Three Companies Capitalizing on Cannabis Right Now

Posted on Oct. 12, 2013, 5:27 p.m.
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One thing 2013 has taught cannabis investors is that not all pot stocks are the same.  At 420 Investor, one of our goals is to separate the proverbial flower from the stem as we identify the companies that have potential and get prepared for new entrants that show promise while avoiding those companies that will likely never succeed.  As we enter the final few months of the year and begin to think about 2014, there are two big trends that I think will be important, including the rollout of legalization in CO and WA as well as the rapidly growing awareness of the potential of cannabidiol (CBD).  As I look at the current universe that I am tracking, three names jump out as being the most leveraged to these trends.

First up is mCig (MCIG), which is about to launch its $10 vape-pen.  I think that the CEO has a great plan to build a brand, and I like his ethical approach.  Some of our subscribers expressed some reservations in our "Toking Tuesday" chat last week, but I think it's important to consider that the product will likely appeal to many first-time users or those who haven't smoked pot in decades but are returning now that it's legal.  Also, keep in mind that this is just a first-generation product, and MCIG is already working on a next-generation pen.  While there is always a risk that the product doesn't succeed, I think the timing of the launch is perfect, just as recreational cannabis becomes legal in two states.  I see MCIG as very likely to appeal to current smokers but especially to baby-boomers. To learn more about MCIG, I suggest that you review the interview I conducted with CEO Rosenberg earlier this month.

Next up is Medical Marijuana, Inc. (MJNA), which is the only company able to ship CBD to anyone in the U.S.  While I continue to harbor some concerns about the company and its affiliate, CannaVest (CANV), things are lining up for MJNA following Gupta's reversal in August.  For those not following closely, the company has corrected a big problem and is now forging ahead rapidly.  Previously, it was relying on its Red Dice Holdings joint venture with Dixie Elixirs, but it has created new products through CannaVest and its own marketing team (HempMedsPX).  The company is getting the word out and making sales (even to me!).  They just hired Cheryl Shuman as a spokesperson too.  While I don't expect Q3 results in November to be particularly strong, I am expecting real traction in Q4.  MJNA doesn't have a permanent advantage, in my view, but it has a huge head start over any potential competition, and I think that it will be capitalizing on this head-start in the coming months.  

Finally, GrowLife (PHOT), which just posted an updated investor presentation this week, should see a surge in business in 2014 and beyond.  I think that this is a "picks and shovels" play and that investors fail to appreciate that the company, through its online and bricks-and-mortar stores, sells a lot more than equipment.  The best way to think about PHOT in my view is that they benefit from the trends in both recreational and medical marijuana.  In case you missed our webinar with marijuana policy expert John Davis, who is on the Board of NCIA and CEO of the Northwest Patient Resource Center in Washington (which will be acquired by Diego Pellicer), 'The Imminent Collapse of Cannabis Prohibition', it's pretty clear that the marijuana industry will be highly fragmented for years to come.  This means lots of growers, which should be good for PHOT, which will benefit as production shifts from Canada, Mexico and Northern California. If Growlife is able to be dominant in the regions that are producing legal medicinal or recreational cannabis, then it likely stands to do very well. 

So, these are the companies which seem most leveraged right now to benefit from the trends I think are important and to capture investor interest.  I am not necessarily saying that one should blindly invest in these companies, as the entire sector is somewhat expensive and ahead of fundamentals due to such high demand for the stocks.  For my current view on these stocks from a near-term trading perspective, please refer to the video I emailed earlier today where I discuss these three stocks as well as GWPH and TRTC.

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About the Maven

Alan Brochstein

Before I became the leading “Cannabis Financial Analyst” in the marijuana industry, I spent numerous years on the inside of the investment industry as a portfolio manager.

Prior to earning my CFA charter in 1997, I worked in NYC for Kidder, Peabody, & Co. in bonds from 1986 to 1992. Later in 1992, I joined First Boston’s investment management subsidiary before becoming a portfolio manager with Criterion Investment Management in 1994 —co-managing $10 billion in fixed-income investments. In 2000, I made the move to stocks, joining a small firm in Houston as an analyst and portfolio manager. I remained at the firm until 2006, when I left to form my own business, AB Analytical Services—working as a research consultant for several investment advisors.

In 2008, I began offering a model portfolio service to individual investors (www.InvestByModel.com). And in 2009, I had the pleasure of working with an independent research firm that focused on evaluating the management teams of publicly-traded companies. I created The Analytical Trader in 2013—a service focused on providing swing trading ideas which offered a 4:1 reward/risk ratio over a two-week timeframe.

After seeing a strong need for more investor transparency among cannabis companies in early 2014, I launched the 420 Investor— a service committed to providing real-time, objective information about the top marijuana companies in the market.

In the process of launching the 420 Investor, I became a much-needed ally to marijuana investors, being hailed as one of the top “Cannabis Financial Analysts” in the industry.

My philosophy is simple: I believe that when people have access to ideas based on sound processes and backed by decades of experience, they can manage their own money and still have a market-beating performance. It’s my goal to provide exactly this type of know-how to investors everywhere.

If you’d like to learn more about my market views or experience, please check out my 600+ articles on Seeking Alpha. http://seekingalpha.com/author/alan-brochstein/articles.

You can also find me on LinkedIn at http://www.linkedin.com/pub/alan-brochstein/1/182/165