Don’t Be Fooled By the Smoke Around Marijuana Stocks

by Lawrence Meyers | December 6, 2013 9:40 am

Don’t Be Fooled By the Smoke Around Marijuana Stocks

I have to be honest — when it was suggested that I take a look at medical marijuana stocks, somehow the fact that marijuana stocks even existed had eluded me. Not that their existence came as a surprise — I was more amazed that after 18 years of investing, medical marijuana stocks never drifted onto my radar.

medicalmarijuanastocks Dont Be Fooled By the Smoke Around Marijuana StocksSo I decided take a look at see if medical marijuana stocks — of which even the most prominent are penny stocks — are right to buy, sell, hold or short at this stage in the game.

Names like Medical Marijuana Inc. (MJNA[1]), Cannabis Sciences (CBIS[2]) and Growlife (PHOT[3]) are the most-established picks in the world of marijuana stocks[4] — meaning that they are a few of the top bets if you decide you want to bet on the sector.

The bad news, though, is that betting on the sector doesn’t look all that smart right now. Heck, one could probably guess that because medical marijuana stocks are penny stocks, staying away is smart. But let’s dig deeper to see how MJNA stock, CBIS stock and PHOT stock actually smoke out.

Marijuana Stocks - Medical Marijuana Inc. (MJNA)

MedicalMarijuanaIncMJNA185 Dont Be Fooled By the Smoke Around Marijuana StocksMedical Marijuana Inc. (MJNA[1]) is a company with a market capitalization of $104 million market cap. MJNA describes its services as the “development of cannabinoid based products, and licensing of proprietary testing, genetics, labeling and packaging, tracking, production, and standardization methods for the medicinal herb industry.”

I like that Medical Marijuana Inc. appears to set the standard for medical marijuana stocks in its licensing function. What I don’t like are the multiple transactions and reverse mergers[5] that took place to form the company and eventually MJNA stock.

Of course, what really counts are the financials for MJNA stock.  Revenue was increasing quarter-over-quarter in impressive fashion for a bit. But in Q3 of this year, sales dropped significantly for Medical Marijuana Inc. compared to any period in 2012. There was also a net loss in the quarter for MJNA stock.

As medical marijuana stocks go, I would have hoped to see ever-increasing revenues and income … but no such luck. I imagine there is competition out there to deal with in the world of marijuana stocks. Maybe that’s why MJNA stock is truly a penny stock, trading at just 11 cents per share. All in all, I would rank MJNA stock a sell.

Marijuana Stocks - Cannabis Science (CBIS)

CannabisScienceCBIS185 Dont Be Fooled By the Smoke Around Marijuana StocksThe ugly financials for MJNA stock sure don’t bode well for Cannabis Science (CBIS[2]). CBIS stock is yet another penny stock, trading at just 3 cents per share. Once again, penny stocks[6] — and thus medical marijuana stocks — are risky in and of themselves.

Plus, CBIS stock has a license agreement that focuses on the California market, which isn’t a great idea. There has been great uncertainty for the marijuana industry (and thus medical marijuana stocks) here in California because the city of Los Angeles can’t seem to decide on just what it’s policy is, and what it will or will not enforce. Uncertainly is a bad thing for CBIS stock, as it is for all medical marijuana stocks.

Plus, CBIS stock has negative shareholder equity[7]. It also has lost money every year and every quarter in the trailing 12 months. I can’t see how Cannabis Science stays in business … but CBIS stock isn’t even worth shorting at just three pennies per share.

Marijuana Stocks - Growlife (PHOT)

GrowLifePHOT185 Dont Be Fooled By the Smoke Around Marijuana StocksThe last of our medical marijuana stocks is Growlife (PHOT[3]). And good news for fans of marijuana stocks: PHOT stock seems to have some more value than the other medical marijuana stocks.

The first bit of promising info for PHOT stock is the fact that revenues almost quadrupled for the year-to-date and doubled year-over-year in the most recent quarter. Growlife is high on recent Department of Justice guidance regarding medical marijuana. And unlike other medical marijuana stocks, this one has a hydroponics business unit, with both brick-and-mortar stores and online stores.

I suppose if one had to buy one of the medical marijuana stocks, PHOT appears to have the most possible upside and financials. Cash flow isn’t fantastic, but it does show promise. Of course, PHOT stock still trades at just 9 cents per share. So as with all penny stocks, I would tread very cautiously.

Penny stocks are subject to manipulation, and none of these medical marijuana stocks are terribly impressive.

As of this writing, Lawrence Meyers does not hold a position in any security mentioned, nor does he utilize any of their products.

Endnotes:
  1. MJNA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MJNA
  2. CBIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBIS
  3. PHOT: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHOT
  4. most-established picks in the world of marijuana stocks: http://investorplace.com/2013/11/best-medical-marijuana-stocks-mjna/
  5. are the multiple transactions and reverse mergers: http://www.medicalmarijuanainc.com/images/Pdf/2012-Annual-Report.pdf
  6. penny stocks: http://investorplace.com/category/stock-picks/penny-stocks/
  7. negative shareholder equity: http://finance.yahoo.com/q/bs?s=CBIS

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