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Editor’s Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

As far as the overall marijuana industry is concerned, GrowLife Inc. (OTC:PHOT) is, at this time, most likely the unparallelled means of capitalizing upon the state-by-state relaxation of marijuana prohibition laws currently sweeping through the United States.

From the outset, I'd like to let readers know that I've been cautious about this industry's cast of dubious companies, overweight number of illicit characters and raft of fuzzy and sophomoric business models.

"[M]aking it in the legal pot industry today is as much about business acumen as it is about growing good weed," according to the Denver Post.

"You will find that the successful ones are professionals," Chris Walsh, editor of Medical Marijuana Business Daily, told the Post. "They'll wear a suit to a meeting. They understand their company's books and finances. ... These guys picked up pretty quickly that you've got to be professional in this."

So, after conducting due diligence on the matter of legislation, potential legal pitfalls, quality of market players needed to outwit the avalanche of present and anticipated competition, and management's ability to attract the largest of predators (big tobacco) to cash out big, PHOT stands out as the organization most likely to benefit the most for its stockholders from whatever politicians and the marketplace will allow it.

And with a marketplace estimated at between $45 billion and $110 billion, I'm confident that, as GrowLife matures into a market the size of the $93 billion US tobacco industry, investors could really clean up with a stock such as PHOT for, presumably, some years to come.

Here's why:

Strategic Opening Moves From Blue-Chip Management

The clues to my assessment about PHOT don't necessarily come from its financials or business plan to next year's profitability. Yhe industry is too new for that means of assessing unrealized value.

At the industry's "novelty" stage, strategies employed by the most sophisticated of management teams will not point the company in one direction with hopes of a favorable outcome, though some fine companies have done so quite skillfully.

Instead, from the announcement of the company's joint venture with CANX USA to launch the $40 million GIFT program - aimed at financing and acquiring new marijuana businesses which have been locked out of traditional financing means - it's clear that PHOT has embarked to diversified its portfolio of business opportunities to be well-positioned in one or more vertical enterprises.

"If you're interested in the cannabis market, we are the safe play," Kurt Divich, GrowLife's head of public relations, told Businessweek. "We're revenue-diversified. We're regulatory-compliant, because we don't actually touch the cannabis. So even in areas where legal uncertainties remain, GrowLife still can operate."

Given the complexities and legal issues surrounding the industry, the strategy of diversification through acquisition is a smart one, and comes right out of an Ivy League business school case study, implying that CEO Sterling Scott (business lawyer) knows what opening moves to make at this stage of the chess game, including hiring GrowLife's new president Marco Hegyi, a former Yahoo and Microsoft executive to execute the coming next steps.

PHOT operates in the retail equipment, medical marijuana and patented growing technologies spaces, positioning the company for further relaxation of restrictions throughout the industry, globally, in both the recreational and medicinal marijuana markets.

Retail Equipment and Supplies Business

PHOT's retail horticultural business involves no additional legislation to grow its top line, though relaxed regulations will only benefit the company.

Through its seven brick-and-mortar retail outlets and online retail stores Greners.com and 58Hydro.com, the company's revenue has soared 278% to $2.94 million for the nine-month period of fiscal 2013 compared with the comparable nine-month period last year.

One analyst suggests that as many as 30 to 40 stores are slated for opening in the next two to three years, with each store averaging $1 million per outlet. At a 20% gross margin, the company would most likely post an EBIDTA of approximately $7 million from just its brick-and-mortar stores.

Wholesale Medical Marijuana Facility - Canada

In the medical marijuana space, PHOT's 45% interest in Organic Growth International ("OGI") and its 25% interest in CEN Biotech gives PHOT exposure to CEN Biotech's medical marijuana production facility - a facility whose capacity of 1.3 million pounds could generate up to $11.25 million in revenue annually for PHOT.

In addition to the production of medical marijuana from OGI, PHOT will also receive 7.7% of all gross payments from licensing fees through OCI's 25% stake in CEN Biotech.

CEN Biotech now awaits approval from the Canadian government to produce and distribute cannabis for Canadian and International markets.

Investors should watch for developments with the CEN Biotech deal. For each $1 per ounce unit of revenue, 1.3 million pounds calculates to $20.8 million of revenue for CEN Biotech.

Approval by the Canadian government would put CEN Biotech in play (and possibly out of reach of CANX USA's budget), possibly attracting big tobacco to consider jumping into the industry with acquisitions as it becomes clear to all that the marijuana business is here to stay.

Under that scenario, OGI's value would markedly jump as a result of even a rumor of big tobacco's interest in the space.

Patented FDA-Approved Cannabis Production Technologies

OGI has entered into an agreement to purchase a 40% stake in RXNB, an investment company that holds pending patents in the field of tetrahydrocannabinol ("THC") research and development, as well as state-of-the-art systems in the production of medical marijuana.

RXNB's technologies focus primarily on compliance with Current Good Manufacturing Practices (cGMP) outlined by the US Food and Drug Administration (FDA) for the production of medical marijuana. FDA regulations mandate production facilities to identify the specious of plant, its strength, quality and purity in order that physicians can accurately prescribe specified dosages of THC to their patients.

Additionally, RXNB's technologies promise to shorten grow cycles to a remarkably-low 35 days to harvest, as well as protect plants from yield-lowering contaminants.

According to a PHOT news release, RXNB reported revenue of $27 million for the latest fiscal year, and has a book value of $110 million.

Conclusion

The possibilities available to investors of companies such as PHOT are as varied as they are potentially explosive, akin to the 3-D printing sector, nanotechnology or alternative energies.

Though the industry includes more than 25 listed "marijuana" companies, the combination of PHOT's superior management, relatively low market value, emphasis on strategic positioning, diversified assets, credibility in reporting, and remarkable liquidity for a company of its size, ranks the PHOT high on my list of an investment stake in the marijuana industry.

The potential for a radically higher premium to the stock will come from the removal of Wall Street's trepidation to commit capital to the industry, for sure.

But as more US states drop the long-standing prohibition of cannabis for both medical and recreational use, and in addition to Washington's assistance with removing banking restrictions to state-sanctioned marijuana companies, industry leaders such as PHOT will attract the faint-of-heart retail and institutional investors into the stock, with the latter possibly coming to the conclusion that I have come to regarding PHOT - that it's an excellent bet for making a hefty return on capital.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PHOT over 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.

Source: Growlife: Why There's No Stock Like It