flowing into POSaBIT, starting at nearly $400,000. This monthly infusion is set to increase to $450,000 in the following year and finally peak at $513,000 in the fourth and final year. By then, the licensee faces a crucial decision: continue paying per-terminal royalties or buy out the agreement entirely for approximately $32 million.

This brings us to the heart of the matter: the potential $32 million windfall. If the licensee opts for the buyout, POSaBIT's valuation could be significantly re-rated. This potential influx of cash could fuel expansion, acquisitions, or even stock buybacks, all contributing to shareholder value creation.

But even without the buyout, the predictable monthly cash flow from this agreement is a game-changer for POSaBIT. Coupled with recent cost reduction measures, which are projected to save the company $4 million annually, POSaBIT is on a clear path towards cash flow independence in 2024.

"Let's break down the numbers. POSaBIT projects an $11 million gross margin run rate by the end of November. With a robust pipeline of merchants slated to go live before the year's end, they aim to achieve 85% to 90% attainment of their pre-disruption gross margin. This would land them squarely within the midpoint of their original gross margin guidance of $12.5 million to $14.5 million for 2023."

Adding the monthly cash flow from the licensing agreement, POSaBIT's bottom line could see a dramatic improvement. Even at the current $400,000 per month rate, that translates to an additional $4.8 million annually going straight to the bottom line.

Projected Monthly Cash Flow from Licensing Agreement

The table below outlines the projected monthly cash flow from the licensing agreement over the next 3 years. All figures are in USD.

Projected Gross Margin Attainment

The chart below depicts POSaBIT's projected gross margin attainment, assuming an 85% to 90% achievement of their pre-disruption gross margin.

This raises a compelling hypothesis: is the market undervaluing POSaBIT's potential? The company has a track record of consistent revenue growth, doubling nearly every year for the past five years. They've weathered industry storms, demonstrating adaptability and resilience, as seen in their recent navigation of the Mastercard disruption. Now, with a predictable cash flow stream from a seemingly overlooked licensing deal, POSaBIT may be poised for a significant revaluation.

Consider this: POSaBIT currently holds over 40% market share in its home state of Washington. Their compliant debit solution is gaining traction amidst the ever-shifting landscape of cannabis payments. They're diversifying their payment offerings, aiming to minimize disruption and cater to merchant needs. All this, while potentially sitting on a $32 million time bomb that could redefine their financial future.

This isn't just about surviving the tumultuous cannabis industry, it's about thriving. POSaBIT's quiet cash cow, quietly churning out predictable revenue, might just be the key to unlocking explosive growth and shareholder value. As the company moves towards a potential TSX Venture Exchange listing, aiming for greater market recognition and investor access, the narrative surrounding POSaBIT could be on the verge of a dramatic shift.

"Fun Fact: The global cannabis payment processing market is expected to reach \$21.6 billion by 2028, growing at a CAGR of 12.7% during the forecast period. (Source: Grand View Research)"