Seeking Alpha
Long/short equity, deep value, special situations, arbitrage
Profile| Send Message|
( followers)  

Summary

  • We believe that with limited cash and no other assets, VAPE Holdings Inc. isn’t likely to generate any significant revenue in the near future.
  • The Securities and Exchange Commission has halted four marijuana stocks this year, and VAPE could be next.
  • We believe VAPE should be trading at less than $1 per share, which is where the stock was trading before all the marijuana hype began.
  • Other extremely overvalued marijuana stocks which we feel warrant future articles include MYHI, ZDPY, MDCN, CBDS and SXLP.

[Editors' Note: This article has been updated from its original publication to correct a material miscalculation of shares outstanding and market capitalization.]

Introduction

Shares of VAPE Holdings Inc. (OTCQB:VAPE) have risen from less than $1 per share to a high of $41.25 after the one-time social-network company changed its business operations to pursue opportunities in the marijuana and vaporizer sectors. FINRA has warned investors about potential stock scams associated with marijuana-related stocks, and the SEC has halted four marijuana stocks this year. Therefore, we believe investors should sell VAPE before it's too late. 3D Analytics has completed a thorough review of VAPE and determined that the stock still is significantly overvalued. We hereby assign a SELL rating on the stock with a price target of $1, which is down more than 90 percent from current levels.

History

On Jan. 7, 2014, PeopleString Corp. (OTCQB:PLPE) announced a 1:40 reverse stock split, name change and symbol change to VAPE Holdings Inc. . PLPE developed technology, applications and tools for social-network marketers, then conveniently changed its business to a holding company operating in the legal cannabis-concentrate industry after marijuana became legal in Colorado and Washington.

No revenues, only dreams

On VAPE's website, the company says it intends to pursue opportunities in vaporizers, concentrates, e-cigarettes and acquisitions. We believe that with limited cash and no other assets, the company isn't likely to generate any significant revenue in the near future. Any funding for operations will be found by diluting shareholders.

(click to enlarge)

Valuation

On Feb. 28, 2014, VAPE entered an asset-purchase agreement to acquire right, title and interest to HIVE Ceramics’ vaporization product in exchange for 500,000 shares of Series A Preferred Stock $250,000 in capital. The deal was approved on Mar. 24, 2014. For the quarter ending Dec. 31, 2013, VAPE filed a 10Q which showed 6,555,627 shares outstanding and $19,706 in cash, with no other assets or revenues. After the HIVE Ceramics deal, VAPE’s shares outstanding will increase to a whopping 11,555,627 after the 2 years anniversary in a no event situation. This gives VAPE an outrageous market cap of around $190 million. We believe that with limited cash, no other assets and the uncertainty that the company will generate any significant revenue in the near future, the stock should be trading at less than $1 per share.

(click to enlarge)

The above table was generated by finding all OTC marijuana stocks with market caps of more than $50 million. Although we believe all the above stocks are overvalued, the ones which are extremely overvalued and warrant future articles include Mountain High Acquisitions (OTCQB:MYHI), mCig (OTCQB:MCIG), Zone Properties (OTCPK:ZDPY), Medican Enterprises (OTCQB:MDCN), Cannabis Sativa (OTCQB:CBDS) and Signature Exploration and Production Corp. (SXLP).

SEC halts within the OTC marijuana sector

The SEC has halted four marijuana stocks this year, and we foresee more halts coming as the newly created SEC microcap task force "opens about a half-dozen investigations each month into schemes suspected of bilking mom-and-pop investors." An abnormal number of penny stocks have conveniently changed their business operations to accommodate entry into the marijuana industry, and VAPE is no different. We believe insiders are doing this for the purpose of selling shares to the naive investor chasing the next hot marijuana stock. Here is some information on the four stocks the SEC has halted and how they compare to VAPE:

  1. On Oct. 22, 2013, the Promap Corp. announced a name change to Advanced Cannabis Solutions Inc. (OTC:CANN). The company also changed its business operations to provide sophisticated services and solutions to the regulated-cannabis industry throughout the U.S. by leasing growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. VAPE is similar in that it changed its business operations to accommodate entry into the marijuana industry. On Mar. 27, 2014, the SEC halted CANN's stock, making it the largest marijuana stock to be halted.
  2. On Feb. 19, 2014, Petrotech Oil and Gas (OTC:PTOG) issued a press release stating that the company had set up a subsidiary company in Colorado and Washington. That subsidiary will serve as the foundation for the company's entry into the emerging U.S. market for medical and recently legalized recreational marijuana. On Mar. 13, 2014, PTOG and a large Seattle real-estate group signed an LOI (letter of intent) to close on a joint venture for the purpose of opening a series of state-of-the-art, "green-friendly" cannabis retail outlets in the downtown-Seattle area. On Mar. 14, 2014, the SEC halted PTOG's stock. VAPE is similar to PTOG in that it changed its business operations to accommodate entry into the marijuana industry. On Mar, 17, 2014, VAPE and GrowLIfe Inc. (OTC:PHOT) issued an LOI to form a joint venture for the purpose of funding research and development of patentable technology to create pharmaceutical-grade extractions from cannabis. Mr. Kyle Tracey, VAPE's current CEO, is a co-founder and former president of PHOT, a fact that makes the LOI seem suspect.
  3. On Feb. 26, 2014, Aventura Equities Inc. (OTC:AVNE) issued a press release stating that the company was aggressively changing its direction to participate in the marijuana sector, signing a definitive agreement to acquire all the outstanding stock of Aventura Laboratories Inc. from iEquity, Corp. as part of a share-exchange agreement. Aventura Laboratories Inc. holds cannabis-related intellectual-property and licensing rights to a number of products currently sold by third parties on the California medical-marijuana market. On Mar. 5, 2014, the SEC halted AVNE's stock. VAPE is similar to AVNE in that it changed its business operations to accommodate entry into the marijuana industry, acquiring HIVE Ceramics' vaporization product through a share-exchange agreement.
  4. On Mar. 4, 2014, Citadel EFT Inc. (OTC:CDFT) issued a press release stating that the company was exploring the possibility of providing a comprehensive processing solution for the legal-marijuana industry. On Mar. 21, 2014, the SEC halted the stock. VAPE is similar to CDFT in that it changed its business operations to accommodate entry into the marijuana industry.

Conclusion

Given VAPE's outrageous market cap, limited cash, zero revenues and recent SEC halts of other stocks, investors are likely to be burned and should sell VAPE before it's too late. We hereby assign a SELL rating on the stock, with a price target of $1.

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.

Source: VAPE Holdings: $190-Million Market Cap With No Revenues; Likely To Drop 90%; $1 Price Target