The regulated marijuana industry is in its infancy. While there isn’t any major companies that trade on the big boards (NASDAQ, NYSE), there is a variety of marijuana stocks that trade over-the-counter at penny stock levels.
With the legalization of marijuana in two states (Colorado and Washington) and possibly more to follow in the coming years, marijuana stocks have become a very hot topic for investors lately. Many investors have been very interested in this industry and looking at ways to profit from it, which is in its beginnings.
Marijuana stocks could be huge in the next few years, as efforts to legalize it in more states continue. There is a variety of politicians, organizations and voters in many states which are strongly in favor of the legalization of marijuana.
Legality of Marijuana by US States
If marijuana gets legalized in more states, one might wonder how to profit from the upcoming marijuana boom. For those not directly in the marijuana industry, the next best way is to invest in marijuana stocks.
Currently, from what I know of there are 16 publicly traded companies that are in someway involved in the marijuana industry. The companies range from pharmacological research to holding companies with subsidiaries spanning a variety of products and services of the cannabis trade.
The majority of these companies are small/micro-cap, very volatile marijuana stocks. Lets take a look at 5 marijuana stocks that offers investors to profit off of the legalization of marijuana.
1. Medical Marijuana Inc. (OTC: MJNA)
Medical Marijuana Inc. (OTC: MJNA) is a holding company that consists of a variety of marijuana and hemp businesses. Its five featured companies under its control: Phytosphere Systems, Red Dice Holdings, HempMeds, Wellness Managed Services and Can Chew Bio Technologies.
Medical Marijuana, Inc., through its subsidiaries, is looking to position itself in the MMJ market as the de-facto standard when it comes to seed-to-shelf product development and cannabinoid-based medical alternatives: according to their site, MJNA are currently in the process of implementing a strategy focused on the production of anti-cancer pharmaceuticals and analgesics.
With a current market cap of around $300 million (fluctuates as the stock moves up and down), MJNA currently has the largest market cap out there of the marijuana stocks.
In the latest quarter, MJNA reported an upswing of net profit of $3.23M, and notwithstanding yet another round of market capitalization ($2.35M), the company suffered net-negative cash flow (-$1.27M), reducing overall cash-on-hand to $1.42M.
2. Cannabis Science Inc (OTC: CBIS)
Cannabis Science, Inc. (OTC: CBIS), is a development-stage company. The Company is engaged in medical marijuana research and development. The Company engages in the creation of cannabis-based medicines to treats disease and the symptoms of disease, as well as for general health maintenance.
CBIS currently is trading at .07 cents per share and has a market cap of $55 million. It has a 52-week high of .25 cents and 52-week low of .03 cents. In its latest 10Q it had only $9,492 in cash, very low revenues, and total liabilities double assets at over $3M.
3. HEMP INC (OTC: HEMP)
HEMP INC (OTC: HEMP) has numerous subsidiaries, such as Marijuana Inc., which offers HEMP solutions and educating the public on the benefits of HEMP.
Another subsidiary the company has is Marijuana Inc.TV which is a film company bringing cannabis-related entertainment and news to viewers. Other subsidiaries include Herba Genix, Eco Harmony and a variety of other companies.
The company first started out by the name of Preachers Coffee, which was founded as a subsidiary of a Philippine coffee producer for the purpose of “marketing coffee from the Philippines around the world,” per their initial disclosure.
In July of 2007, the company was renamed Marijuana, Inc., and about two years later Bruce Perlowin (an infamous former drug smuggler) was named President, CEO and Chairman of the Board. In August of 2012, the company was renamed Hemp, Inc., and it was announced that the management was to refocus the company away from the controversial space of cannabis trade to the safer haven found in the hemp industry.
For those of you not familiar with the name, Bruce Perlowin, he was featured on CNBC’s Documentary called Marijuana Inc.. He was convicted for smuggling hundreds of millions of dollars of marijuana out of Columbia into the USA during the late 70’s and early 80’s and served a 9-years in federal prison. See video below
For the 3rd quarter, Hemp, Inc. reported an unaudited net income of $75.89K on sales of $3K. This compares to a net loss of $383K on sales of $1K for the prior period. The larger earnings figure in Q3 is due to a reported income on sale of stock for $179K. Some insight as to the source of this income is given by the QoQ drop in total value of marketable securities on the balance sheet from $95K in Q2 to only $5K in Q3. This source of income will no longer contribute to the bottom line going forward, so we may therefore witness a significant swing to losses in Q4.
With 1.4B outstanding shares, the market currently values the company at $113.2M, or 46X total assets.
4. MediSwipe Inc (OTC: MWIP)
MediSwipe Inc., formerly Cannabis Medical Solutions Inc. offers merchant services tailored for medical marijuana business. The Company provides online and wireless merchant payment solutions for these types of businesses. It offers a spectrum of transaction processing solutions using traditional, Internet point-of-sale, e-commerce, and mobile (wireless) terminals in conjunction with industry alliance partners.
The company’s alliances provide electronic payment processing suite of services enabling merchants to accept various credit and debit cards, as well as ATM cards and ACH check drafts for payment of a retail, service, mail-order, or Internet merchant.
In the latest quarter, MediSwipe reported a net loss of $247K on $781 (yes, dollars) of revenue. This represents a YoY plummet in turnover of 96%. It is clear that the above mentioned change in MediSwipe’s EMS partner’s capability to handle Visa and MasterCard transactions has had a very “material effect,” indeed.
5. Growlife Inc (OTC: PHOT)
Growlife Inc (OTC: PHOT) is slightly involved in the marijuana industry and sells products that could aid in the growing of marijuana. The company sells and distributes mini-hydroponic greenhouses (Phototron Units) and horticultural seeds, mineral nutrient solutions, growing mediums and germination kits.
Their products can be used in cultivating cannabis and most likely cannabis-growers account for only a small fraction of customers. PHOT also owns the cannabis.org website (currently in construction), which is being planned as an information portal for the medical marijuana industry, although at this stage it’s unclear how this website will generate revenue.
The company does seem to be in an industry that will experience tremendous growth in the new states that have brought about legal reform regarding recreational use of marijuana, so upside gains may prove attractive for players in the horticulture space. However, whether or not Growlife is a strong contender remains to be seen.
According to their most recent report, Growlife swung into single quarter profitability with $29K on revenues of $476K and a gross margin of 34%. These numbers alone look promising, but in Q3 (the last reported quarter) an income line item of $473K attributable to Change in Fair Value of Derivatives is the deciding factor in the net profitability figure; herein lies the trickiness of dealing with unaudited reporting.
With only consideration for income attributable to sales, the company booked an operating loss of $374K, more than double the previous quarter. The company also reports that due to issues with negative cash flow, as a going concern it “does not have sufficient resources to fund its operations for the next twelve months.”
Additionally, the report warns the investment community that the company will need to “raise additional funds in order to satisfy its future working capital requirements.”
This is a red flag to the potential investor and the company is at risk of facing insolvency and at best dilution is in order.
Like HEMP, I would avoid taking a long-term position in PHOT. The stock has been great for traders.
While there could be huge upside potential in some of these marijuana stocks, no one knows if many of these marijuana stocks will be around in a few years from now. Perhaps some of these stocks will still be around, and some won’t. Some new marijuana names will be on the scene. Some will be well-run and investment-worthy businesses, and some won’t, just like any other industry.
But, at this moment in time these stocks are risky, and very volatile. Some of them have very bad fundamentals, and there is a high element of risk in investing in these stocks. If you do decide to buy any of these stocks, it is best to keep position sizes small, and cutting any losses quickly.