Jammin Java: Hot Stock, Bitter Aftertaste?

| About: Jammin Java (JAMN)

By Janice Shell

It’s time to wake up and smell the coffee! That’s exactly what Jammin Java (OTCPK:JAMN), a heavily promoted coffee company, and – for very different reasons – we would like investors to do.

Since the beginning of the year, JAMN has miraculously risen from the ashes of the “Grey Market” graveyard to become one of the liveliest – and richest – stocks in the entire microcap arena. JAMN has seen its stock shoot straight toward heaven, soaring from 55 cents to peak above $6 a share on massive daily volume, with its market value now topping $355 million despite the company’s limited resources and operating history. (As covered in more detail below, two of the Internet tout sheets pushing JAMN the hardest effectively vanished -- disabled by their Internet servers -- on the day the stock’s trading volume exploded past 20 million shares.)

JAMN stands out for its powerful connections, the first loudly celebrated by the company and the second – involving a notorious stock promoter – carefully hidden from view.

For starters, as the company well knows, JAMN comes complete with a very seductive story. JAMN counts Rohan Marley – one of seven children fathered by iconic Jamaican musician Bob Marley – as both current chairman and original co-founder of the company. Thanks to Marley’s son, JAMN has found itself with an attention-grabbing asset.

Through a private firm known as Marley Coffee LLC, corporate filings show, Rohan Marley has granted JAMN an “exclusive, transferrable, worldwide license” to use the “Marley Coffee” name to market the expensive coffee it apparently began selling just a few months ago. JAMN imports its coffee beans from Africa and Central and South America (rather than Jamaica itself), the company said, and then roasts them here in North America before ultimately marketing the finished product – retailing for up to $72 (for a variety pack) before discounts -- with help from the beloved Marley name.

Since JAMN was still classified as a “shell” corporation when it filed its latest financial statements in December, reporting no revenue or cash in the bank at all, investors have been bidding up the stock based on mere faith – as opposed to actual evidence – that the company can drum up huge demand for its high-priced coffee. If the multiples assigned to industry powerhouse Starbucks (NASDAQ:SBUX) serve as any guide, investors are basically treating JAMN like a company that sells almost $150 million worth of coffee a year already and boasts healthy profit margins (approaching 10%) on those sales to boot.

At this point, in fact, JAMN actually looks more valuable on paper than the past “winner” that stock promoters like to tout when predicting just how successful the company could ultimately become. Through frequent and potentially expensive advertisements on Yahoo Finance (now gone), promoters have teased investors with sexy pitches about the “next Diedrich Coffee” -- which turns out to be none other than JAMN itself. Diedrich wound up bankrupt before recovering and selling itself to Green Mountain Coffee Roasters (NASDAQ:GMCR) for $300 million, records show, fetching a price that’s some $56.7 million lower than the market value assigned to JAMN despite its long-established presence in the coffee industry.

Even the powerful Marley name cannot fully explain the astounding market value enjoyed by this fledgling coffee company. As indicated above, JAMN can be linked to another – less illustrious – name as well.

Vancouver stock promoter Shane Whittle has been connected to the company for years. He served as a director of JAMN from August 2007 to May 2010, corporate filings show, while filling key executive posts -- including CEO, president, secretary and treasurer -- throughout much of that same time period. Whittle also doubles as CEO of a Canadian version of Marley Coffee, filings indicate, and ranks as a controlling player at U.S.-based Marley Coffee LLC – which provided JAMN with its most valuable asset (the Marley name).

Whittle also ranks as a major shareholder of JAMN itself. He owned almost 10 million shares of JAMN stock last fall, records indicate, before selling 2 million shares – at just 2 cents apiece – in October and giving another 4.89 million shares away. Whittle smartly held on to 2.49 million of his JAMN shares, however, which are now worth almost $13 million following an incredible four-month run.

Whittle originally caught our attention a year ago because of his apparent connection to Big Bear Mining (OTC:BGBR), a heavily promoted penny stock that flew above $1.50 but has long since crashed below 10 cents a share. Despite convincing evidence to the contrary, Whittle angrily denied any ties to BGBR in a May 2010 interview with us.

To longtime followers of overhyped penny stocks, JAMN looks like it has neared (or even reached) its tipping point as well. On a tear for the past month, interrupted by only a handful of down days along the way, JAMN finally started to take some meaningful hits late last week. The stock gyrated wildly on Thursday, swinging from an all-time high of $6.34 to an intraday low of $4.14 before closing above the midpoint of that wide spread. In that case, at least, JAMN still managed to trade above its previous closing price throughout the session and ultimately closed with a handsome 35% gain.

JAMN fared worse on Friday, however. Although the stock hit $6 once again that day, it soon reversed course and found itself closer to the $5 mark – actually down for a change – by the time that the closing bell rang.

To some, JAMN looks a lot like a movie that just hit the screens a month or two ago. If they’re right – with LEXG ranking as the original blockbuster and JAMN following as the popular sequel – then investors better like horror stories with bloody endings. Bluntly put, critics feel this hot little stock could soon deliver a wake-up call with the fire-power of coffee – even the smoothest of brews – at full boil.

Important Disclosure: Prior to the publication of this article, TheStreetSweeper (through its members) effected a “short sale” of 30,000 shares of the stock of JAMN, beginning on May 4, 2011, at an average price of $2.98 a share, with the intent of profiting from decreases in the price of the stock. TheStreetSweeper may choose to adjust the size of this investment – increasing, decreasing or covering its short position in the stock – and will fully disclose the details of those trades if and when they occur.