These legitimate companies are truly capitalizing on America’s growing acceptance for cannabis…but beware of the recent spate of “bunk” stocks…
If there’s one major trend right now that’s literally getting investors high for more, it’s marijuana legalization.
Though cannabis remains classified as Schedule I substance under federal law (the highest classification ranking for drugs), the walls are slowly coming down for legislative approval.
To date, 21 states have enacted some level of decriminalization for marijuana use.
A number of them are still in the early stages of legalization, such as allowing possession for medicinal purposes only.
But within the next year or so, it’s expected that more states will push to make cannabis use legal, while those that have already taken the first steps are looking to take the cue from Washington and Colorado, who have now fully legalized consumption for recreational use.
For companies who are in the business of legal production and distribution of cannabis, the long-anticipated tipping point has finally been reached.
And anytime you have an industry that’s being backed by any level of government… well, you’ve essentially witnessed the laying of the golden egg.
But be warned…not all marijuana-related stocks are in the business of pushing the industry to greater acceptance — some aren’t even legit businesses at all.
Ever since the tide of legalization began to rise, we’ve also seen the proliferation of thinly traded yet heavily touted companies that are actually worth less than “rolling papers”.
This past summer, the Financial Industry Regulatory Authority, or FINRA, issued an investor alert cautioning investors that some marijuana stock pitches bear the hallmarks of classic Wall Street “pump and dump” schemes.
Now I won’t go into the merits of conducting the proper due diligence of weeding out these scammers – investors should be doing that regardless of the industry that they’re interested in putting their money in.
However, I will say that there is a great deal of hype and speculation behind the marijuana business, and even though it’s bullish to see more states giving marijuana the green light, that shouldn’t be the most important factor when deciding to invest.
Even if marijuana were legalized across the entire country, a company without revenues, cash, assets, or even employees, would still be worthless.
Top Marijuana Stocks To Buy Today:
Here are two stocks that pose a bit less risk in terms of legitimacy than little-known, overhyped shell companies.
Medical Marijuana Inc. (OTC:MJNA)
This company was the first to become publicly traded and remains one of the more established players in the industry.
As its name clearly states, the Company sells products mainly to pharmaceutical companies, which has been a steadily growing revenue base for many producers.
But MJNA also boasts a portfolio of over-the-counter and wellness products that’s derived from cannabinoids, including a variety of nutraceuticals, hemp oil extracts, and even chewing gum.
Like many other companies, MJNA’s shares ran up considerably in the spring when “legalization” became a buzzword, but has since pulled back to more reasonable levels. Its market cap is now $108 million versus over $470 million just a few months ago.
MJNA is one of a very few companies that posted positive earnings this year.
In Q3, it generated $7.9 million in net income, compared with $834,627 in Q2 and $1.2 million in Q3 2012. EPS was less than $0.01 with a float of 947 million shares outstanding. At today’s prices, the company trades at about 9.7 times earnings.
With more product offerings and exposure to multiple industries, MJNA has better fundamentals than most of its competition to leverage the further legalization of marijuana.
GW Pharmaceuticals PLC (NASDAQ:GWPH) is a UK-based pharmaceutical company that is in the business of developing and commercializing cannabinoid medicines.
GW’s claim to fame is the creation of the drug Sativex, the world’s first plant-derived cannabinoid prescription medication used for the treatment of spasticity due to multiple sclerosis (MS).
At the present moment, Sativex is approved for sale in 22 countries, but not the US.
However, the drug will soon undergo Phase 3 clinical trials for treatment of cancer pain as well as spasticity with the US FDA.
Initial results from the trials expect to be finalized in the second half of 2014. Upon approval, Sativex could generate tens of millions in revenue for GWPH as multiple sclerosis affects nearly 500,000 people in the US.
Being a newly traded company on the NASDAQ (its IPO was completed on May 1), it largely avoided the green hysteria and subsequent hangover during the spring that pulled down many of its competitors.
As such, its stock has been enjoying a strong rally since announcing the approval for Sativex trials in the US back in August. (If you had a chance to read my previous article on how to profit from biotech stocks, you’ll know that the quieter period between trial phases and final FDA approval is an ideal time to jump in.)
Year to date, the Company generated revenues of $44 million, down from $54 million a year ago.
Net earnings for 2013 are in the red due to a jump in R&D spend and having a number of products currently undergoing trials.
That said, investors’ confidence in Sativex coming to the US market remains bullish and should keep the stock elevated as trial updates from its other drugs come in over the coming months.
But a word of caution…
We’re witnessing the birth of a brand new industry.
Of the numerous marijuana-related companies that are out there, I believe that investors should eschew the “hype” stocks and only focus on established companies with real assets and legitimate business plans.
In other words, don’t get caught up in the legalization frenzy and invest in the hot stock of the day because it will likely end badly.
Companies that have a track record and are committed to seeing their products move from concept to store shelves can at least be evaluated. With other companies, it’s just a guessing game.
When it comes to speculation, marijuana is as dicey as it gets… so choose your stocks wisely, or watch your money go up in smoke.