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ONE STEP VENDING CORP.

Undervalued, Pure Play CBD Vending Company

Rob Goldman

[email protected]

November 2, 2021

ONE STEP VENDING CORP. (OTC – KOSK - $0.01485)

 

 

COMPANY SNAPSHOT

One Step Vending Corp. is a holding company focused on the acquisition of market-changing and disruptive business models, including retail CBD sales via interactive vending machines. Sofos CBD Inc., a wholly owned subsidiary, is focused on the wholesale and retail distribution of CBD infused products from American suppliers, including the vending channel. Products include edibles such as tinctures, capsules, oils, beverages, gummies and other products.

KEY STATISTICS

• Price as of 11/1/21 $0.01485
• 52 Wk High - Low $0.0284 – 0.0028
• Est. Shares Outstanding 365.1M
• Market Capitalization $5.4M
• Average Volume 179,051
• Exchange: OTCPK

COMPANY INFORMATION

One Step Vending Corp.
600 Mamaroneck Avenue
Harrison NY 10528

Web:    www.OneStepVending.com
Email:   [email protected]
Phone : 212.381.8029

INVESTMENT HIGHLIGHTS

KOSK is a pure play CBD vending company poised to lead its segment of the $21B overall CBD products market. The Company is set to deploy its initial set of machines in two of the fastest-growing, in-demand markets for CBD products, in early 2022.

Each unit will offer best in class tinctures, edibles (such as gummies) beverages, topicals, etc. The refrigerated CBD Safe machine can hold hundreds of products and hundreds of SKUs.  

KOSK’s machine has a significant advantage over other players in this nascent industry. The Company’s vending machines offer a huge interactive display which enables customers to drill down info on all the products offered.

In addition to offering products at malls, gyms, health establishments, casinos, high-end grocery stores, etc., KOSK has a sleeper feature that could substantially drive customer value and its market cap. KOSK plans to offer an auto ship feature so customers can have their favorite vending product shipped directly to them.

Our model, which excludes contribution from auto ship business, assumes revenue will jump from $1.56M in 2022 to $6.36M in 2023. Upside to our forecast exists based on pricing, demand, and the auto ship potential.

KOSK currently at a discount to the current market values assigned its peers.   Plus, it trades above its 50 and 200 DMA, traditionally a bullish signal.

 

COMPANY OVERVIEW

The View From 30,000 Feet

In our view, One Step Vending Corp. (OTC – KOSK) appears poised to lead the burgeoning CBD self-serve vending market, a sub-segment of the overall CBD market slated to reach $21B in 2024. Management is creating a CBD Vending Machines network spanning multiple states with plans to have deployment of the machines in retail locations, convenience stores, gyms, health stores, casinos, high-end grocery, etc. The initial network deployment is in Colorado and California, from businesses which have contracted with the Company to house the units and engage in a revenue-sharing agreement with KOSK.  The branded CBD Safe vending machines are currently getting customized and prepared for installation, entering the “pre-rollout phase” for the strategic purpose of influencing other major metropolitan areas and establishing a regional and then nationwide presence. Just the Las Vegas market alone is huge for CBD products and our vending machines are the perfect means to facilitate the sale of such products in public and private store places.

Management has selected best in class products from vendors offering tinctures, topicals, gel caps, beverages, and edibles, ensuring that consumers have access to a popular, diverse product offering. Each unit typically carries 8 SKUs per tray which are seven deep along with 100-200 beverages. Pricing ranges from $3.00 - $50.00.

Management currently plans to have the initial ten machines in place in early 2022, with an additional one hundred placed during 2022. As elucidated in further detail in the Financials section, we project that KOSK will have 110 units deployed by year-end 2022 (with an average time in the field of 120 days for the one hundred) and a total of 310 machines in the installed base by year-end 2023. We believe this figure could prove to be conservative and could be closer to 500, a 61% rise from our current estimate, given market conditions and demand for CBD products.

We believe that the KOSK business model is built for success given that there are a number of advantages with the KOSK-branded CBD Safe unit relative to other competitors in this nascent segment, including those that will drive deployment of its machines versus others. While other features exist, the interactivity may be the most compelling feature and could serve as an underrated traffic driver to retail establishments as customers can independently drill down to learn more about each product on the attractive 49-inch display. 

