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  • A Critical Look At MJNA Rumors And Accusations  2 comments
    Feb 19, 2013 3:34 PM | about stocks: MJNA

    Introduction

    There certainly seems to be a lot of commotion surrounding Medical Marijuana Inc as of late. Its stock chart resembles a roller coaster ride over the past couple months.

    (click to enlarge)

    In this article I provide a critical look at both the positive and negative rumors and accusations that have been responsible for the rises and falls in MJNA's share price.

    Why should you listen to me?

    I'm just your average independent investor so why should you listen to me, what makes me different? Well unlike most new speculative green rush investors MJNA has been on my radar since its inception. As you can see below from the snapshot of my Scottrade Account, I made a small investment in the company as far back as 3 years ago and have been closely monitoring it ever since.

    (click to enlarge)

    The Psychology that lead to the influx of investors and initial rise of the share price

    The prospect of federal government taking marijuana off the dangerous drugs list along with increased state legalization has created the so called "green rush," and it has been occurring for several years now. However, as I depicted above, MJNA has also been around for years, so why the sudden interest and growth in share price? There is no doubt in my mind that the recent legislative action to legalize the recreational use of marijuana in Colorado and Washington are the indirect cause. However, there is a much more comparable and direct cause for the sudden confidence and volatile share price increase in MJNA. This direct cause is the story of Medbox Inc., a cannabis related penny stock that is also traded on the pink sheets. This stock rose from a low of 0.03 cents to a high of over 200 dollars, nearly overnight. Couple this encouraging story with MJNA's alleged Q4 financials/future projections and investors will be rushing to get a piece of what they think may be the next MDBX.

    In fact, the story of Medbox has led to a great influx of investment in all cannabis stocks not just MJNA. But perhaps some investors did not know the story of Medbox (I sure didn't in 2010 when I originally invested in MJNA). These investors either have confidence in the longevity of the marijuana industry, or followed the masses due to all the hysteria over cannabis stocks without knowing exactly why but instead hanging on to the hope of quick profits from, what I like to call, "emerging industry hype."

    This is a table from a previous Seeking Alpha article on MJNA projections. However, one must be critical and note that this is assuming over 100% increase in growth year after year.

    (click to enlarge)

    The first drop

    We have already discussed the psychology behind its initial rise; now let us take a look at some of the news that has fueled the decreases in share price. I personally believe you can pinpoint the articles that have caused MJNA to fall. The stocks first descent from a high of 0.50 cents can most likely be attributed to the article entitled "Medical Marijuana, Inc. (PINK:MJNA) Brought to Dizzying Heights." (http://www.hotstocked.com/article/44602/medical-marijuana-inc-pink-MJNA-brought-to.html ). The article highlights how MJNAs rise has been driven by its Q4 financials and some other legislative action but clearly states there has been no "immediate major news release to catalyze the surge." It then goes on to remind the public that MJNA is a penny stock subject to high volatility and swings both upward and downward. The same day this article was released MJNA took its first major dip since its big ascent. You can observe the article and its date on the snapshot below.

    (click to enlarge)

    Prior to this article there had been no other news releases bringing doubt to the inflated share price of MJNA, which thus proves that this article is the sole reason for the first descent in share price.

    The specific paragraph that casted the doubt on MJNA:

    "Even considering MJNA's solid expected results for Q4, including upwards of $3.3 million in income and revenue exceeding $5 million, as well as their commendable plans for an extensive audit and possible uplisting, there have been no immediate major news releases to catalyze the surge. MJNA also remains a pink-sheet penny stock, even if it's one that generally shows better performance compared to its industry peers, and penny stocks are volatile - a concept implying movement in both directions."

    Two days after this article was published and MJNA's share price plummeted, an article entitled "Medical Marijuana Inc (PINK:MJNA) Down as Expected" was released by SB Wire. Who expected this drop? No article besides the formerly mentioned article published on Hot Stocked had ever made mention of a possible expected price drop. Of course, the intelligent investor could have put two and two together, like the Hot Stocked article did, and realized this inflated price wasn't propelled by the release of any recent news. However, at the same time, the inflated price could have been attributed to new green rush investors finding out about MJNA and wanting to get in on the action. One thing is for sure, the Hot Stocked article was a wakeup call for many investors, which can be observed by the price drop the same day the article was released.

    Still not convinced? Here is some solid proof that the Hot Stocked article was obviously going to cause a guaranteed temporary drop for MJNA. It allowed me to pick up MJNA at its absolute low on February 6th, knowing the stock would soon recover and the Hot Stocked article had only caused a temporary drop. Another snapshot of my Scottrade account is pictured below.

    (click to enlarge)

    Here is a snapshot of MJNA for Februrary 6th, 2013. I have highlighted google's average low of 0.269 cents, and above you can see that I picked it up on this date for .268 cents.

