One of the pot stocks that’s rarely discussed is Marijuana Company of America (OTCMKTS:MCOA). With its $40 million market cap, it’s no wonder most forget about MCOA stock, but it’s good to look at all our options in a market with this much potential.
The cannabis group has gotten a ton of exposure over the past six months, as investors grow more and more optimistic about its potential. We’ve seen more legalization, billions of dollars in partnerships and big moves in the stock prices.
So what does MCOA stock do? The company says it performs, “product research and development of hemp-based consumer products under the brand name ‘hempSMART,’ containing CBD derived from Industrial Hemp targeting general health and well-being.”
Further, it operates an affiliate marketing program around its hempSMART brand, while also engaging in the leasing of property used to grow and/or sell cannabis and cannabis-related products where it is legal.
On paper, this sounds like a very solid business, does it not? Particularly in the budding cannabis space where major companies are still trying to get a piece of the action.
Is MCOA Stock a Buy?
I don’t know.
I hate to be that candid, but this one is bizarre. For starters, MCOA stock trades at a penny. That has to be an obvious warning sign right off the bat. When we dig through the most recent numbers — which are for the quarter ending September 30th, 2018, by the way — we see that revenue exploded to $90,300, from $2,930 in the same quarter a year ago.
The massive jump in revenue is impressive but in fact, not surprising at all. While the growth rates are lower for companies like Tilray (NASDAQ:TLRY) and New Age Beverages (NASDAQ:NBEV), they are nonetheless impressive as well. There’s clearly growth in the industry, but MCOA stock has other issues.
Mainly, SG&A issues.
In the quarter with just $2,930 in sales, the company had $700,000 in SG&A expenses. In the most recent quarter, those expenses only climbed to $728,250. However, it still left the company with an operating loss of more than $667,000.
Interest expenses came in at more than $1.4 million for the quarter, and really, there are a lot of ups-and-downs on this income statement.
For the last five quarters, here is the net income: ($3.44 million), ($10.36 million), $4.15 million, ($7.65 million) and $2.14 million. For such a little company, these are big swings.
On the balance sheet, the company has roughly $67,500 in cash, a new short-term investment of $1.43 million and accounts receivable of just $2,150. As for the liability side, it has short-term debt of ~$173,000, accrued expenses of $243,720 and accounts payable of $558,290.
On the plus side, there is no long-term debt, but this one is too volatile for me.
Bottom Line on MCOA Stock
So if the financials are too volatile, why is it an “I don’t know” when it comes to an investment?
For some investors, a one-cent stock is attractive as a flyer. I don’t, personally, but others may find that a move from $0.0125 to $0.025 is a fun “lotto” play on the cannabis space.
I don’t view it that way and would rather go with a smaller investment in one of the more well-known companies. For instance, Canopy Growth (NYSE:CGC), which has Constellation Brands (NYSE:STZ) as a big investor, or Aurora Cannabis (NYSE:ACB), which counts Nelson Peltz as a newly-added advisor. NBEV also isn’t a bad company. And don’t forget Altria’s (NYSE:MO) investment in Cronos Group (NASDAQ:CRON).
All of these stocks have high valuations, but they also have massive growth ahead of them. This makes them a speculative and longer-term play, but if the current trends continue, they could grow into a great investment. The key for these companies is further legalization, both globally and in the U.S.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
