The introduction to a video on the CNBC website titled Marijuana Inc. - Inside America's Pot Industry says that, "While it may not be traded on Wall Street any time soon, marijuana has become a booming cash crop."
That is a reference to companies involved in the growing medicinal marijuana business. Some of these are not small companies by any count; which tells us just how big the scope is in investing in legitimate albeit smaller such companies. As an example of a large company involved in medicinal marijuana, we have Medbox, Inc. (MDBX.PK), a $493 million company whose share trades at $35.50 and a 52-week high of $215.
Marijuana for Treatment of Medical Conditions
While there are counter arguments against the medicinal properties of marijuana, "but thousands of patients suffering from cancer, AIDS, and other diseases claim marijuana provides them relief from devastating symptoms such as intractable nausea, vomiting and chronic pain."
Dr. Jerome P. Kassirer, M.D. went a step ahead and wrote in an article in The New England Journal of Medicine that, "physicians who prohibit prescribing marijuana for seriously ill patients are misguided, heavy-handed, and inhumane."
It may or may not surprise some readers but it did come as a surprise to me that there are more than 2,000 medical marijuana dispensaries in different US states, with more than 1,300 in California alone. Medbox is one of those companies that have chosen to cash in on the growing acceptance of medical marijuana and the consequent increase in the number of dispensaries across the U.S.
Medbox is primarily engaged in providing a machine that dispenses medication to patients on biometric identification or fingerprint sample. Although not a marijuana stock in the strict sense of word, it is present in marijuana dispensaries where medical marijuana is sold and also offers consultancy and turnkey solutions to those interested in the business of dispensing so-called 'alternative medicine'. Recently, the company announced partnership with Bio-Tech Medical Software Inc. of Florida for creating a distribution system for prescription drugs and medical marijuana.
Having made my interest in marijuana clear and my search for smaller stocks in the sector, I might as well take you through a couple of such stocks in the sector, Medical Marijuana Inc. (OTCPK:MJNA), Cannabis Science Inc. (OTCPK:CBIS) and The X-Change Corporation (XCHC.PK).
According to analysts providing feed to Yahoo Finance, the sector is expected to grow at 23.80% next year and 17.57% in the long term (5 years). This is actually more than the growth rate the analysts expect for the S&P 500 (comparable figures: 12.70% and 8.82%).
The medicinal marijuana market per se has a huge potential as more states make marijuana accessible to their citizens. Of prime importance here is the progress of new laws in the U.S. capital, Washington, which is likely to bring the issue to the notice of the law makers in the country. The first center for cultivation of cannabis is to be set-up in the Northwest section and the first medical marijuana dispensary will be coming up a few blocks away from the Capitol Hill.
The focus of this article is penny stocks and medical marijuana. My primary purpose is to provide information. Keeping that in mind, I think that any discussion on these aspects must necessarily start with cautionary statements.
1. Penny Stocks
There is no doubt that many OTC group penny stocks have potential long term gains. However, just because a stock is available at a few cents should not be the only criterion for investing. A low price does not indicate low valuation. Investment should always be on fundamentals and/or solid basis for potential of growth. If you do not keep this in mind, you would be better off at the gambling tables.
It does not make much sense to discuss financials of penny stocks, including MJNA, CBIS and XCHC, as most of them have yet to report significant earnings. However, what does make sense is discussion on news relating to the company and growth potential.
2. Marijuana Laws
Investment in marijuana stocks is inherently different from other investments. Medicinal use is only one side of marijuana. The other half is illegal and recreational use. While there is a huge nation-wide demand for legal marijuana, the product is largely sold illegally. However, there is a perceptible shift towards a legitimate market and medicinal use of marijuana is gradually being accepted and becoming popular.
Medical Marijuana Inc.
Medical Marijuana is a publicly held company that operates in the cannabis and hemp market. Its portfolio of products includes patented and proprietary cannabinoid formulations, the whole plant as well as isolated extracts. The company's customers include pharmaceutical, nutraceutical, and cosmeceutical industries. The company also offers services for development of health and wellness products based on cannabinoids.
The company released its annual report for the year ended December 2012 showing a net income of $7.1 million on total revenue of $12.38 million - a staggering 60% (approximate) margin on revenues.
During the year, MJNA acquired 50% stake in CanChew Biotechnologies and also entered into a manufacturing partnership for production of its chewing gum. Medical Marijuana also acquired intellectual property of one of the most recognized brands in the medical marijuana industry, Dixie Elixirs.
The X-Change Corporation
X-Change Corp is patient based boutique company that provides nutraceuticals and cosmetics. Its niche is hemp extract-based Cosmeceutical and Nutraceutical solutions through its Phytiva brand product line. The company provides formulations based on cannabinoids, psychoactive substances found in cannabis, for treatment of critical as well as non-critical ailments.
There has been a flurry of press releases (PR) from X-Change Corp. this year in January and February. I have taken care to omit any forward looking statement in these PRs so as to avoid sounding biased.
On February 15, 2013, the company announced appointment of Gerald Bear for facilitating the February 13, 2013 agreement with the Maliseet Nation and setup and managing its legal cannabis growing facility as well as manufacturing and production facilities.
The agreement with Maliseet Nation is the first of its kind in North America for medical cannabis and hemp research, pre-clinical trials, and treatments. The Maliseet Nation is an Aboriginal Nation on the eastern border line of the U.S. and Canada. The term nation, in this context, refers to "people distinct from others". The special status of the Maliseet Nation, sovereign, as the company calls it, makes the venture legally compliant. It is a fact that the Maliseet Nation never gave up its sovereignty despite the alliance, the Wabanaki Confederacy. Investors desirous of seeking more information on this may check here.
Later, the company announced allocation of 500 to 1,000 acres of reserve land by the Maliseet Nation for the project in the agreement. The announcement also mentioned critical cost savings for the project under arrangements made with the Canadian government for no-cost provincial electricity and construction wood. On February 21, 2013 X-Change Corp's unveiled its plans of launching cannabinoid-based Phytiva products in Europe.
Cannabis Science Inc
Cannabis Science is engaged in the development, production and marketing of phytocannabinoid-based pharmaceutical products. The primary target of the company is on treatment of autism, blood pressure and side effects of cancer treatments. It has a license agreement with Apothecary Genetics Investments for production of branded formulations for the medical cannabis market in California and with Rockbrook, Inc. to license its proprietary medical cannabis products and delivery methods.
Cannabis Science is managed by Colorado University scientists that represent the foremost authorities on cannabis extracts and their potential applications in treatment of various medical conditions. To add to its team of scientists, the company announced the appointment of Harold C. Smith, Ph.D., Professor in Biochemistry, Biophysics and Oncology and a Member of the Center for RNA Biology at the University of Rochester, School of Dentistry and Medicine, to the Company's Scientific Advisory Board
CBIS sold its Phytiva brand to X-Change Corp for an undisclosed equity stake. Cannabis Science has nothing much to show on the earnings front and like XCHS, investor interest is primarily based on prospects of future growth.
As marijuana becomes more acceptable, there are chances that the U.S. government may think of taxing the sale of marijuana to address its debt problem. That would be great news for the marijuana stocks, investors and the Treasury Department as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.