    (click to enlarge)

    More recent news, rumors and accusations

    Although I do not have the time to write and discuss all the rumors and accusations surrounding MJNA, I will do my best to discuss what I feel are the most relevant and critical to the stock's recent performance. Infitialis, a proclaimed research collective that exposes fraud and folly released a devastating article about MJNA. And while the article provides some very interesting insight about MJNA and its management, the article did in fact get some statements wrong about Michelle Sides, and I cannot help but question the author's true intent and proclamations. For one, this proclaimed research collective has no website and does not show up on any Google search. When taking a look at the company's profile on Seeking Alpha, you will see that this is a single research firm analyst, not a collective. In addition, the analyst discloses that they are shorting the stock, or in other words profiting by every decrease in the stock's value. Surely the author knew his/her article would cause a decrease in price. In his/her defense they could simply be trying to profit from a known decrease and at the same time be attempting to warn others of the fraud that is occurring. Infitialis's twitter account also makes outrages claims that MJNA used payroll money to bail their former CEO, Llamas, out of jail. One cannot help but wonder where this single analyst is acquiring such information. In addition, the analyst clearly states that MJNA is breaking the law amidst their operations. If this is true why haven't we seen any law suits spring forth from this on MJNA. To top it all off, the most notorious penny stock investor of our generation, Timothy Sykes, is now shorting MJNA. And while there are rumors circulating that Mr. Sykes was actually in contact with Infitialis before the article was released, in Sykes's defense, I will state that the most notorious penny stock investor of our generation need not be in contact with an analyst to predict MJNAs price drop. All he needed to do was wake up that morning and read Infitialis's article before deciding to short the stock.

    Infitialis also makes the claim that "Legitimate companies do not go public via OTC RTOs unless they have no other viable route to capital." This statement is absolutely true. However let us highlight the part: "unless they have no other viable route to capital." Well in MJNA's case they don't. If you take a few seconds to watch CBS 60 minutes episode on this topic you will observe after the 12 minute mark on the video clip (http://www.cbsnews.com/video/watch/?id=50133577n&tag=contentMain;cbsCarousel) that the federal government has restricted banks and financial institutions from doing any business with cannabis related companies. The video directly states: "The Justice Department has let it be known that if financial institutions do business with medical marijuana centers they could be at risk for criminal or civil prosecution under the controlled substances act or federal money laundering statutes." This means that MJNA does not have a viable route to capital or loans and must instead turn to the OTC market to raise the necessary funds to make the proper acquisitions and build itself as a holdings company.

    Infitialis also brings to our attention that the auditor of MJNA Q4 financials is not PCAOB certified and is thus not fit to audit a publicly traded company. This is very insightful and true. However, as Infitialis also mentions, stocks traded on the pink sheets in the OTC are not required to provide financial statements or have them audited. Yet MJNA has been releasing quarterly statements regardless, and this time even getting them audited in an effort to uplist. Unfortunately, the auditor might not be PCAOB certified but let's not discredit and strip a 25 year practicing CPA down to a mere fry cook. So what, he went to cooking school, maybe he likes to cook. My girlfriend is a computer programmer and she takes cooking classes, should I discredit her masters in computer science and product development based on the fact that she takes cooking classes? Here is a link to Anthony W. Imbimbo, CPA and Associates's website, have a look for yourself: awicpa.com .

    Infitialis also makes the statement that MJNA has no intrinsic value and is cooking the books. While MJNA may be cooking the books it's hard to believe they have cooked up more than 3 million dollars in profit. Assuming their Q4 financials are even half correct the company contains at least some sort of value. Also, if MJNA has illegally cooked the books where are the lawsuits that should be springing forth?

    In addition, Infitialis also brings to our attention that some of the management has had a criminal record. Many investors knew this before Infitialis's article was ever published. This may even be part of the reason Mr. Llamas decided to step down, in order to let a more respectable leader take the spotlight. However, investors must remember this is the marijuana business; do you really want managers who have never set foot in a head shop to buy a Dixie product in their life? Management must have some sort of inside look and experience their industry's environment. Of course that does not mean only criminals can be managers in the marijuana industry, but until now criminals have been the only ones involved in this industry. Need I remind you marijuana is still federally illegal on all levels?

    Conclusion

    When it all boils down at the end of the day, there is no telling the future of MJNA. This is largely due to the fact that one cannot make very accurate predictions on future legislative outcomes concerning marijuana in the USA, it is largely up to the politicians. We do not know what states will legalize it or whether or not this is all an experimental period for the marijuana industry, which may soon either collapse or thrive. Investors still have much to find out about MJNA as a company and its plans. Even if the marijuana industry does boom, there is no telling whether MJNA management will make the proper decisions. This is a challenge management faces at any company and especially in emerging industries, regardless of whether or not its management has criminal records. All in all, I personally believe the recent news and future news on MJNA should be taken into account but also read very critically, as there may be some exaggerations or ulterior motives behind all the press. After all, investors must still have some sort of confidence in MJNA since it did not hit rock bottom after the bad press.

    I currently have a minimal stake in MJNA. Right now there is no telling what is true and what is false. While there may be a very bright future for MJNA, the stock has depicted that it is very sensitive to press of any sort and is thus extremely risky. I will continue to be cautious until investors read news releases more critically and conduct their own research before allowing individuals news releases and blogs to directly contribute to same day price swings.

    Infitialis's profile (click to enlarge)

    Infitialis's twitter showing they got part of the story wrong about Michelle Sides

    (click to enlarge)

    Timothy Sykes boasting about his MJNA profits from his short position

    (click to enlarge)

    Disclosure: I am long OTCPK:MJNA.

    Themes: MJNA MDBX Stocks: MJNA
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Comments (2)
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  • k2junge
    , contributor
    Comments (112) | Send Message
     
    Nice article. I would add more definitely that there is nobody in the Management at MJNA with a criminal record.

     

    The former CEO has been "accused" of a crime. In my mind he is innocent until proven guilty, plus he is no longer with MJNA.
    21 Feb 2013, 04:49 AM Reply Like
  • Perry Coleman
    , contributor
    Comments (581) | Send Message
     
    Excellent, why didn't this get out.
    18 Apr 2013, 06:45 PM Reply Like
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