Marijuana Investments: Not Quite Yet

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Includes: ATTBF, CBDS, CNAB, NDEV, OGRMF
by: Dr. Harold Goldmeier

Summary

Not much changed in the past year for analysts hoping to be able to recommend sound investments in marijuana stocks. The watchwords remain: "not yet."

Service, management, and consulting companies to the marijuana industry are the hot companies, which is why they have little revenue and no profits. They're busy selling their stocks to investors.

Consulting, professional, and management fees are the primary expenses of these companies -- not inventory, R&D, distribution, and advertising.

The street buzz is legal marijuana sales are exploding. Yet stocks of publicly traded companies languish. I do not recommend any of them for investment…gambling is another story if that's your game.

In a previous Seeking Alpha article nine months ago, I argue that companies in the marijuana business be sectored; those involved in medical marijuana research and pharmaceutical product development, and others slogging in the recreational end of the business.

Marijuana sales through Colorado licensed dispensaries reach $34m in one month. That's one U.S. state, in one month, and not even the largest state with the youngest population. Concomitantly, the marijuana lobby is getting traction with voters, as resolutions on ballots across the country to legalize medical marijuana if not yet for recreational use. You might think opportunities abound.

Sounds like the time to invest. Here's what I found recently revisiting the hot stocks recently recommended by bloggers and analysts. None of the companies plants, grows, cultivates, distributes or sells marijuana. They offer B2B services, or sell consumer products.

Novus Acquisition & Development (OTCPK:NDEV) is a financial services company offering "health" insurance to people prescribed medical marijuana through its subsidiary of Novus Medical Group. In addition, the firms plan to offer education programs, R&D, compliance and business development consulting in the marijuana industry. The stock today sells for 29 cents per share down from fifty cents. There are no reported sales of products or services.

Abattis Bioceuticals Corp (OTCQB:ATTBF) is a biotech company with no serious sales revenues, but has money from investors. "Abattis is a specialty biotechnology company with capabilities through its wholly owned subsidiaries of cultivating, licensing and marketing proprietary ingredients, bio-similar compounds, patented equipment and consulting services to medicinal marijuana markets in North America."

The stock sells at fifteen cents per share from a high of $2.78 in early 2014. The company reports $14,760 in revenue, and a negative net income of nearly $1m. Six months ago, Abattis had $625k in cash, and $2m in term deposits and marketable securities. Common shareholders suffered a comprehensive loss of $860,643 for the period ending June 30, 2014, while accounting, legal, management and consulting fees exceeded a half-million dollars.

United Cannabis Corp (OTCQB:CNAB) is a management, staffing and consulting company wishing to enter the cannabis industry. The 52-weeks high was $11.45 per share and currently sells for seventy cents. Revenue is a bit over $100,000, but net profit margin is -673%.

Cannabis Sativa Inc (OTCQB:CBDS) produces "products of higher consciousness." The stock reached $18 per share at one point, and today sells for $7. In January 2015 CBDS announced plans "to build a comprehensive financial business model, develop and structure financial instruments to assist the company in capital raises…" for NASDAQ markets. CBDS plans to develop and license recopies for edibles, formulas and marijuana delivery systems including cosmetic products. Revenues are reportedly about $150,000 annually.

Start-up consulting firms will have to weather the blowback from the major legacy business management-consulting firms once they make a move. That will happen when Wall Street starts following the industry, and more states legalize marijuana. Invest now only if you can weather the roller coaster ride in stock price fluctuations, and it's money you will not need anytime in the near future. I think it best to wait until people laboring on the front line of the marijuana industry get large enough to take a company public is the best way to invest (aside from the few serious marijuana biotech companies).

One such company is Organigram Holdings, Inc. (OTCQB:OGRMF). OGRMF is a Canadian grower selling more than a dozen different strains of marijuana specifically for medical use. There is the appearance of legitimization, since OGRMF touts Canada's Ecocert certification. But this is an agency attesting OGRMF meets international standards ensuring the organic grow of their products. Ecocert does not comment on the effectiveness of the marijuana strains to treat various medical conditions. It can't, and no one can, because the strains of plants do not appear to have been subject to scientific rigor like blind studies of patients yielding clinical trial data, or articles submitted to professional journals.

The second event appearing to add gravitas to OGRMF is a 100% loan from Farm Credit Canada the company announced in December 2014. The $2.5m is being used to buy adjacent land and buildings "to keep pace with the higher than expected demand for product." Product by the way shipped directly to patients. It appears no doctor's prescription is required.

The stock slid from a 52-weeks high of $2.16 per share to about fifty cents. OGRMF does not make a profit reporting a loss of $202,000 for the year. It is too early in the life of this new company to know if management's business model will be sustainable. Their financials are available to the public on the company web site-transparency is always a good sign. Losses however are due to large consulting, professional and management fees. Where is the money going for growing, testing strains, quality assurance, packaging, advertising, etc.?

The marijuana market is fraught with danger for small investors with little money to lose. Selling stock seems to be the hardest work being done in the recreational marijuana sector. Nevertheless, like Dr. Seuss prescribed: "Don't give up. I believe in you all. A (company's) a (company) no matter how small."

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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