[Editor’s note: This article was originally published in July 2019. It has since been updated to reflect changes in the market.]
Investing in penny stocks can be appealing to some. And investing in marijuana penny stocks can be even more appealing … if you’re willing to take massive risks. But with great risks comes even greater potential rewards.
Surely, in an industry with the growth potential of cannabis there must be some stocks out there that are future millionaire makers. But, while every investor has dreams of finding the next Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) amid the pile of cheap stocks, you need to be very careful when investing in any highly risky area of the markets.
After all, these companies are penny stocks for a reason. And most of them will not survive.
The following marijuana penny stocks are offer interesting opportunities for investors willing to take risks on the future of the marijuana industry. While note of these are flat-out buys in my book — you have to make your own decisions — these companies have all recently had some positive developments that might make them good long-term plays.
GrowGeneration Corp (GRWG)
GrowGeneration Corp (OTCMKTS:GRWG) sells products for hydroponic growing. GRWG announced in July that it has appointed Bob Nardelli as a strategic advisor. As the former CEO of Home Depot (NYSE:HD), its pretty obvious that he will bring tremendous experience and wisdom to the table.
The company just reported its Q2 2019 results and they looked pretty good. Net income was $1,062,000. During the same period last year, the company reported a loss of $929,959.
Same store sales were up 23% versus last year’s quarter. In addition, the gross profit margin increased to 29.9% from 24.2% for Q2 2018.
Despite these positives, the stock is overbought and there is resistance at the $5.05 level, which is just above where it is trading. This level was resistance last year in April and September.
48North Cannabis Corp (NRTH)
48North Cannabis Corp (TSE:NRTH) grows and sells medical marijuana. I like this company because it is an outdoor organic grower and I think this type of growing will be the way the industry trends … 48North is already ahead of the curve.
The company just announced Charles Vennat as its Chief Corporate Officer. Mr. Vennat is an experienced veteran who was most recently the President of Bastos of Canada. He will drive the company’s business plan and strategic vision.
The marijuana industry is full of incompetent management teams. Many are comprised of idealistic entrepreneurs who got the business up and running but don’t have the skills to manage it as it grows.
Bringing in senior level management could give NRTH an advantage over is competitors that are managed by people with less experience. The company also announced that it has successfully completed its first shipment to the Ontario Cannabis Store. This marks its entry into Ontario’s recreational retail market.
Body & Mind Inc (BMMJ)
Body & Mind Inc (OTCMKTS:BMMJ) is involved in the provision of medical cannabis. This company operates in Nevada, California, Ohio and Arkansas. It just announced that it has qualified to trade on the OTCBQ Venture Market.
Typically when a company qualifies to be listed on an exchange investors consider it a positive thing. This will provide greater transparency and more liquidity for the penny stock.
In addition, last month, Body and Mind announced that is has been added to the Horizons U.S. Marijuana Index ETF. This will give the company greater exposure to investors.
Maybe this news will help turn the price of the stock around. Since April, it is has dropped from $2.60 to 62 cents.
Flower One Holdings Inc (FLOOF)
Flower One Holdings Inc (OTCMKTS:FLOOF) produces and sells wholesale cannabis. This company just reported its Q2 2019 results and it exceeded expectations.
In addition, the company announced that it has also obtained up to $30 million in debt financing and that its stock has been upgraded from the OTCBQ to the OTCQX exchange.
From a technical perspective, the stock is at an interesting inflection point. It is testing support around the $1.80 level. This level was also support in March and June. If it breaks, the stock could make a rapid move lower.
This is because it gapped up in February and gaps tend to refill quickly. Support is formed when sellers believe they made a mistake selling after the stock goes higher. They tell themselves that if it comes back down to the level they will buy it back. This demand for the stock at a particular level is what forms support.
Because FLOOF spent such a limited amount of time trading between $1.20 and $1.80 in February, there probably wasn’t enough time for meaningful support in this zone. And thanks to this lack of support, the gap could be refilled quickly.
Global Hemp Group (GBHPF)
Global Hemp Group (OTCMKTS:GBHPF) develops hemp cultivation for cannabinoid extraction. This company recently announced that its subsidiary, Covered Bridge Acres, has completed preparing 35 acres at its Scio, Oregon farm.
Most of the large cannabis companies such as Aphria (NYSE:APHA) and Aurora Cannabis (NYSE:ACB) grow their cannabis either in indoor growing facilities or greenhouses. There are advantages to these methods compared to outdoor growing, such as greater security and the ability to grow year round.
However, outdoor growing is considerably cheaper. I’ve seen estimates that the costs are between 10 – 25% of the other methods. In addition, some argue that cannabis that is grown outside is better than cannabis grown indoors. This is because it is grown with natural sunlight and soil.
Given these dynamics, companies that are outdoor growers have advantages over the larger indoor growers. As such, I would expect that eventually companies like Global Hemp will be acquired by the larger companies.
Global Cannabis Applications Corp (FUAPF)
Global Cannabis Applications Corp (OTCMKTS:FUAPF) is involved in the development of smart phone applications for the cannabis industry. This company announced that it has appointed Shay Meir to the position of General Manager, Global Grow Operations.
Meir was one of the first 10 Israelis to hold a license to cultivate cannabis. He set up a research lab and worked closely with the Israeli Ministry of Health to research and develop cannabis for medical purposes.
He is a pioneer in the medical cannabis field and his addition to the company should be a positive. Maybe it will help to turn the stock around. It the past year, FUAPF has dropped from 25 cents to 4 cents.
Emerald Health Therapeutics (EMHTF)
Emerald Health Therapeutics (OTCMKTS:EMHTF) is a Canadian producer of cannabis products. Pure Sunfarms is a joint venture that is 50% owned by Emerald. It just announced preliminary results. The full, second-quarter earnings release will be out on Aug. 28.
Pure Sunfarms reported all-in growing costs of 65 cents Canadian to grow one gram of cannabis. In U.S. dollars, that would be about 48 cents.
To put this into perspective, consider that Aurora Cannabis recently reported that its cost to produce a gram is $1.42 — nearly three times as much.
In addition, sales increased sequentially by 125% and the company reported its third quarter of profitability. This may not sound like its that big of a deal, but consider that most companies in this industry are losing money and it’s a bit more impressive.
EMHTF stock continues to hold the $1.50 support level. If this level breaks, we could get a large move lower.
As of this writing, Mark Putrino did not hold a position in any of the aforementioned securities.