Interestingly, there is a feature/function which is a tremendous sleeper revenue-wise for the Company that we have not yet factored into our model. However, it could serve to emerge as a major sales driver: Auto ship. Customers can download the CBD SAFE App via QR code which synchronizes with a cart feature. Therefore, customers can subscribe through the app to have their products shipped monthly direct to their homes.

Looking Ahead

Our model assumes that the ten machines will be in use for all of 2022 with an average monthly gross revenue per machine to KOSK of around $3000 (average of three hundred products purchased at an average price of $10). The total estimate for this set of machines is $360,000. Plus, we currently forecast that KOSK will deploy an additional minimum one hundred machines, with an average deployment period of 120 days (four months), reflecting the majority of the implementations in the second half of 2022. The revenue forecast for the one hundred machines is $1.2M, bringing the total revenue forecast for 2022 to $1.56M.

For the 2023 calendar year, KOSK benefits from a full year of deployment for its machines with the expectation of minimal slippage at this stage. As a result, we project the 110-machine carryover from 2022 could generate $3.96M using the same metrics as above. Much like in 2022, we project a minimum of two hundred new machines will be deployed for an average period of 120 days with similar pricing and purchase metrics and would account for $2.4M in revenue generated from 310 machines. Still, to be conservative our current total revenue forecast for 2023 is $6.36M.

We believe that KOSK’s shares could be news or milestone-driven in the near term, with key events such as the completion of the software customization per unit, including the shopping cart and app for future auto ship. Another interesting milestone includes the white labeling of key CBD products which is a differentiator in certain markets and an attractive strategy for both producer and marketer. Finally, the primary milestone event we believe will begin to attract investors and consumers is the delivery of all ten machines in the early part of 2022.

Based on recent prices, the current valuation for ERBB and CBDL, which participate in this segment but also have other related CBD businesses, is in the $12-16M+ range. This compares with the paltry $5M market cap afforded KOSK—a pure play on the CBD vending market, who in our view, offers a superior product with a revenue roadmap (auto ship) that could result in huge revenue gains in 2022 and beyond.  Plus, it trades above its 50 and 200 DMA, traditionally a bullish signal.

A CBD PRIMER

There are few industry segment that are as dynamic or offer as much upside potential as hemp-based CBDs. As has been widely publicized, the Brightfield Group projects the hemp-derived CBD market will reach $21B by 2024, up from an estimated $6.5B in 2020. It should be noted that the current state of the CBD segment is in a bit of a state of flux. FDA comments regarding labeling, potential health risks, and the lack of comprehensive studies with ingestible and edible CBD-infused products, have impacted broad sale and distribution by major retailers, and procurement by some CBD buyers.

As a result, a shift toward topical solutions verses edibles and beverages occurred for a brief period. Today, consumers appear convinced that non-topical and topical based, CBD-infused products aid in anxiety, inflammation, immune health, and other conditions.

Cannabis plants contain unique compounds known as cannabinoids---these plants have 100 active varieties of cannabinoids, including THC, which is the psychoactive chemical associated with “getting high”. Unlike marijuana, which contains meaningful amounts of THC, hemp may only contain a trace amount of THC (0.3% of chemical), which a critical differentiator (more on that below.) Since CBDs are far more abundant in hemp products than marijuana-derived CBDs, hemp-derived CBD is the preferred source for CBDs.

Interestingly, both marijuana and hemp contain a cannabinoid known as Cannabidiol, CBD, which makes up 40% of the plant’s extract.  As confirmed by major organizations such as the NIH and WHO, CBDs have demonstrated to be useful to treat a number of major diseases and serious conditions while simultaneously been found to be safe for use by consumers.

In early November 2017, the World Health Organization’s Expert Committee on Drug Dependence issued the following statement in its report:

“CBD has been demonstrated as an effective treatment of epilepsy in several clinical trials, with one pure CBD product Epidiolex®…. There is also evidence that CBD may be a useful treatment for a number of other medical conditions…The range of conditions for which CBD has been assessed is diverse, consistent with its neuroprotective, antiepileptic, hypoxia-ischemia, anxiolytic, antipsychotic, analgesic, anti-inflammatory, anti-asthmatic, and antitumor properties.” http://www.who.int/medicines/access/controlled-substances/5.2_CBD.pdf

Diseases for which CBD may have therapeutic benefits, as listed in the report include:

