I’ll tell you upfront: POSaBIT (OTCMKTS:POSAF) is the best stock you could buy for 2022. But if you’re suspicious of “stock experts” telling you what to buy, I get it. 2021 was yet another year where middle-of-the-road picks saw predictably middle-of-the-road performance.
Investors could blame it on the conservative nature of stock pickers. J.P. Morgan’s tome of 50 “most compelling” stocks to buy for 2021 included such unexpected picks as Disney (NYSE:DIS) and Coca-Cola (NYSE:KO). Shockingly risky, I know. As the old saying goes, no one ever got fired for buying IBM — even if their basket of 50 picks underperformed the market by 600 basis points.
But that’s precisely why outfits like InvestorPlace perform so well. We’re the ones looking at inefficient markets — penny stocks, cryptocurrencies and hypergrowth investments — where investors have a far higher chance of generating alpha. And if a hyped-up firm seems like garbage, we’ll let you know.
The focus on offbeat stocks has served us well. My stock choice for our Christmas stock competition last year — Peabody Energy (NYSE:BTU) — managed to escape bankruptcy and return 500%. Ethereum (CCC:ETH-USD) and Hertz (NASDAQ:HTZ) — my crypto and penny stock picks, respectively — have done even better. On average, InvestorPlace’s picks have outperformed all other stock investment sites, according to an independent study by TipRanks.
Of course, we won’t nail every GameStop (NYSE:GME). But if we’re hitting enough 3-run homers, why dwell on the fact that our winning game included no grand slams?
My No. 1 Stock Pick for 2022
That brings me to my top stock pick for 2022: POSaBIT.
This Canadian-based blockchain payments company fits perfectly with my regular newsletter, The Moonshot Investor. Not only does the firm serve the hypergrowth industry of marijuana dispensaries. It’s also well-run and a small penny stock available to buy for just about $1.
When you’re looking to gain 2x… 5x… 10x… on your investment, remember that it’s far easier for a $200 million firm to become a $2 billion one than it is for a $2 billion company to grow another 10x.
POSaBIT fits that bill.
Founded by ex-Microsoft general manager Ryan Hamlin and Adapx’s Jon Baugher, POSaBIT is a tiny stock with grand ambitions. And it all starts from finding a good business to dominate.
Our Friendly Northern Neighbor
POSaBIT is a point-of-sale (POS) payments company that helps marijuana dispensaries manage finances. It’s the rare industry that’s both low-competition and high-margin.
And there’s a very special reason why POSaBIT is succeeding:
Exchange rules prohibit U.S.-listed firms from dealing in Schedule I controlled substances. That means credit card giants Visa (NYSE:V) and Mastercard (NYSE:MA), as well as lesser-known payments processors like $64-billion-dollar Fiserv (NASDAQ:FISV) are locked out of the market.
Meanwhile, patchy Federal regulations have left a loophole for Canadian-listed firms to roam free. Though interstate commerce is still illegal, these offbeat firms are largely free to operate within states that have legal marijuana.
That created an unintended bonanza for Canadian-listed firms, including POSaBIT. Curaleaf Holdings (OTCMKTS:MMNFF), a Toronto-listed cannabis firm based in Massachusetts, has seen its revenues rise 80% this year even as U.S.-listed names like Sundial (NASDAQ:SNDL) have struggled.
It’s much like having your favorite pro baseball team reach the playoffs and then having MLB commissioner Rob Manfred disqualify every other American-based team from playing. You’d only need to beat the Toronto Blue Jays to win the World Series.
A Little Bit of POSaBIT
Here’s where POSaBIT comes in.
The Canadian-listed firm helps cannabis retailers manage money. Its flagship POS offering acts as a cashless ATM at the point of sale, while its backend reporting system can help stores manage finances. Transactions are typically tendered at $5 intervals to reduce costs. The firm also offers arms-length purchases for dispensaries looking for debit-to-the-penny.
These workarounds might seem absurd to traditional POS vendors. Payment terminal operators — from Square (NYSE:SQ) to Fidelity Information (NYSE:FIS) — generally serve as a neutral financial bridge between a seller’s bank and a buyer’s one.
But in the quasi-legal world of cannabis retail, nothing is so simple. Cannabis dispensaries can’t open accounts at banks that operate across state lines nor accept credit cards — services most retailers take for granted. Most dispensaries end up dealing entirely in cash and utilizing local credit unions to store their spare change.
That’s given POSaBIT plenty of room to grow. Processed payment volumes grew 232% to $87.3 million in Q2, while gross profits ballooned 350%. When you have a one-of-a-kind solution in an uncompetitive market, it’s hard not to make money.
State-level rules have also transformed cannabis into a massive growth industry. Since the 2020 election cycle, eight states have legalized adult-use marijuana. Cannabis-tracking site Leafly estimates another seven states will legalize in 2022, including Pennsylvania and Maryland (Florida could soon follow suit). Many younger Republican lawmakers have also begun to see cannabis legalization as a way to shrink the government’s size.
“We need the federal government just to get out of the way,” said Rep. Nancy Mace (R-SC), who recently introduced the first Republican legalization bill in Congress.
That’s put POSaBIT into hypergrowth territory. The company expects to operate in up to 22 states and has forecasted 2021 revenues in the range of $17.5 million to $19 million (a 136% growth rate).
Longer-term, analysts are also cheery on the broader legal marijuana industry. They’re now predicting 27% growth per year through 2028, potentially outpacing esports (25%), electric vehicles (21%) and encryption software (14%).
Too Much of a Good Thing?
Ask anyone who’s ever smoked marijuana, and they’ll tell you it’s extremely hard to overdose, especially when compared to alcohol or hard drugs.
But that doesn’t mean zero risk.
The same principle applies to POSaBIT.
First, the company is still a startup. Its net revenues clock in at just $5 million per quarter and the firm has had to pivot its business multiple times. POSaBIT’s early attempts at crypto payment systems proved to be a failure, and there’s no guarantee that its forays into credit card payments or microlending will yield results.
Second, there’s competition. Companies from Square to Crypto.com (CCC:CRO-USD) are quickly developing versions of blockchain-based payments that could skirt current cannabis regulations. POSaBIT won’t have the marijuana PoS market to itself forever.
Finally, federal laws can turn on a dime. Though a gridlocked Senate won’t likely pass federal legalization laws in 2022, a sudden shift among GOP leadership could quickly change that calculus. POSaBIT needs to grow large enough before that happens to make it a takeover (rather than a take-out) candidate.
What to Do with POSAF Stock
Readers of the Moonshot Investor will know that risky stocks are… well… risky. You don’t put all your eggs in one basket, especially when the basket is attached to a rocketship without airbags or a parachute.
But occasionally, the market throws us a fat pitch. And when it does — much like its gift of POSaBIT — investors should be quick to recognize it as a “top stock for 2022.”
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.