Summer Pot Stock Preview
Up until 1995, marijuana was illegal in all the U.S. states. In 1996, California became the firststate to legalize medical marijuana, with voters in the state passing proposition 2015 by 56%. Since then 22 more states and the District of Columbia have legalized marijuana in some form. While most states have legalized marijuana for medicinal purposes, fourstates have legalized marijuana for recreational use.
The lawmakers’ changing attitudes toward the use of marijuana has created a legitimate marijuana industry, with many companies ((most listed on OTC exchanges)) now offering marijuana products and even services. According to CBS, some experts expect the legal marijuanamarket to reach $150 billion-$200 billion. Privateer Holdings, a private equity fund for marijuana, notes that the U.S. legal marijuana market could be worth as much as $18 billion. While the figure of $150-$200 billion is probably too optimistic, the number cited by Privateer Holdings though much lower is still significant. We are talking about a multi-billion dollar market here. Not surprisingly, the marijuana industry has sparked significant interest among retail investors.
But this is a nascent industry. Majority of the companies in the marijuana industry trade over-the-counter. There is not much information on companies or even the size of the market. Notice the significant difference between the estimates for the size of the market.
The lack of information has meant that marijuana stocks are ripe for operating pump-and-dump schemes. In May 2014, the Securities and Exchange Commission ((SEC)) even issued an alert and suspended trading in shares of a number of companies. In aninvestor alert dated May 16th, 2014, the agency noted, “Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns. Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances. When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.”
Analert was also issued by FINRA last year. FINRA noted that pitches to invest in potentially fraudulent marijuana-related companies could come in several different ways. As in other pump-and-dump schemes, fraudsters use unrealistic financial projections and misleading statements to lure investors. The dumping begins once enough investors have been lured in.
Obviously, the main concern with such fraudulent marijuana companies is that unsophisticated investors lose significant amounts of money. But it also gives a bad name to the entire industry, which hurts even shares of genuine marijuana companies. And that might be a mistake.
While some pump-and-dump scheme operators did use investor’s interest in the marijuana industry to promote fraudulent companies, there are a number of decent companies in the marijuana space doing legitimate business. And with the initial euphoria over the industry now over, it is a good time to do some due diligence. In this article, I will be taking a look at a few companies in the medical marijuana companies. However, I would strongly advise readers to do their own due diligence before making an investment decision.
Terra Tech Corp. (TRTC)
Like many marijuana stocks, TRTC trades on the OTC market. TRTC though is not exclusively a marijuana stock. The companyfocuses on creating sustainable solutions for food production, indoor cultivation, rare and exotic plants, and agricultural research and development.
It has a number of subsidiaries but the one that focuses on medical marijuana is called MediFarm LLC. Through MediFarm LLC, MediFarm I LLC and MediFarm II LLC, the company plans to operate medical marijuana cultivation, production and dispensary facilities in Nevada. In addition to these subsidiaries, TRTC has also formed IVXX LLC for the production and sale of a line of cannabis flowers and cigarettes, as well as a line of cannabis pure concentrates.
MediFarm was formed in March 2014 and the company owns 60% membership interests in MediFarm. The remaining membership interests are owned by Camden Goorjian and by Richard Vonfeldt. The company expects MediFarm to operate medical marijuana cultivation, production, and/or dispensary facilities in Clark County, Nevada and a medical marijuana dispensary facility in the City of Las Vegas following required government approvals and permits.
MediFarm I and MediFarm II were formed in July and the company has 50% and 55% membership interests in the two, respectively.
The most recent subsidiary formed by TRTC is IVXX. The subsidiary currently offers its products to three select dispensaries in California, the Green Door, Blum Oakland and SFVDM. For the moment, none of the products offered by IVXX cross the state lines. However, the subsidiary expects to expand its business into other states in which the sale of marijuana is legally permitted.
TRTC’s revenue for 2014 was $7.09 million, compared to $2.13 million reported in 2013. The increase was mainly due to the company’s Edible Garden subsidiary, which was acquired in April 2013. Operating loss for 2014 was $18.17 million, compared to $3.49 million reported in 2013. The increase in operating loss was mainly due to several large investments made by TRTC. Most of these investments were made in the marijuana business.
Medbox Inc. (MDBX)
MDBX is a provider of specialized consulting services to the marijuana industry. The companysells associated patented products, which include its medical dispensing system and medical vaporization devices. It’s clients include those that are seeking to enter marijuana markets.
MDBX operates through six subsidiaries; Prescription Vending Machines Inc. ((d/b/a Medicine Dispensing Systems in the state of California)), Vaporfection International Inc., Medbox Property Investments Inc., MJ Property Investments Inc., Medbox Management Services Inc., and Medicine Dispensing Systems Inc.
In 2014, MDBX’s consolidated net revenues were $629,132, compared to $2.06 million reported in 2013. The decline in revenue was mainly due to reduction in consulting and build outs revenue by $1.61 million. In 2013, consulting and build out revenue was driven mainly by achievement of milestones and delivery of facilities in Arizona to clients.
MDBX reported a net loss of $16.54 million for 2014, compared to $3.79 million reported in 2013.
American Green Inc. (ERBB)
In 2009, ERBB became the first publiclytraded medical marijuana dispensary brand in the world. Through partnerships with licensed retail medical marijuana dispensaries across the U.S., the company has developed retail, brand and commercial cultivating solutions.
Since the start of this year, ERBB has alreadyannounced a joint venture with Greenhouse Solutions Inc. and a collaborationagreement with Endexx. In March, the company alsoannounced a 300% year-over-year increase in sales from OG Tea, its wholly-owned subsidiary.
Cannabis Sativa Inc. (CBDS)
CBDS isled by Gary Johnson, who was the 29th Governor of the state of New Mexico. He served as a governor between 1995 and 2003 and was a member of the Republican Party. In the 2012 Presidential election, Johnson was the Libertarian Party nominee.
CBDS has acquired KUSH, which is a research and development company. With the acquisition of KUSH, Steve Kubby, the company’s founder, has also become part of CBDS and now serves as its Chairman. KUSH is focusing on the development of two medicinal cannabis strains; a patent pending strain called CTA, and the proprietary NTZ strain.
In addition, CBDS also has a Wild Earth Naturals division, which offers skin care and pain management products based on natural and organic ingredients. All the products feature Hemp Oil.
According to a 10Qfiling from November, CBDS had immaterial revenue for the three-month and nine-month period ended September 30, 2014. However, CBDS consistently features in the list of marijuana stocks and this is obviously because the company is led by a former governor, giving it a great deal of credibility.
Oxis International Inc. (OXIS)
Through its subsidiary, Oxis Biotech, OXIS is engaged in the discovery, development and commercialization of novel therapeutics from its proprietary product platform in a broad range of disease areas. The company is a relatively recent entrant to the cannabis space.
In January, OXIS executed definitiveagreements licensing certain assets for the treatment of multiple myeloma and also entered into a consulting agreement with the University of Pittsburg’s Professor Dr. Xiang-Qun ((Sean)) Xie. Dr. Xie is one of the world’s foremost cannabinoid research scientists.