• Alzheimer’s
• Parkinson’s
• Multiple Sclerosis
• Cancer
• Crohn’s
• Pain
• Anxiety/Depression
• Nausea
• Cardiovascular Diseases

The National Institutes of Health (NIH) is a huge supporter of CBD research, with hundreds of projects funded in the past 5-6 years. Up to $111M annually alone. The NIH website notes that: “Drugs containing cannabinoids may be helpful in treating certain rare forms of epilepsy, nausea and vomiting associated with cancer chemotherapy, and loss of appetite and weight loss associated with HIV/AIDS. In addition, some evidence suggests modest benefits of cannabis or cannabinoids for chronic pain and multiple sclerosis symptoms.”

Against this backdrop, the proliferation of CBD-based products, including CBD-infused beverages has ballooned of late and huge growth is expected in the coming years---aided by the new channel and opportunity created by the vending market, KOSK’s primary channel. Hemp Business Journal projects total CBD product sales will leap from $262 million in 2016 to $1.95 billion in 2020, a 34% CAGR, and dominated by Hemp-Derived CBD products.

By the Numbers: (courtesy of Hemp Business Journal, Brightfield Group, GSCR)

• The most popular product category is CBD oil/tinctures, but beverages and edibles are the fastest- growing categories—with beverages accounting for 20% of future CBD sales.
• According to Zenith Global, the U.S. CBD-filled drinks market will reach $1.4 billion by 2023
• Reports commented that 65 million Americans have tried CBDs with well over 60% finding the products to be effective CBD Users range in age from 18-65, with the majority of users in the 18-34 group
• Consumers procure products to treat anxiety, insomnia, and joint pain/inflammation.
• 50% say they are more effective than OTC products.
• 84% of users proclaim they are very or extremely effective.
• Consumers view these offerings as executing their personal health, and fitness needs.

THE KOSK APPROACH

Based in New York, One Step Vending Corp. appears poised to lead the burgeoning CBD self-serve vending market by creating a CBD Vending Machines network spanning multiple states with plans to have deployment of the machines in retail locations, convenience stores, gyms, health stores, casinos, high-end grocery, etc. The initial network deployment is in Colorado and California, from businesses which have contracted with the Company to house the units and engage in a revenue-sharing agreement with KOSK.  The branded CBD Safe vending machines have been imported and are currently getting customized and prepared for installation, entering the “pre-rollout phase” for the strategic purpose of influencing other major metropolitan areas and establishing a regional and then nationwide presence. Just the Las Vegas market alone is huge for CBD products and our vending machines are the perfect means to facilitate the sale of such products in public and private store places. Management is leveraging the team’s personal relationships in the corporate world as well as via direct sales.

Management currently plans to have the initial ten machines in place in early 2022, with an additional one hundred placed during 2022. As elucidated in further detail in the Financials section, we project that KOSK will have 110 units deployed by year-end 2022 (with an average time in the field of 120 days for the one hundred) and a total of 310 machines in the installed base by year-end 2023. We believe this figure could prove to be conservative and could be closer to 500, a 61% rise from our current estimate, given market conditions and demand for CBD products.

Each CBD Safe machine has been procured from China and is currently undergoing product and technology customization for the US market. The machine is 46 inches wide, 75 inches high, and 33 inches deep, thereby enabling it to hold between 300-500 products for sale. Each machine has six tray runners, an elevator lift system and multiple belt conveyors.

The unit weighs about 750 pounds when empty and has an attractive vinyl wrap or skin which can also be customized---a huge marketing advantage. This interactive machine has 4 LCD screens including a 49-inch touch screen that provides product as well as info on the CBD market, health benefits, and individual products. In our view, this feature is a game-changer and will be a huge draw for new and existing consumers.

Management has selected best in class products from vendors offering tinctures, topicals, gel caps, beverages, and edibles, ensuring that consumers have access to a popular, diverse product offering. Vendors include Terra Vida, Cannamour Lux Skincare, Tyson Energy  and Cannaki CBD beverages. The unit typically carries 8 SKUs per tray which are seven deep along with 100-200 beverages. Pricing ranges from $3.00 - $50.00.

