We all know that the legal Cannabis markets are booming and becoming increasingly popular as marijuana gains social acceptance. I see all types of advertisements touting analyst’s picks for stocks that have doubled or tripled in a short period of time. But you need to be careful and treat these ads with a grain of salt because some of this analysis can be very misleading.
There can be statements that are technically true but very misleading and even deceitful. For example, if a stock goes from $.02 to $.04 then technically is has gone up by 100%. However, this is not the same as a stock going from say $2 to $4 or $20 to $40.
Consider the following. When someone buys or sells a stock ‘at market’, they will receive the best price that currently exists in the market. If they are selling they will get the highest price that anyone in the market is willing to pay and if they are buying they will get the lowest price that anyone is willing to sell at.
Suppose a stock is bid at $.02 and offered at $.04. This means that the most anyone will pay for the stock is $.02, and the lowest anyone will sell it for is $.04. Now say someone sells 100 shares at the market and hits the bid, so now the last trade is $.02. Now suppose one minute later someone else buys 100 shares at the market and they pay the offer price. Now the last trade is $.04, which is +100% from the prior trade. Now the stock has apparently doubled, but in reality is hasn’t moved! And if you paid .04 for your investment, you literally need to wait for the stock to double and the bid to become .04 just to break-even!
There are many opportunities for profitable long-term investments in the Legal Cannabis and Medicinal Marijuana Industries. There are now hundreds of publicly traded companies. The question is how do you know what is a 'real' company, verses a 'not real' company, and is it possible to actually profit by trading or investing in them?
Just remember that if it seems too good to be true then it probably is.
Here are five examples of seemingly legitimate companies whose stock prices would suggest otherwise. I’m not saying that you cant make money with them…I suppose it is possible. But it’s also possible space aliens will invade tomorrow and enslave us and ship us off to work in some dilithium crystal mines on the other side of the galaxy, but I wouldn’t bet on it…just like I wouldn't bet on these stocks.
The first one is Rocky Mountain High Brands…symbol RMHB. They are “a publicly-traded, lifestyle brand management company that markets “good for you” products to health-conscious consumers. (They) leverage consumer trends and marketing insights for emerging product categories to create meaningful brand experiences.” They seem to be a ‘real’ company. They have a nice website and people apparently actually work there.
But take a look at the stock. The closing price was .0096. That is less than one cent. On the chart below the highest price displayed on the X axis of the price scale is .019…just under two cents. If you aren't aware of the scale this chart can be very misleading. If it goes from .009 to .018 is that really a double? Is it the same as a stock going from $9 to $18 or $90 to $180? Absolutely not. Commissions, liquidity constraints, and transaction costs will keep this from happening. The stock is not trade-able.
This next gem is called Ubiquitech Software…symbol UBQU. The company considers itself a “multimedia, multi-faceted corporation focused on utilizing state of the art global internet marketing and traditional marketing to drive traffic to multibillion-dollar industries”. In addition, the company has interests and operations in the Hemp industry whereby it has developed multiple and proprietary CannazALL CBD oil products.
To illustrate some of the misunderstanding of these types of markets, check out this ridiculous analysis from insiderfinancial.com:
Ubiquitech Software Corp might as well have found a way to reinvigorate its ailing prospects having taken a significant hit. The company is in the process of changing its name and has also decided to forego its cryptocurrency ambitions all in the effort of focusing on the hemp business. HempLife Today is the proposed name change that the company believes reaffirm long-term ambitions and plans.
The restructuring drive appears to have caught investors’ attention given the increased trading activity around the stock in recent trading sessions. While the stock is still languishing at all-time lows having lost more than 80% in market value, a high turnover in traded shares could as well signal a change in the direction of trade.
The stock has started showing signs of bottoming out having spiked by more than 60% in recent trading sessions. After the recent spike higher, the stock faces immediate resistance at the $0.006 level on further movements on the upward.
A rally followed by a close above the critical resistance level should reaffirm the emerging uptrend, setting the stage for the stock to continue climbing high. Below the $0.006 resistance level, the stock remains susceptible to further declines given the underlying bear trend and the fact that short sellers are still in firm control.
You have got to be kidding me. Resistance at six-one thousandths of a share? Short sellers in control? Apparently whoever wrote this drivel doesn’t realize that in order to short a stock it needs to be marginable and penny stocks are not marginable - so there are no short sellers in this market. Again, this stock is not tradeable and this analysis is completely invalid.
