VIDEO: Kontrol Energy Corp (CNSX:KNR) Cannabis Sector Energy Management

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Kontrol Energy Corp (CNSX:KNR) (OTCMKTS:OTSHF) (FRA:1K8) CEO Paul Ghezzi, CPA, CA explains that Kontrol is an energy efficiency management business that operates in the building sector, one of the largest energy markets in the world. Kontrol’s efficiency management is built on four verticals: IOT hardware and software, energy retrofits, distributed generation, and greenhouse gas emission compliance and monitoring. Ghezzi discusses the applications of this model in the cannabis space, including energy co-generation, emissions monitoring, and power reliability for proper crop maintenance. Ghezzi believes the cannabis sector is a high-growth vertical and estimates that 10 percent of Kontrol’s top line is from the cannabis space. Ghezzi sees Kontrol playing an important role in the sector as the cannabis space moves into a consolidation period.

Transcript

James West:   Hey, welcome back. My guest this segment is Paul Ghezzi. He’s the CEO of Kontrol Energy Corp., trading on the CSE under the symbol KNR. Paul, good to see you.

Paul Ghezzi:  Thanks for having me. Great to see you.

James West:   Paul, I first heard this story two years ago and it was interesting and exciting, but I have to confess that I didn’t really understand the economics and how are you going to make money. Clearly, the joke’s on me, because you’re making money like crazy, and you just mentioned to me that you’re amping up towards a run rate of $16 million a year?

Paul Ghezzi:  That’s right. Starting Q4, we’ve just done a nice acquisition, so it’ll be about 16 million, yeah.

James West:   Okay. Now, tell me as if I’ve never heard the story before, and as Jeremy Irons says, as if you’re talking to a small child – what does Kontrol Energy Corp. do?

Paul Ghezzi:  So, very simply, we’re in the energy technology business, and we work in one of the largest energy markets in the world, which is the building market. It’s a $200 billion annual industry, North America alone. Globally, it’s about 2 trillion, and it’s a massive opportunity with a massive problem.

James West:   So, when you say ‘energy technology’, do you mean the management of energy for efficiency’s sake?

Paul Ghezzi:  Right. So we’re in four verticals: IOT hardware and software, energy retrofits, distributed generation, and greenhouse gas emission compliance and monitoring.

James West:   Okay, so can you give me an example of your biggest clients?

Paul Ghezzi:  Sure. So we’ve got what I would call large industrial consumers, say, like a Lafarge or a Suncorp. We’ve got large REITs, that would be North American and global, that would manage multi-res commercial. We’ve got the mobility guys in the data centres that we’re managing. And really what it comes down to is, the energy costs are too high; they’ve captive to the utility, and they’re all looking at managing emissions in one form or another, whether it’s corporate sustainability or they’ve got a compliance problem.

So we can integrate all of our solutions vertically, and the way we’ve been growing is a combination of good acquisitions and great organic growth.

James West:   Okay, so is the business basically installation and management of hardware systems via software as a service?

Paul Ghezzi:  So that’s one component; the other component is installing something onsite and managing that and monitoring that. So we call it, we split out our SaaS revenue, software as a service – that’s at about a million, and growing very quickly. You know, typically you’ll see a market multiple on that of about 8x revenue. I’m not sure we’re seeing that fully yet, but as we grow that – we just announced yesterday that we’ve added 60 buildings under our SaaS platform, which is quite a large order in North America to get 60 buildings.

So we’re right now at about 30 million square feet of real estate, and as that business grows, it becomes highly valuable, very attractive to the large players – the Siemens, the Schneiders, you know, they’re all looking for acquisitions, and that’s likely where we’re going. As we get to about $50 million in revenue, we become that, you know, takeover target or acquisition target ourselves.

James West:   So, have you had any exposure in the cannabis industry?

Paul Ghezzi:  So cannabis, you know, we say we work in buildings – anything between the building and the utility. And the cannabis LPs have a big problem: their problem is, energy is way too high, and demand is way too high. So what we’re seeing right now, and we’re in some projects now where we’re looking at co-generation as a solution, and that’s essentially bringing natural gas to a facility, getting off the grid, and dropping your costs dramatically. So that’s one area.

The other area is, emissions are becoming a problem, where municipalities are creating new rules. You know, the LPs are kind of managing on the fly because they’ve grown so fast, and the municipalities and the regions are catching up. So we’ve seen a lot of work there. And the other one is real-time managing of energy and mission critical. So if something goes down in your plant, you’ve got a big problem. It’s not just the operations, now; it’s the crop. So we’ve seen a focus on mission critical: how do we manage this in real-time, 24 hours a day? And those are the big three areas that we’re getting involved with.

