5 Canadian Marijuana Stocks With Recommended Entry Prices

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Includes: BLOZF, BNRDF, LXRP, MMJFF, OGI
by: Anthony Cataldo
Summary

I am providing some entry prices for 5 Canadian marijuana stocks previously examined.

There is no horrible rush on most of these, as August 2016, preceding the November 2016 ballot measures for “recreational” marijuana use, is the target date to be “holding.”.

There are more than 100 other U.S.-based marijuana stocks, not included or examined in this article, so there are many opportunities to participate in a positive sector move.

In all cases, you might consider “averaging down,” as opportunities present themselves, and this may involve selling on upside over-reactions and buying back later.

Some other, generic observations are included to assist you in trading these and other stocks.

The Most Important Event Dates to Focus On

Entry should occur and be established on or before August 2016, prior to the likely November 2016 ballot measures that should result in a significant expansion of the U.S. market for "recreational" marijuana. I am interested in favorable "positioning" prior to these early November 2016 ballot measures. Therefore, I have plenty of time to buy.

The Over-Riding Fundamental to Focus On

I want to buy at a price per share that is below that enjoyed by insiders and those able to buy at private placement prices. This reduces my risk. I like reducing my risk. If I cannot buy a stock at a favorable price, I will "walk away." There are other stocks and other opportunities. I will not "chase" the stock for a long-term buy-and-hold and want to avoid those securities with "toxic convertibles" or "death spiral" financing.

The 5 Canadian Stocks with Recommended Entry Prices

Below are the 5 Canadian marijuana firms, cross-listed on both Canadian and U.S. exchanges, from my earlier Seeking Alpha article "watch list":

Name

U.S. Symbol

Notes

Bedrocan Cannabis Corp.

(OTC:BNRDF)

< $0.60 Canadian

Cannabix Technologies, Inc.

(OTCPK:BLOZF)

Marijuana Breathalyzer

Lexaria Corp.

(OTCQB:LXRP)

Marijuana tea; market infancy?

Matica Enterprises, Inc.

(OTCPK:MQPXF)

Trading at private placement price

OrganiGram Holdings, Inc.

(OTCQB:OGRMF)

Favorable placement/borrowings

In this installment, I am using the OTCMarkets website to initiate research.

#1 - Bedrocan Cannabis Corporation (formerly POCML 2 Inc.)

Below is the 1 year chart from the OTCMarkets website:

This firm has an ugly chart with respect to price per share, but a positive working capital position. I would guess that most of the "bag holders" dumped, late last year, for tax loss selling purposes.

The financials are not quickly and easily accessed on the firm's website. I do not like this and it makes me mistrustful. They are publicly traded, accessing U.S. capital markets, and should take the time to make it effortless for investors to access this data. My time has economic value, and if they want me to invest in their firm, I want fast access to information.

Gross profits are running a bit over 35%. I would like to see a higher gross profit percentage, suggesting pricing power, perhaps on the order of 60% or more for this new or infant industry. Competition, as new firms enter the market, will drive this gross profit percentage down:

Cash flows generated from stock sales were completely consumed by investing activities, at a bit above $11 million each:

I am going to revise my entry price down. The lowest exercise price for more than 2.8 million options is $0.53 (Canadian). I will not hold the firm too terribly accountable for the reverse takeover warrants at $0.30 (Canadian), since that is what it took to get the deal done with an external party, but I am just too risk adverse to buy in at an entry price per share above the $0.53 (Canadian), or about 80% of that price per share in U.S. dollars.

My perception of the lack of transparency, low gross profits in an industry in its infancy, and the options at $0.53 (Canadian) lead me to consider entry at about $0.40 (US) or lower. I would prefer even lower.

#2 - Cannabix Technologies, Incorporated

Below is the 1 year chart from the OTCMarkets website:

The stock price has doubled in the past 5 trading days (see above).

This firm has a real product that may fill a real need - no hair or urine samples (see below). While there can be no assurance of success, I bought a few shares of this one, at a bit below $0.31 (US), just to keep it in my portfolio and on my radar screen.

The fundamental financial measures are not what I would prefer to see, but my first thought, when I saw this product, was the Taser (see below, long-term price-per-share chart for TASR). While it is a different product, they have a comparable, law enforcement market. In fact, if I was a Taser executive, I would consider some joint ventures or a buyout, since they already have distribution and contacts for the target market.

Again, the financials are not quickly and easily accessed on the firm's website. In this case, I like the product and idea so much that I might just be letting this get the best of me, and buy more of the stock, depending on how the price-per-share reacts to future news releases by the firm and just how much progress they make toward marketing the product.

