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We believe MedBox (OTCQB:MDBX) stock is currently riding on a lot of frothy hype. We also believe Medbox can potentially be shut down at any moment due to possible violations of Federal Drug Laws. In doing our research, we found a very large case history in states where marijuana has been made legal medically where growers, dispensaries and those who support them are brought down.

The CEO of Medbox, Dr. Bruce Bedrick runs a company in addition to Medbox called KindClinics which we also believe is subject to shutdown by the Federal Government to "create the most compassionate, safe, and legally compliant medical marijuana dispensary brand in the country."

We also see the odd accounting news on this company from last month:

While Q Accountancy Corporation's audit delivered an acceptable set of financial statements, management believes a firm more focused and supportive of emerging microcap public companies would be best suited for long term operations. Management believes it is in the best interest of the shareholders and the company, as a whole, to make this change, although it will delay the filing of its Form 10 to the latter part of April.

We also believe Medbox can potentially be charged as assisting in distributing marijuana since their product distributes marijuana, and because of white swan regulatory legal issues conflicting with federal law:

Until the federal government legalizes marijuana on a national scale, states where it's legal still won't be able to sell the chronic outside of medical dispensaries. In Colorado and Washington, it will no longer be a crime to possess the herb, thanks to the 2012 election results. Public vending machines are a long ways off, however. MedBox investors are that it's only a matter of time before its products will be needed.

DEA Agents are currently looking into the illegal usage of these machines.

"Somebody owns (NYSE:IT), it's on a property and somebody fills it," said DEA Special Agent Jose Martinez. "Once we find out where it's at, we'll look into it and see if they're violating laws."

The stock is traded OTC, for which this pro-cannabis website gave a warning:

We'd like to warn investors and that while the company has a $1 billion market capitalization, the shares outstanding for public trading known as the float, is very small. This stock is traded over the counter, it's incredibly volatile as is always the case, please do your homework before ever considering buying a stock and know how small the float is.

Our research led us to the following memo from a Federal US Attorney:

The Odgen Memorandum was never intended to shield such activities from federal enforcement action and prosecution, even where those activities purport to comply with state law. Persons who are in the business of cultivating. selling, or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law. Consistent with the resource constraints and the discretion you may exercise in your district, such persons are subject to federal enforcement action, including potential prosecution. State laws or local ordinances are not a defense to civil enforcement of federal law with respect to such conduct, including enforcement of the CSA. Those who engage in transactions involving the proceeds of such activity may also be in violation of federal money laundering statutes and other federal financing laws.

Further worrying for this type of small company are the words of the US Federal Drug Czar back in April:

"At the luncheon, Kerlikowske said that the U.S. Department of Justice will retain jurisdiction over the enforcement of existing federal statutes criminalizing the use of controlled substances, including marijuana. Any state laws to the contrary, he said, are of no legal effect.

No state, no executive can nullify a statute that has been passed by Congress," the director of the Office of National Drug Control Policy told the National Press Club audience.

Even major corporations like UPS have been caught up in these types of Federal Investigations and settlements:

United Parcel Service Inc. (NYSE:UPS) agreed to forfeit $40 million to settle a federal probe into shipments for illegal online pharmacies, admitting the company had information it was helping distribute controlled substances.UPS signed a non-prosecution agreement with the U.S. that requires it to set up a compliance program to prevent illegal Internet pharmacies from using its shipping services, according to a copy of the deal released today by the Justice Department. The accord, which requires cooperation with the Drug Enforcement Administration, will remain in effect for two years.

"Let's be clear," he continued, "law enforcement officers take an oath of office to uphold federal law and they are going to continue to pursue drug traffickers and drug dealers."

In conclusion, we believe this company has no concrete safety net from being shut down, regardless of what management will tell you. We believe Federal Agents under the current US Drug Laws from the DEA and other Law Enforcement agencies can shut this company down at almost any time. It is certainly not worth $500 million to own a piece of such a risky asset unless you are willing to lose it all for negligible gains.

Source: Why Medbox Is Drastically Overvalued And How Federal Drug Laws Will Prevent Any Potential Growth