This is GrowLife Inc…symbol PHOT. They say they are “a nationally recognized cultivation brand, providing world-class hydroponic equipment, lighting, nutrients, media, and other cultivation supplies to commercial and urban operations. With a complete selection of cultivation products combined with logistics and distribution services, GrowLife can help responsible cultivation operations efficiently control supply costs, manage build-out investments, track supply usage and streamline workflows.”
The last trade was at .0084. If it ‘rallies’ to .016 is it really a double??? On paper ‘yes’. In real life could you actually make this trade with a meaningful amount of money? No.
Next we have Agritek Holdings, Inc., symbol AGTK. They are “a fully integrated, active investor and operator in the legal cannabis sector. Specifically, Agritek Holdings provides strategic capital and functional expertise to accelerate the commercialization of its diversified portfolio of real estate holdings, licensing agreements, royalties and equity in acquisition operations.”
Notice the recent ‘rally’ The stock doubled in just a few days. It went from .0035 to .007! If you were to invest $10,000 and were actually able to buy it at .0035 you would have almost three million shares! Would it be possible to buy all three million shares at .0035? Extremely improbable and probably impossible.
And last but certainly not least we have GRCU…Green Cures & Botanical Distribution Inc. Green Cures & Botanical Distribution Inc. is revenue-generating company that wholesales and retails hemp-infused nutritional, botanical, sports, and body care products. The company is currently Web-based and focuses on online retailing. Green Cures & Botanical Distribution Inc., operates a diverse portfolio of products and services within the botanical and cannabis industry, as permitted by law. From concept to production and distribution, Green Cures & Botanical Distribution Inc., is continuously creating and introducing products that promote a healthy life style.
The stock closed at .0053. If you wanted to invest $20,000 in it and were actually able to buy it you would be long 3,800,000 shares. That is more than 30% of the average daily volume. It would not be possible to trade that many shares without affecting the price.
So…as we can see, there are a lot of companies in this sector that may appear profitable on paper, but in reality it is impossible to make a profit by trading them. You need to be careful and treat claims and analysis with a grain of salt. Just because a stock is trading at a particular price it doesn't mean that you can actually buy or sell it at that price. If a stock is bid $10 per share but there is only 100 shares at that bid, it means you can only sell 100 shares at that price. If you need to sell 1,000 shares then you will receive a price that is less than $10 for the remaining 900 shares.
But don’t let me scare you away. There are numerous opportunities in the Legal Cannabis, Medicinal Marijuana, and ancillary industries that are probably going to be very profitable. Here are some ‘real’ companies that some investors have actually made real money off of. My guess is that long-term, as this industry grows, these companies will continue to do well.
The first is an ETF…the Horizons Marijuana Life Sciences Index ETF…symbol HMLSF. It is a basket of Cannabis and Medicinal Marijuana equities. It is trading around $15.50. It is up over 50% in less than two months. Those are actually profits and not just paper profits.
Innovative Industrial Properties, Inc,. symbol IIPR, is a pioneering real estate investment trust for the medical-use cannabis industry. Founded in December 2016, it is the first publicly traded company on the New York Stock Exchange to provide real estate capital to the medical-use cannabis industry. The stock has more than doubled since August. It is a real company and those are real profits.
Cronos Group Inc., symbol CRON, is a geographically diversified and vertically integrated cannabis group that operates within Health Canada’s Access to Cannabis for Medical Purposes Regulations and distributes globally. The stock price has tripled in less than two months.
So to summarize, when you see these adds that claim miraculous returns be skeptical. If it seems too good to be true than it probably is. If you are considering making an investment in this industry, the following are some questions that you should ask yourself about a company or a stock before you get the checkbook out. You may save yourself a lot of money.
What is the price and volume of the stock? What is the market cap? Is it possible to actually take a meaningful position?
Do they have any earnings? Do the have financial statements? Is their an investor relations person and if so how long have they been there? If not are there plans to hire one?
Are there any institutional holders of the stock? Are legitimate brokers trading the stock? Are institutions buying the stock?
Do they have a nice up to date Website and LNKD page? Where are the offices located? Are they at someone's house or is it in an office complex? How many people work there? What are their ages and how much experience do they have? How old is it?
Are there legitimate research reports available? Is there sell-side coverage? Are there news releases from third party sources?