Medical Marijuana (MJNA.PK) has experienced extreme volatility last 10 days. It's been up as much as 65% in 1 day, and has been down as much as 30%. Volatility is nothing new for small caps, and especially new small caps such as the case with MJNA. However, looking at a chart of the stock you see a hockey stick. The volatility seemed to come all at once, with volume increasing on the issue.
Could this be day-traders speculating on it, driving it up then dumping it just the same?
A few stock research notes on MJNA
In 2009 the stock was above $0.50. The company is now in a much better position than it was in 2009. Most importantly, states have begun legalizing marijuana, which was not the case in 2009. Regarding the company itself, it has real revenue and large revenue growth, which it didn't have in 2009. While the recent run up was quick and sudden, it certainly is worth more than it was in 2009, from a value and potential growth perspective.
Recent pot news
In probably the most significant news story since states began legalizing, Federal lawmakers now looking at taxing pot in states where it's legal:
SEATTLE (AP) - An effort is building in Congress to change U.S. marijuana laws, including moves to legalize the industrial production of hemp and establish a hefty federal pot tax.
While passage this year could be a long-shot, lawmakers from both parties have been quietly working on several bills, the first of which Democratic Reps. Earl Blumenauer of Oregon and Jared Polis of Colorado plan to introduce Tuesday, Blumenauer told The Associated Press.
Polis' measure would regulate marijuana the way the federal government handles alcohol: In states that legalize pot, growers would have to obtain a federal permit. Oversight of marijuana would be removed from the Drug Enforcement Administration and given to the newly renamed Bureau of Alcohol, Tobacco, Marijuana and Firearms, and it would remain illegal to bring marijuana from a state where it's legal to one where it isn't.
The bill is based on a legalization measure previously pushed by former Reps. Barney Frank of Massachusetts and Ron Paul of Texas.
The medical marijuana shop next to a tattoo parlor on a busy street in Los Angeles looks much like hundreds of other pot dispensaries that dot the city.
Except for one thing: On the glass door - under a green cross signaling that cannabis can be bought there for medical purposes - is a sticker for the United Food and Commercial Workers union (UFCW), the nation's largest retail union.
The dispensary, the Venice Beach Care Center, is one of three medical marijuana dispensaries in Los Angeles that are staffed by dues-paying union members. Another 49 in the city plan to enter into labor agreements with the UFCW this year, the union says.
Together, the dispensaries are a symbol of the growing bond between the nascent medical marijuana industry and struggling labor unions.
The time headline reads "efforts surge in Congress"
Driven by a groundswell of public opinion, Colorado and Washington state last November became the first states in the U.S. to legalize the recreational use of marijuana. That wave of support, it now seems clear, has echoed through the U.S. Congress, which Tuesday formally questioned the federal government's prohibitionist drug policy in the form of marijuana reform bills.
Representatives Jared Polis, D-Colo., and Earl Blumenauer, D-Ore., introduced two separate bills that would drastically change U.S. marijuana laws by addressing what they say are the human and fiscal costs associated with marijuana-related arrests.
What is strange, all of this news which couldn't be better for the budding industry, is coming out at a time when the pot stocks are down. This should be the news that propels them to new highs.
Because of the press this topic has been getting, Medical Marijuana (MJNA.PK) likely got too much of the wrong attention: hype. This combined with the possibility that day-traders drove the price up, made it too hot to handle, and inevitably the price has crashed. But this should give long term investors comfort. It was not natural to see it move so quickly. When the same thing happened to Medbox (MDBX.PK) the CEO came out and said that the price was too high. This is unusual for an executive to say, because it is in his interest to make the stock price as high as possible.
Buy the dips
For those who have been following Medical Marijuana and the potential growth in the new Marijuana industry, but have been looking for a good time to get in, this would be it. Buying on dips is trading 101, novice investors always make the simple mistake of buying the high because the way the brain works, subconsciously we feel like we are missing out. We warned that it may be too high, this wasn't rocket science it was trading 101. Anything that moves up that quickly, goes 'parabolic' as they say, has a large chance to retreat (unless it was up for a reason, in this case, it wasn't).
The break above $0.20 and holding there, irrespective of the move to $0.50, has proven Medical Marijuana (MJNA) as a viable investment. Those who have been long for more than a few weeks when it was down to $0.12 have experienced a volatile ride up to $0.50 and settling back down to $0.30, now hovering around $0.27. From a technical perspective, it was good that it ran up establishing a short term high of $0.50; this implies that it's at least possible to get there again, even if it takes awhile.
Another important point, since the explosion of Medical Marijuana the other day when it was up 65%, it's now on the radar of more traders. It appeared as the biggest percent mover on stock screeners everywhere. Whether traders would trade it is another story, but they now know of its existence. Only recently it has earned the small title of small-cap, before it was considered a penny stock or micro-cap. This increases the probability of one of these traders or investors, now knowing of MJNA's existence, placing a long order which will support the price.
For those who are not long, this is a good time to get in. Remember: Don't buy the high! It's natural to see something going up and think it's going higher, but the nature of most markets doesn't work like that. So if you have been looking to invest in this new growth industry, Medical Marijuana is in our opinion the best company of the bunch, and now is a good time to get in since it has settled off its high.
To clarify, this is a long term play. The reason for the technical trading advice of 'buy on dips' is because within days of publishing our article recommending going long MJNA, it went up 30% and then 60%. Many investors didn't have a chance to get in. To be fair to those who missed it, we did another article reasoning that it might be too high. Even if something is designed as a long term strategy doesn't mean you should overpay by 50%! So the strategy here should be to buy when the price is depressed, and hold for the long term.
Disclosure: I am long MJNA.PK.