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Perry Coleman
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Individual Investor with a MBA in Finance from Loyola University Maryland, and a Masters of Science in Computer Information Systems from The University of Phoenix in Arizona. Currently working in the defense industry. SA Required Disclosure: I am long MJNA.PK and write articles on behalf of... More
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  • MJ Market Watch: How Will You Invest

    Watching the marijuana industry develop is like watching the pimply faced teenagers of the computer age grow into the technology titans of today's information age. The potential of the products that they produced was not fully understood by the masses, but that did not deter the young entrepreneurs. The underlying theme for investors was "only if I had gotten in early enough, I would be rich". Now a new industry is blossoming and the revolution of the marijuana industry offers a new opportunity.

    With computers, both the industry and product were in there infancy. With marijuana, the product is mature but the industry is in its infancy. Now for clarity, the underground market is very mature, but the legal framework of business operations in the industry has a long way to go.

    Companies like Medical Marijuana, Inc. (OTCPK:MJNA) and GrowLife, Inc. (OTC:PHOT) are a little further along on the maturity scale but are still trying to determine the path of least resistance in cracking the code to rapid growth in the face of federal prohibition. MJNA looks to surround the industry with products and services while GrowLife looks more to specialization which focuses on hydroponics growth applications for both small and large scale operations.

    But some are looking toward the smaller or less business savvy entrepreneurs as catalysts of growth for the industry. Industry advocates and angel investors (affluent investors that provide start-up capital for businesses) are reaching out to provide both the education, and when deemed economically feasible, the capital to launch businesses.

    Medical Marijuana Business Daily will be offing an educational seminar and networking event in New York City [NYC] on June 11th to promote expansion of the cannabis industry on the east coast. Angel investors Troy Dayton, CEO of ArcView and Brendan Kennedy, CEO Privateer Holdings, Inc. will be on hand, as well as others, to offer guidance on securing investment dollars. ArcView is building an investor network of those looking to invest 50K or more, so if interested you should visit its website.

    But if you don't have or want to plunk down $50K, there are plenty of other stocks in the industry that may be a good fit for your investment portfolio.

    Medical Marijuana, Inc.

    In case you missed it, it was noted in that CNBC's Steve Grasso is long on Medical Marijuana, Inc.The following disclosure was posted on CNBC's website showing the Commentator and Financial Analyst beinglong MJNA.

    (click to enlarge)

    Grasso's position is a very good sign as his profession offers a degree of creditability to his investment decisions. It's difficult to find those in a public forum that are willing to "put their money where their mouth is" on a micro-cap. It's better to look to professionals for investment cues than more nefarious sources.

    The stock has been under some pressure because the recently released financial reports revealed that the company hasn't collected any revenue or profit from its subsidiary Red Dice Holdings, LLC. Red Dice owns the Dixie X Synergy Brand and the Dixie Elixirs brand whose product lines include those products that have THC in them.

    It's important to note that not collecting profit does not forgoentitlement. MJNA is clear to note in its financial statement, as shown below, that it has not received any revenue or profits "to date"which indicates that at some point that it will. This will most likely occur when federal laws catch up with state legalization initiatives.

    (click to enlarge)

    I like to think of this as a 401k accruing for the company and investors. If you touch it too early, you will incur a penalty, but when the time is right, distributions can be had. The company is trading around $0.15 per share. This would likely be much higher with visibility of this revenue stream. The company recently reported positive resultsin its research demonstrating that Cannabidiol [CBD] and other Phyto-cannabinoids stops cancer from metastasizing (spreading between organs). This should get the interest of Big Pharma!

    GrowLife, Inc.

    GrowLife, Inc. is one of the few fully reporting companies in the industry. As mentioned above, the company specializes in hydroponics and has no exposure to THC. The CEO, Sterling Scott was recently featured on MoneyTV where he discussed the company's earnings results. Look under "Company Updates Week 20" for Mr. Scott's interview. The company recently reported a 725% increase in quarterly revenue and is currently trading about $0.04 per share. I think this stock is extremely undervalued and revenue will continue to increase as legalization expands across the U.S.

    MJ Market Watch News Bites

    1. Tranzbyte Corporation (ERBB.PK) - Tranzbyte recently announced that it is acquiring YO! Debit Card Network. The company will be rolling out a "YO21!" card to provide patrons over 21 with a way to make purchases from its proprietary automated dispensaries. The stock is trading around $0.004 per share and was up 4.65% at the May 28ths close.
    2. Marijuana users may reduce the risk diabetes and increase the levels of high-density lipoprotein (the good cholesterol). More information can be found here on the subject. This could provide an unrealized source of revenue for companies such as Cannabis Science, Inc. (OTCQB:CBIS), MJNA and Medbox, Inc. (OTCQB:MDBX). The first two companies would benefit through product sales while Medbox would benefit through point-of-sale distribution of those that self-medicate to go beyond their doctors recommendations.
    3. Illinois will likely become the 20th medical marijuana state if Governor Pat Quinn signs recent legislation passed by the state senate. The governor has recently stated that he is "open-minded" regarding the issue. Illinois could soon be followed by Ohio. As more and more states legalize, the federal government will feel increased pressure to act.

