Pot Stocks Higher, But Is There Room To Grow?

| About: Medical Marijuana, (MJNA)
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Since the legalization of Marijuana for recreational and medicinal purposes in several states, the jury has been out if this is really a viable industry. In several articles we've posed that the possibility exists that Marijuana may be the next big growth sector. We built a pot portfolio and narrowed it down to 2 issues, Medical Marijuana (OTCPK:MJNA) and Medbox (MDBX.PK), the latter being the larger in terms of market cap.

Since the publication of that article until now, Medical Marijuana is up 41%, and Medbox is up 17%. For anyone who took the advice of the article, these have been successful trades.

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But the question is should we take the profit, or stay with it? We are in it for the long haul, and here's why.

On a technical basis, Medical Marijuana recently hit a high of .15 and retreated, but today is back up there. This is a good sign that it wasn't a fluke. Medbox had a similar situation but didn't completely recover to it's last week high. It could be because of the larger price per share, or simply that the market perceives Medical Marijuana has more room to grow, especially considering today's news announcement.

Record Profits for MJNA

Medical Marijuana, Inc. (OTC: MJNA), a leading cannabis and hemp industry innovator, today is pleased to pre-announce its fourth quarter earnings. The company earned net income of approximately $3.39 million on gross revenues of $5.10 million for the quarter ended December 31, 2012. This represents a gross revenue increase of over $2.0 million compared to the prior quarter ended Sept 30, 2012. When compared to the same quarter ended December 31, 2011 this represents revenue increase of $4.5 million and over 1,100 percent.

In what other sector can you see an earnings increase of over 1,100 percent. Of course when a company is starting from nothing in a new industry this can be expected; it would be nearly impossible for a large company to see such a result. But nonetheless, it is a great result.

Marijuana news indicate support growing

Support for the concept of legalization has continued to grow. Even in conservative Texas, lawmakers have proposed a bill just short of legalization.

Rep. Elliott Naishtat, D-Austin, has filed a bill that stops well short of legalizing marijuana, but still provides a medical excuse to avoid punishment.

Under his bill, a person arrested for marijuana could enter evidence that their doctor gave instructions that use of the drug could provide benefits for their illness.

It also provides protections for physicians who tell or write instructions to their patients that recommend marijuana use. Patients whose doctors make such statements could present that evidence and have their charges dismissed.

The Marijuana Policy Project is supporting the bill, while still calling it, "far from perfect."

"Patients would not be protected from arrest and would have no legal way to obtain marijuana. Still, it's a significant improvement over current Texas law," said Dan Riffle of the Marijuana Policy Project.

Hawaii lawmakers filed a more aggressive bill, making the substance legal to grow and possess up to a certain amount.

Hawaii House Speaker Joseph Souki (D-8) Friday introduced a bill to legalize the possession of marijuana by adults and create a system of taxed and regulated legal marijuana commerce. The measure, House Bill 150, would allow people 21 and over to possess up to an ounce and grow an as yet unspecified number of plants in a secure location.

The bill passed its first reading Friday, but has yet to be sent to a committee. The 2013 legislative session begins Tuesday.

"Regulating and taxing marijuana similarly to alcohol takes marijuana sales out of the hands of criminals and puts them behind the counter in legitimate businesses that will generate significant new revenue for Hawaii," said Mason Tvert, director of communications at the Marijuana Policy Project, which is working on passage of the bill. "Law enforcement resources should be focused on preventing and responding to serious crimes rather than enforcing antiquated marijuana prohibition laws."

In addition to allowing adult possession and cultivation, the bill would also authorize the state to license marijuana retail stores, cultivation facilities, product manufacturing facilities, and testing facilities. Public pot smoking, driving under the influence, and use by individuals under the age of 21 would remain illegal.

These states that are coming online so to speak, are new markets for companies like Medbox and Medical Marijuana which can only help future revenue. Also as more states join the party, there is less chance of a reversal in policy.

It is now legal in various forms in 18 states each having different rules and regulations. Sure there are challenges, as with anything new. Schools in Massachussetts are struggling with how to deal with the new law making Marijuana legal in the state.

Medical marijuana became a legal reality in Massachusetts on Jan. 1, 2013, but what that means for the state's school districts remains a murky question.

The Wayland School Committee's policy subcommittee, comprised of Barb Fletcher and Beth Butler, is beginning to consider the issue with an eye toward constructing new policy or modifying existing policy to address use of medical marijuana at Wayland's schools.

"The question is whether or not this medical marijuana falls under the category of medicine rather than illegal drugs," said Butler, a former judge, as she examined Wayland's existing policies about drugs, alcohol and tobacco use on campus. "Just because [the state] allowed it, it's still a federal law."

These issues and many others are being worked out, not always smoothly, but so far without major incident.

Other stocks

Medical Marijuana and Medbox have outperformed some of their brethren such as Cannabis Science Inc. (OTCPK:CBIS) and Hemp Inc. (OTCPK:HEMP). Although both CBIS and HEMP positive on the day, they are only up marginally compared with MJNA and MDBX.

Stay long or be long

So it looks like at least for the time being, these 2 were good choices so we are going to stay with it. Also this recent positive news has confirmed the validity of the original trade. If you do want to get into this trade, the price will likely settle down on both stocks for a chance to go long. For those with smaller portfolios, Medical Marijuana may be a better choice because of it's lower per share price.

The idea with this trade is for long term growth capitalization of a new industry, which will take years. That doesn't mean it can't be day traded, but then you run the risk of missing a big move like we had today in Medical Marijuana. Our recommendation is to stay long if you are in it, and if not, find a good entry point on a dip down.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.