Cannabis Stocks Primer: 3 Stocks to Invest in and 3 Stocks to be Wary of

Approximately 219 million registered voters in November decided who the next president of the United States was going to be. Furthermore, the polling day was an important event to watch closely as residents in nine states would also be voting on whether to legalize marijuana, either for medical or recreational use.

Five states (California, Nevada, Maine, Massachusetts, and Arizona) voted on recreational marijuana use, while four states (Florida, North Dakota, Arkansas, and Montana) voted on medical marijuana use or amendment.

California, Massachusetts, Maine, and Nevada voted to legalize recreational marijuana use while all the four states voting for medical marijuana use passed their respective bills. This marked a major turning point for the industry as a whole since before the polls exactly half of all U.S states had legalized medical marijuana use.

Although both presidential candidates Hillary Clinton and Donald Trump opted to adopt a wait and see approach towards the legalization of recreational marijuana use, they had in the past expressed their openness to the idea of legalizing medical marijuana use on the federal level which the market had taken note of.

Marijuana Index United States (Source: Marijuana Index)

In the last two months alone, the Marijuana index has more than doubled on the backdrop of increased trading volumes. According to Dan Nicholls, Vice President of the Marijuana index, “The average volume was 8x higher in October than January through September of this year,” signaling the increasing investor appetite for cannabis stocks.

The increased optimism among investors towards cannabis stocks has been largely fueled by the fact that America’s attitude towards marijuana has radically changed. According to a recent Pew Research Centre survey, 57 percent of U.S adults believe that marijuana use should be legalized while another Gallup Poll indicated that 60 percent of U.S adults support the legalization of marijuana use.

With such overwhelming support for legalization of marijuana, a large section of investors believe that the marijuana measures will pass in most of the states and choosing the best cannabis stocks to invest in or avoid will be important for investors looking to get in on the action.

3 cannabis stocks to invest in

MassRoots (OTCMKTS: MSRT) operates a technology platform for the cannabis community in the United States with a mobile network that enables users to share cannabis content to connect with the legalization movement as well as an e-commerce platform that allows visitors to order MassRoots merchandise.

MSRT is one of the largest and most active technology platforms for cannabis consumers, activists and businesses with over 900,000 registered users. The company brands itself as ‘the social media for marijuana’ and since its app only registers users in permitted states, the recent legalizations will further fuel the company’s expansion.

CEO Isaac Dietrich estimates that the company can generate north of $1 million in annual revenue from medicinal operations alone but if plans to introduce mainstream advertising partners like Uber and Fusion to the platform bear fruit, the topline could receive a further boost.

Aphria (OTCMKTS: APHQF) has had an impressive run gaining 331. 4 percent year to date and currently trades at $3.9 per share. It currently has a market capitalization of about $434.4 million and reported revenue of $4.3 million for the first-quarter of 2017. It reported a 200 percent improvement in eps to $0.01 compared to the year ago period as well as an increase in cash and cash equivalents to $53.5 million.

Aphria is moderately leveraged with current liabilities standing at only $3.4 million which is much better compared to peers. This has allowed it to adopt an aggressive expansion strategy such as the acquisition of 200 acres and another 11 acres in August to increase its production capacity.

This company remains one of Canada’s lowest cost producers of medical marijuana and with the recent legalization of recreational marijuana use in some states in the U.S, it couldn’t be in a better position to take advantage of the opportunity.

Canopy Growth (OTCMKTS: TWMJF) produces and sells medical marijuana. It also sells dry cannabis and oil products through its online platform and was one of the top performing marijuana stocks of 2016. The company, through its subsidiary Tweed has the most recognized marijuana production brand in the world.

TWMJF saw its shares rally by 259 percent on a year to date basis and has lately been trading with a substantial increase in volume. For the six months ended Sep 30, the company booked $14.45 million in revenue compared to $10.14 million for the year ago period marking a 42.5 percent rise. For the most recent quarter, eps remained flat at $0.04 compared to the prior period.

At the current price of $7.7 per share, TWMJF is valued at roughly $900 million. Considering it hasn’t yet tapped into the American market, it would make sense for value investors to keep track of it.

Cannabis stocks to avoid

Novus Acquistion and Development (OTCMKTS: NDEV) is supposedly the first insurance carrier to offer coverage for medical cannabis which although is limited to selected states only, ensures that the company doesn’t handle the plant. The stock has gone from $0.05 to over $0.50 and now has a market cap of $40,201,502 in less than a month on the hype.

According to its Q32016 highlights, revenue increased 35 percent compared to the previous quarter while net profit rose by 54 percent. For FY2015, revenue came in at $82,101 and generated more than $30,000 in loses. Currently, the company appears highly overvalued and investors should remain on the sidelines from as they wait for a better entry point.

Medical Marijuana (OTC: MJNA) has 2,868,504,261 shares outstanding and trades at $.051 per share with a current market cap of $145,720,016. The company has a portfolio of products, services and technology focused on the cannabis and hemp industries. The Company reported $3,262,000 in revenue for the six months ended June 30, 2016 versus $5,799,614 in the year ago period.

MJNA recorded a loss of $15,101,800 this year and $6,530,724 last year. Losses were primarily the result of investment write-downs, financing, and litigation. MJNA has a heavily credentialed management and advisory team, but seems to lack focus by trying to dip its hand in too many aspects of the industry. MJNA likely needs to get a handle on its expenses before it can see valuation improvement.

CannaGrow Holdings (OTC: CGRW) has 102,073,434 shares outstanding trades at $.69 per share with a current market cap of $70,175,486. Its main business is to provide licensed growers with turnkey growing facilities in Colorado though it plans to expand into other areas. The Company reported only $20,000 in revenues for the six months ended June 30, 2016 and $16,760 for the prior year period – both insignificant numbers. The net losses were $193,880 and $174,252 respectively.

While the Company has just recently begun operations in the sector, the market cap appears steep considering the lack of operations. CGRW will need to show major sales increases in order to sustain its current valuation. Despite all this info the shares shot up from $0.64 to over $3 in less than a month as investors gobbled up any cannabis company they could get their hands on.

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The Wealthy Venture capitalist is a series of industry-focused Investment articles focused on showing everyday Investors new opportunities in rapidly growing, little-known stocks in 4 of the markets hottest sectors: Biotech, Technology, Medical and Recreational Marijuana, and Consumer products.

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