    As you can see, there are lots of exciting things going on in the industry. There are a tremendous amount of opportunities, but there are also a lot of risks. The regulatory environment poses many obstacles and micro-caps are inherently risky. But remember, no risk, no reward.

    Disclosure: I am long OTCPK:MJNA, OTCQB:CBIS, OTC:PHOT.

    Tags: MJNA
    May 30 6:24 PM | Link | 2 Comments
  • Shifting The Tide For Marijuana Stocks – A Simple & Elegant Solution

    A very significant and encouraging event that would lead to the decriminalization of marijuana use that is otherwise compliant with state marijuana laws occurred Friday (12 Feb). Representative Dana Rohrabacher representing California's 48th Congressional District just introduced House Bill 1523 - Respect State Marijuana Laws Act of 2013. The Bill is simplistic in it approach, but would have a rapid and profound impact on the properly positioned marijuana businesses in this space. Some of the companies that could benefit are:

    The Business Impact

    The stocks mentioned above, as well as others, will have a significant barrier removed if the states are allowed to regulate marijuana without violating federal laws. They could immediately realize savings in taxes because they or their business partners would then be allowed to claim tax deductions for business operations. This is a big problem for the industry that can mean the difference between an entity being profitable or not. When suppliers can reduce their costs, they can pass that on to their customers. So, even companies with no direct exposure will benefit.

    Access to the Banking & Insurance Industry

    But, the biggest impact will come from being able to openly use the banking system. Many marijuana businesses that operate, especially at the retail level, are often forced to use cash for operations. From a safety standpoint alone, this could reduce operating cost by not having to operate and maintain extensive security profiles and infrastructure.

    Then, there would be access to loans and the services of investment banks. One of the biggest concerns for investors in the marijuana space is the number of a company's shares issued and outstanding. Many companies have had to use equity sales to finance growth or sustain operations. For the record, I feel that equity financing is a valid way to fuel grow and operations, especially when debt financing is not an option.

    Actually, equity financing might be superior to debt financing in some cases, in that you have to pay interest on debt. You pay for equity financing with reduced share prices because of dilution, but you can always buy back shares (with approval) to reduce the share counts. In contrast, interest for debt cannot be recovered. But the point is that businesses should have all options available.

    Marijuana businesses also need the protection afforded by insurance products. There is one company that I'm aware of that offers insurance for the industry, but with decriminalization, those services and costs would certainly become more favorable.

    Letting the States Decide

    The bill simply moves to amend the Controlled Substances Act regarding the "production, possession, distribution, dispensation, administration or delivery of marijuana" to not apply to those in compliance with state laws. That's it. In my opinion it works because it forces the states to be very explicit about what is, or what is not allowed. Or, they could just do nothing. This simple bill provides a framework that is manageable from day one, yet able to evolve to support state desires for changes in law at the individual states own pace. Now, here is the part you'll find hard to believe, but is also what makes the bill highly likely to pass; it's bipartisan.

    (click to enlarge)

    Being a bipartisan initiative, the Respect State Marijuana Laws Act of 2013 is likely to avoid the political agendas that have prevented budgets from being passed and the sequestration. Many politicians support marijuana initiative on one level or another. The bill is being introduced by following congressional leaders:

    • Rep. Dana Rohrabacher, Republican - California (mentioned above)
    • Rep. Justin Amash, Republican - Michigan
    • Rep. Don Young, Republican - Alaska
    • Rep. Earl Blumenauer, Democrat - Oregon
    • Rep. Steve Cohen, Democrat - Tennessee
    • Rep. Jared Polis, Democrat - Colorado

    Steve Fox who is the National Policy Director for the Marijuana Policy Project in Washington, DC is asking that supporters contact their member of Congress and urge them to co-sponsor the initiative. The tipping point for those who are in favor of removing the prohibition of marijuana has already been reached. A recent Pew poll showed that 60% of Americans feel "the federal government should not enforce federal laws prohibiting the use of marijuana in states where it is legal."

    These are truly exciting times and the changes that are unfolding could prove to be very lucrative with the right investment strategy. We know that the micro cap stocks that are in this space represent more risk than your typical issue. But they also offer the opportunity for significant reward. If House Bill 1523 passes in this legislative session, that reward could be realized sooner than you might think.