The KOSK Model

The KOSK business model is built for success and includes a 20% revenue share with each store with an expected 50% product cost for the Company. In our view, there are a number of advantages with the CBD Safe unit relative to other competitors in this nascent segment, including those that will drive deployment of its machines versus others. For example, having a custom skin which can be used for marketing, rolling ads on each machine can promote the Company’s installed products as well as the store’s information. The interactivity, however, may be the most compelling feature and could serve as an underrated traffic driver to retail establishments as customers can independently drill down to learn more about each product on the attractive 49-inch display. 

The Wi-Fi cloud network capability enables KOSK to monitor and manage each refrigerated unit remotely which is a major advantage to the Company.

Interestingly, there is a feature/function which is a tremendous sleeper revenue-wise for the Company that we have not yet factored into our model. However, it could serve to emerge as a major sales driver: Auto Ship. Customers can download the CBD SAFE App via QR code which synchronizes with a cart feature. Therefore, customers can subscribe through the app to have their products shipped monthly direct to their homes.

The Space

At present there are a handful of companies in the segment. These peers include: Diamond CBD, Passive CBD Vending, American Green (OTC – ERBB), CBD Life Sciences (OTC – CBDL), and Intelligent Vending, among others. (Note: We have covered CBDL in the past two years.) All of the firms contest with the necessary state compliance laws related to CBD product sales, given the lack of a national referendum at this time. Therefore, there may be hurdles or product deployment delays as the companies seek to establish regional or national footprints. Plus, the recent supply chain issues are a problem not just in the procurement of products but the machines themselves, including KOSK which sources its machines from China. Given the time delays and subsequent higher costs, we believe KOSK will elect to utilize a local machine producer and then complete software customization and other functionality prior to deployment.

Looking Ahead

We believe that KOSK’s shares could be news or milestone-driven in the near term, with key events such as the completion of the software customization per unit, including the shopping cart and app for future auto ship. Another interesting milestone includes the white labeling of key CBD products which is a differentiator in certain markets and an attractive strategy for both producer and marketer. Finally, the primary milestone event we believe will begin to attract investors and consumers is the delivery of all ten machines in the early part of 2022.

Based on recent prices, the current valuation for ERBB and CBDL, which participate in this segment but also have other related CBD businesses, is in the $12-16M+ range. This compares with the paltry $3M market cap afforded KOSK—who in our view, offers a superior product with a revenue roadmap (auto ship) that could result in huge revenue gains in 2022 and beyond. 

ONE STEP VENDING LEADERSHIP

Ronald Minsky, President and Treasurer

Mr. Ronald Minsky is a multi-dimensional professional with valuable experience in law, finance and government. His previous positions include Deputy Attorney General for the State of New Jersey, Vice President and Litigation Counsel for a Fortune 500 company. Mr. Minsky will make the most of his many years of valuable expertise to build on new initiatives, perform due diligence, and evaluate deals for One Step Vending Corp., in addition to helping the company optimize its existing operations.

FINANCIALS SNAPSHOT

As noted above, our business model assumes general rules of thumb in the nascent CBD vending space, including a 20% revenue share with the store/locale hosting the machines. While some of the current 10-order machines could be deployed in 2021, revenue generation would not yet be meaningful. However, in 2022, we believe that meaningful revenue will be generated, particularly later in the year. Moreover, we project hockey stick type revenue growth to occur beginning in 2023.

2022

Our model assumes that the ten machines will be in use for all of 2022 with an average monthly gross revenue per machine to KOSK of around $3000 (average of three hundred products purchased at an average price of $10). The total estimate for this set of machines is $36,000. Plus, we currently forecast that KOSK will deploy an additional minimum one hundred machines, with an average deployment period of 120 days (four months), reflecting the majority of the implementations in the second half of 2022. The timing reflects the expectation that current supply chain issues persist well into 2022. The revenue forecast for the one hundred machines is $1.2M, bringing the total revenue forecast to $1.56M.

It should be noted that current supply chain issues may prompt KOSK to procure machines with a similar quality and functionality, making the price per machine to KOSK markedly higher, and pushing out ROI and net profit by a couple of quarters. 

Using an industry standard cost of goods metric, our model assumes KOSK will generate a 30% gross profit margin but not operate profitably given the operating expense models associated with early stage, high growth companies seeking to quickly build and expand its footprint in key markets such as Colorado and California. Plus, there are variable costs associated with machine servicing, and other expenses. It should be noted that we believe a number of variables to our model exist, with upside potential outweighing risks to our financial forecasts. For example, we deem it that the average monthly number of products sold (300) and the average purchase price per customer (not per product) could exceed the $10 as times goes on and consumers actively seek out multiple product categories offered in the machines. Moreover, the convenience and availability could emerge as key, consistent, procurement decisions.

