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I have my BS in Computer Science - Software Engineering with an emphasis in business. I apply specialized quantitative techniques when analyzing equities and alternative strategies. I also implement algorithmic machine learning techniques.
  • Growlife The Apple Of Marijuana Stocks? 0 comments
    Mar 24, 2014 8:45 AM | about stocks: PHOT

    Growlife Inc.(OTCQB:PHOT) recently appeared pitted against Apple in the fourth annual CNN Money March Stock Mania Bracket. Unfortunately Growlife wasn't able to pull off the win; however competing against one of the most successful companies in the world isn't easy, ask BlackBerry. Throughout the past few months Growlife has seen an exponential rise in its stock price, but for good reason. As with any penny stock this is a risky investment; however in the past few months some of this risk has been mitigated due to the recent change in US public opinion favoring the legalization of marijuana.

    It is important to note that the external conditions surrounding this stock are continuously changing and historically unknown; therefore I will base my analysis on what factual data we do have. Currently there are 20 states who sell medical marijuana legally, two of these have just legalized recreational use (Colorado, Washington State). There are several other states looking to legalize medical and/or recreational use in the next couple of years as well. This is going to be a continuing trend in the U.S. and around the world as many countries see the industries multi-billion dollar potential.

    The federal government and President Obama have also taken steps to relax regulations in states where marijuana is legal as Attorney General Eric Holder announced the federal government was going to make it easier for banks to transact with the industry. President Obama claimed it was "not very different from cigarettes" and "I don't think it's much different from alcohol"; however if any laws are lifted Congress will have to act. With public opinion changing and state after state balloting the legalization of marijuana Growlife has wasted no time positioning themselves in order to get the most exposure to this lucrative industry.

    Right now Growlife's fundamentals don't look like a fortune 500 company by any means; however the marijuana boom is still in its infancy. Another reason for this weakness is due to the fact they have been using all of their resources and liquidity to start programs such as the Growlife Infrastructure Funding and Technology program (GIFT). GIFT is and will continue to be a steady stream of cash flow as Growlife expands their market penetration. Each transaction is anywhere from $500 thousand to $5 million ranging anywhere from 2 to 5 years.

    Growlife has also just announced a joint venture with VAPE holding Inc. where they will research and develop patentable technology to create pharmaceutical grade extractions from cannabis. Partnerships and programs like this are why Growlife has set itself apart from its peers in the industry.

    California currently estimates the marijuana industry reaches close to $14 billion in revenues per fiscal year, which makes this California's most valuable cash crop according to the Huffington Post. In the New York Times the Governor of Colorado John Hickenlooper estimates Colorado's fiscal year sales could surpass $1 billion with $610 million coming directly from recreational sales. Top economists have predicted the U.S. marijuana industry to be worth somewhere around $100 billion dollars. As of now Colorado has collected over $2 million in taxes on $14 million in revenues since the new law went into effect.

    In addition to this highly untapped market space and vast opportunity there are several technical indicators signaling Growlife is in a prime position to keep trending upward.

    Let's start with the Relative Strength indicator (RSI) which measures if the stock is overbought or oversold. On a scale from 0 to 100 if the RSI is above 70 the stock is overbought and if it's below 30 it's oversold. In the past two days given the volatility it has stayed between these numbers somewhere around 50; however today it dipped below 30 throughout the day signaling the stock is oversold. This strong imbalance coupled with the positive trending peaks and troughs is a bullish indicator.

    (click to enlarge)Troughs are red and Peaks are blue

    As you can see after spiking up to .777 its all-time high it retreated into a trough, but then once again proceeded trending upwards. There is also a trend that can be seen in the volume of trading. The volume gradually decreases and increases however as you can see when the volume trends upwards so does the stock price. After the volume peaked a couple of days ago so did the price; however the past couple of days the volume has been trending downwards, which signals a possible uptick in volume in the next couple of days.

    There are plenty of risky penny stocks I wouldn't think twice about investing in; however with relaxed federal regulations and state legalization a great deal of risk has been mitigated. Is Growlife the next Apple of the marijuana industry? I don't know, but I do know that it's coming up with innovative programs and changing as laws are enacted. With the combination of improved earnings, increased market penetration, mitigated political risk, and strong technical indicators it seems as if the past couple days drop in price just created a great entry point for those looking for a superior marijuana play.

    Disclosure: I am long PHOT. 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.

    Stocks: PHOT
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