    Disclosure: I am long OTCPK:MJNA, OTC:PHOT, OTCQB:CBIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Apr 16 10:32 AM | Link | Comment!
  • GrowLife's Intent To Acquire Evergreen Garden Center Could Fuel Significant Growth

    My previous articles have primarily focused on Medical Marijuana, Inc (OTCPK:MJNA) because of its strong leadership, products & services diversification and strategic growth opportunities. But GrowLife, Inc (OTC:PHOT) has also been on my radar scope, and in light of its recent press release regarding its letter of intent (LOI) to acquire Rocky Mountain Hydroponics, LLC, Evergreen Garden Center, LLC and 58Hydro.com (Collectively known as "ECG"), it deserves a more detailed review.

    GrowLife, Inc.

    I had already deemed GrowLife a company that is worthy of investment. The company has one of the primary risk reduction properties that I look for in issues in this space which is diversification. For the record, my exception is Cannabis Science, Inc (OTCQB:CBIS) which I value because of its re-channeled focus on cannabinoid pharmacology. But, GrowLife is a fully reporting holding company with multiple operating businesses that manufactures and markets high-end horticultural equipment.

    The horticultural distinction from agriculture is important because while horticulture is focused on the science and technology of plant cultivation for human consumption, agriculture also includes the cultivation of animals and on a broader definition, farming. Okay, this is not a science lesson, so what's important is that there is a degree of specialization that creates a niche market.

    After I mentioned GrowLife in a previous article, I was contacted by its Investor Relations firm Integrity Medias President, Kurt Divich and asked if I would be interested in speaking with the CEO, Sterling Scott about the recent press release regarding the company's intent to purchase ECG.

    I took him up on the offer and in a brief phone conversation; I found Mr. Scott to be very focused on the evolution of the business. My initial growth thesis for the company was based on my expectation of increased sales by individuals for personal cultivation. I saw the market much the same as that for home brewers of beer with the potential for expansion as medicinal use gained acceptance across the US.

    Mr. Scott pointed out that retail consumers are only a portion of the market that the company serves. He explained that GrowLife is also marketing to large scale hydroponics growers. He offered that the measure in the industry is lights per operation and that the company was targeting 3000 to 5000 light operations. He also emphasized that the company had highly recognizable brands in the industry.

    I realized that my initial perspective needed to be broadened as I began to see the company as being more in line with models such as John Deere (NYSE:DE), who is a diversified equipment manufacturer with a strong brand. Now that I understood the company a little better, I wanted to look a little deeper at the growth potential of company.

    The company distributes over 3000 products which produced $1,450,745 in revenue for 2012 as reported in the company's 2012 10K Annual Report. This was punctuated with a 300% + Q4 revenue increase over the same period in 2012 as shown in its April 2nd, 2013press release GrowLife Report Record 300% + Increase in Q4 Revenues and Audited FY 2012 Financial Results.

    This press release was followed just two days later on April 4th, 2012 by the company's press release GrowLife Signs LOI to Acquire Hydroponics Store Chain Rocky Mountain Hydro, Evergreen Garden Centers and 58Hydro.com.

    I've outlined GrowLife's 2012 revenue in Chart 1 below. Revenue per quarter increased in the first three quarters with a slight decline for Q4, but as shown, still higher than Q3 and Q4.

    (click to enlarge)

    To illustrate where I see revenue going in 2013 and beyond, I also put together the 5 year projection shown in Table 1 below:

    (click to enlarge)

    The press release stated the deal with ECG would add over $4 million to the company's revenue. So I added the additional revenue to the 2012 revenue (with no other growth) to reach the $5.5M revenue number for 2013. I didn't add any additional growth to account for growing pains. I then took the 28% margin from the annual report and used it for the entire projection. Then to be very conservative, I put a declining growth percentage for each year out to 2017. I also reduced the conservative growth PE of 30 starting in 2015 to 15, ultimately putting it at 10 for 2016 and 2017.

    Now, just to put this into perspective, the 2014 price of $0.37 represents a 7 bagger and a 640% increase over the Apr 12th closing price of $0.05. The revenue numbers are also shown in Chart 2 below.

    (click to enlarge)

    Conclusion

    As you can see, GrowLife's acquisition could add some nice zeros to the bottom line moving forward. The company's market includes both retail and industrial growers. With legalization on the horizon, both markets could see significant growth. Of course, the purchase has not been completed as the company is still doing due diligence. Also, micro caps in general come with a lot more risk than more established issues. But remember, GrowLife is a fully reporting company, and a small investment now, could yield some significant returns in the future. And if the new legislation House Bill 1123 Respect State Marijuana Laws Act of 2013 gains traction and is ultimately adopted, demand for the company's products will skyrocket.

    Disclosure: I am long OTC:PHOT, OTCPK:MJNA, OTCQB:CBIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: CBIS, DE, MJNA, PHOT, long-ideas
    Apr 16 6:11 AM | Link | Comment!
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