The firm has plenty of working capital, zero revenues, and shares are flying out the door, but I like the patent-pending product. I am even willing to overlook the fact that they are a mining/exploration convert.

Options and warrants are, very recently, significantly in-the-money:

Given their positive working capital position, I would view any additional warrants or options, if in- or at-the-money when issued, very unfavorably, unless explained very clearly by management.

#3 - Lexaria Corporation

Below is the 1 year chart from the OTCMarkets website:

From a Form 4 filed on February 6, 2015:

The above suggests 725,000 shares that are at-the-money and more below:

Another convert from the oil business, this firm is looking for cash and I am more than concerned that I will not be able to participate in any increase in the stock price:

Having said that, the stock price-per-share increased, recently, and they have a strong working capital position. They have no revenues. I would nibble some shares, but only below $0.10 per share, since I find the ViPova tea product interesting:

#4 - Matica Enterprises, Incorporated

No 1 year chart from the OTCMarkets website.

I am awaiting private placement data to re-evaluate this one and decide what the appropriate entry price is.

#5 - OrganiGram Holdings, Incorporated

Below is the 1 year chart from the OTCMarkets website:

Another mining convert to marijuana, negative working capital position and no revenues, but I like the use of a "Big 4" auditor. I like the fact that this firm cancelled options at $0.30 (Canadian) and issued options at $0.85 (Canadian) strike price. Their financials are easily accessed on the firm's website, and this buys credibility with me - when a firm is this transparent. I would nibble some shares in this one at or below $0.50 per share (US).

Diversify and Place Your GTC Buy below the Bid - Some Generic Rules

Do not "bet the farm" on any one stock. Place your good till' cancelled (GTC) buy order well below the bid and be patient, waiting for the order to fill. You do not have to sit in front of your computer, all day long, waiting for the fill. If you miss one opportunity, don't worry, another will present itself.

Do Not Be Afraid to Lower your Cost per Share - Buy Low and Sell High

Instead of buying periodically, I recommend that you "buy low and sell high." If your entry price is a good one, sell half (retaining a core holding) on a price per share spike, wait, and buy it back, at a lower price, once the trading frenzy has subsided. I suppose this might be characterized as day-trading, but it is not. Most of these opportunities will present themselves outside of the T+3 trading day operational definition of day-trading.

Wall Street brokers, interviewed on CNBC and other financial news networks, like to recommend that you "dollar cost average" or invest periodically. This works to their advantage. They want a steady stream of new money. They also tell you that all day-traders lose money, and this is simply not correct. They simply prefer to "spin" these notions to reduce competition and generate fear among the investing public, driving more volume to their fund.

Effectively, financial analysts know nothing, post-Securities and Exchange Commission Regulation FD (Fair Disclosure). The academic research shows and has proven this. There are many of these types of studies, where I provide the abstract from this one:

Pre-SEC Reg FD, financial analysts appeared to be brilliant. They were, effectively, trading on insider information. Anyone can do this. You do not need a degree from an Ivy League University to trade, profitably, on insider information.

Post-SEC Reg FD, financial analysts failed to outperform the market. This is why you have observed tremendous growth in stock promotion newsletters and financial analysts charging fees for opinions. It is, also, the reason why Seeking Alpha has enjoyed success, where you can examine and track the historical performance of a contributor, and, IMHO, will achieve more favorable results. The playing field has, in fact, been leveled.

Permanent Impairment

Accountants match losses to the period in which permanent impairment in an asset occurs. For example, inventory, investments, fixed assets, and intangibles are assets subject to "permanent impairment" or write downs in book or carrying value. The same is true with a stock you buy. If some event occurs to permanently impair your investment in a stock, you must decide to (1) buy more, if the stock price has already declined below the impairment, (2) sell what you have, take the loss, and move on to another stock, or (3) hold and hope for a recovery.

Summary

The below are "my" price-per-share entry targets - yours may be different. My position on Cannabix is based on the product and not the fundamentals, though I am basing all entry prices on fundamentals, as determined by prices available to insiders and others.

Name

Updated Notes

Bedrocan Cannabis Corp.

Entry only at < $0.40 (US)

Cannabix Technologies, Inc.

Entry at < $0.31 (US); cautionary

Lexaria Corp.

Entry at < $0.10 (US); cautionary

Matica Enterprises, Inc.

Awaiting private placement prices

OrganiGram Holdings, Inc.

Entry at < $0.50 (US)

Disclosure: The author is long BLOZF. 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 microcap stocks. Please be aware of the risks associated with these stocks.