2023

For the 2023 calendar year, KOSK benefits from a full year of deployment for its machines with the expectation of minimal slippage at this stage. As a result, we project the 110-machine carryover from 2022 could generate $3.96M using the same metrics as above. Much like in 2022, we project a minimum of two hundred new machines will be deployed for an average period of 120 days with similar pricing and purchase metrics and would account for $2.4M in revenue generated from 310 machines. Given market demand, we believe the ultimate figure could be as high as five hundred in the installed base, a 61% rise from our initial estimate.  Still, to be conservative our current total revenue forecast for 2023 is $6.36M.

Looking ahead, we are confident that in 2023, product pricing and the number of products purchased by consumers would exceed the $10/month figure. As a result, our top-line figures could prove to be conservative and KOSK could post 15-20% operating margins. In the big picture, sales success is in the cards for KOSK. The determining factor in measuring the success will be built on the timing and magnitude or number of the machines deployed. Thus, we believe that KOSK could generate a 15-20% operating margin.

As noted above, two sleepers for the Company from the revenue perspective includes advertising on the machines as well as the capability to offer customers auto ship of their favorite CBD Safe products. We have not yet factored in any revenue from these sources. While advertising revenue would be an incremental add to KOSK, auto ship could emerge as a game-changer for the Company and the space

RISK FACTORS

In our view, there are two categories of non-capital markets risk: regulatory and business. The federal risk Company’s biggest risk is related to the lack of streamlined approval for CBD products. The clearance of CBD product sales (topical and non-topical) is essentially state by state, despite comment by the FDA regarding non-topicals. Still, while this is a natural course of business in the segment, we do not view it as considerable risk. A real business risk relates to the procurement (at reasonable prices) of domestic vending machines capable of upgrades and customization. Continuing on the China route may not be the best choice given delays and substantial increases in container prices. Given that we believe KOSK will elect to source domestically going forward, we view this risk as one of potential delays in 2022, but not materially so. The primary risk, in our view, is execution; the timing and order of magnitude of machine deployment and demand leading to product sales in this market. A lesser issue is the success of the auto ship feature, which, while offering huge potential, is not factored into our financial model or price target.

The aforementioned risks could come from larger competitors, existing firms, or new entrants. Still, these future concerns are consistent with firms of KOSK’s size and standing. Moreover, we believe that KOSK’s seasoned management team is prepared to overcome these hurdles and generate significant top-line growth and may also create a large following via social media management implementations.

Volatility and liquidity are typical concerns for microcap stocks that trade on the over the counter (OTC) stock market. An overriding financial benefit as a public company is the favorable access to and the availability of capital to fund product launches, consistent marketing campaigns and other initiatives. Since the proceeds of any future funding would be used in large part to advance major business development and sales, we believe that any dilutive effect from such a funding could be offset by related increases in market value.

VALUATION AND CONCLUSION

KOSK is a pure play CBD vending company poised to lead its segment of the $21B overall CBD products market. The Company is set to deploy its initial set of machines in two of the fastest-growing, in-demand markets for CBD products, in early 2022.

Each unit will offer best in class tinctures, edibles (such as gummies) beverages, topicals, etc. The refrigerated CBD Safe machine can hold hundreds of products and hundreds of SKUs. KOSK’s machine has a significant advantage over other players in this nascent industry. The Company’s vending machines offer a huge interactive display which enables customers to drill down info on all the products offered.

In addition to offering products at malls, gyms, health establishments, casinos, high-end grocery stores, etc., KOSK has a sleeper feature that could substantially drive customer value and its market cap. KOSK plans to offer an auto ship feature so customers can have their favorite vending product shipped directly to them.

Our model, which excludes contribution from auto ship business, assumes revenue will jump from $1.56M in 2022 to $6.36M in 2023. Upside to our forecast exists based on pricing, demand, and the auto ship potential. In our view, the stock trades at a low valuation compared to its peers yet it trades above its 50 and 200 DMA, traditionally a bullish signal.

Recent Trading History For KOSK

(Source: www.StockCharts.com)