There are many stocks poised to pop as weed continues to be approved by legislations across the USA and we'd like to introduce a new series called "Weed Stock Spotlight" to help identify some potential breakout companies. Most of these companies will be smaller, publicly traded stocks so keep in mind the market caps and trade volume are usually going to be extremely small. This can mean that you have an increased reward if you get in early but it also holds the most risk so keep that in mind!
The best way to describe Medbox, Inc. (OTC:MDBX) to the common man is the "Redbox for medical weed." Simply slide your fingerprint onto the interface and pick-up your prescription of medical marijuana (or any other prescription drug for that matter!). Different pods for different strains and everything is computer managed. Of course, as we mentioned, this is not limited to medical marijuana but the legalization movement is definitely going to help this company flourish as the number of prescription medications will jump and today's youth grows more and more familiar and favorable with this type of distribution.
So what is so promising about this company from the balance sheet perspective? A couple of patents in the coffers help raise the barriers of entry substantially and help divert the focus away from the lower revenues of only $8 million since 2010. Obviously this is an investment opportunity in which most of the "reward" of the equation can't be found on the balance sheet so it's up to the investor to decide exactly how much that is worth. The main roadblock is that the consumer market has its hands tied in terms of whether or not they can use/buy this; therefore, they have limited revenue under current law.
The main question that you have to ask is whether or not this type of product is before its time or not? The pharmaceutical industry is full of red tape and I'm sure they will make sure they perform due diligence before they allow something like this product to take over the distribution channels and ultimately, transform them completely.
In terms of recent news, Medbox, Inc. has had a roller coaster of a ride due to a number of news reports released. As you can tell by the chart, the recent high was over $200 and it has plunged back down to ~$40 to date. The initial spike of over 3000% was based on the hype after recent progress in the legalization of medical and recreational marijuana and the company released an official statement trying to calm investors who seemingly were foaming at the mouth to grab a piece of the Medbox pie without really using any business economics. However, recently the executive board has curbed the fall from $200 with an announcement of having interest in acquiring companies inside and outside of marijuana-related industries.
What do we think specifically about the stock's purchase in the near-term? It's definitely on our radar and it's a little less volatile than competing stocks that are trading under $2.00-$3.00 within the industry but it still remains risky. Just as the stock positively surges on recent days, things can turn for the worse and an investor definitely doesn't want to be trapped with 100-200 shares of this at $60 a pop and not be able to get rid of them during a landslide if a negative story pops up that sends investors into a frenzy. Tread lightly and keep this one on the watch list.
We are waiting for a drop from its current levels back down to Earth before purchasing, despite the huge upside potential. We feel much more comfortable investing in stocks with more solid fundamentals on the balance sheet to justify such a large market cap (which has ballooned to over $600mn Wednesday morning!).