I would say we could see about 10 percent of our top line from the cannabis sector, and that’s a high-growth vertical. You know, it’s good margins.

James West:   Right. Interesting. So in terms of, for example, a company deciding to take the plunge and build a co-gen plant, what’s the average time till return on investment actually justifies it?

Paul Ghezzi:  Yeah, so in a sector where you’re essentially running 24 hours a day, you’re looking at about two and a half to three years, which, you know, gives you an internal rate of return of about 35 percent.

Also, from a mission critical perspective, if the grid fails, you’ve got a big problem. And instead of building an expensive backup system, you build a 24-hour running plant with some mission critical, and you’ve protected yourself.

So in Ontario, we’re talking about 300 megawatts of power for the LP; that’s no small number. And you know, the work will get spread around. But we’ll get a piece of that, and we see this moving into the US as the US gets ready. They’ve got bigger problems. In New York State alone, the electricity rates are about $0.30 – you know, we’re at about $0.14 here. And it really makes sense around $0.07 or $0.08. So the LPs are aggressively moving to cut their operating costs.

You know, this phase of rapid growth is going to move into consolidation, which essentially means you have to really be a good manager, good steward, cut your operating costs, get to the lowest cost of production. And that’s where we fit in on the energy side.

James West:   What about cryptocurrency miners? It strikes me as a must-have for them.

Paul Ghezzi:  Yeah, you know, the crypto market was interesting. You had this kind of flurry and then just this depression.

James West:   I like how you speak about it in the past tense already.

Paul Ghezzi:  So I think in terms of the scale there, it’s, you know, they just don’t have the scale to warrant kind of these big investments – yet. But you know, there’s maybe a couple guys or a couple groups that have that kind of scale. I think what happened was, as everyone was making their infrastructure investments, the market just, you know, got beaten down so quickly, there wasn’t time to really structure yourself.

On the cannabis side, there’s longevity to this, right? There’s a view that this will consolidate over many years, and so there’s lots of time to build your plant and do it right. And you know, we still see new plants coming online. So, you know, it’s a good market.

James West:   All right. So then, what are your big catalysts in terms of the next 12, 24 months?

Paul Ghezzi:  So I think for Kontrol, you know, what we’ve done, which is a little unique in the market, is we’ve kept a very tight share structure. There’s only 27 million shares outstanding. So I get some groups that say to me, “That’s too low – it doesn’t trade enough.” And I said no, you know, it depends what you’re looking for – a trade, or an investment, right? And we’re more on the investment side, where if you’re looking at us over three years, very tight share structure, and we create revenue per share and earnings per share; the market will figure out what that multiple is.

As we add more IOT software as a service, which is a big growth engine for us, and the market starts to give us that 6 to 8 times multiple on that revenue – right now we’re getting about 2 or 3 – but as that grows, that multiple will expand.

So as an example, you know, Google acquired Nest for 10 times revenue. So if you build up your revenue, the market will give it to you. So there’s a catalyst that, you know, the shares outstanding are quite low. Our growth rates have been fantastic; we were ranked #7 fastest-growing startup in Canada, by the Growth 500 McLean’s Magazine project that comes out every year. And so, with these growth rates, share structure and the IOT moving up, you know, we should be running, in my view, right, as the biggest shareholder.

James West:   Sure. It strikes me that you probably collect a lot of data, too.

Paul Ghezzi:  We do. So there is a data part to our business; right now, we’re collecting about 2 billion data points every four months. The interesting thing with data is, it’s only valuable when it becomes valuable to someone else. So what we’re finding right now is, we may have a customer, quite a large customer, let’s say, that’s worth $300 million, but only owns five buildings, say, five institutional buildings. That’s their experience. But we have experience now in 230 buildings, with all the data behind that. So that customer becoming a customer of Kontrol now has access to all the information that we do, and, you know, we’re very careful on the privacy of that, but we have trends, we have reports, we know what areas are the worst, what are the best, utility data, building data, energy system data. So as that gets bigger, that’s going to be very valuable. We don’t put a value on that ourselves, or a price on it, yet, but as we grow that, that will be very valuable, for sure.

James West:   Subject to negotiation.

Paul Ghezzi:  That’s right.

James West:   Okay, well, that’s really interesting, Paul. I’m glad to hear you’re doing so well. We’re going to leave it there for now and come back to you in a quarter’s time and see how you’ve progressed; thank you for joining me today.

Paul Ghezzi:  Thank you.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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