MJNA: Why I Say Sell

Posted on Nov. 21, 2013, 5:21 p.m.
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I have followed Medical Marijuana, Inc. (MJNA) closely for 9 months.  It has been a story that has disgusted me as far as the lack of transparency and the poor corporate governance but also one that has offered hope, as the company seemed poised to capitalize on cannabis despite all these short-comings.  Specifically, the company is able to ship CBD-based products derived from hemp to any consumer in the U.S. or even beyond.

I shared my most recent update at Seeking Alpha in an article that examined several issues that arose  in the most recent quarterly filing.  I submitted that article on Saturday 11/16, a day after the company had sneaked in its quarterly filing a day late and after the market had closed.  I published with the caveat that the company hadn't yet released a press release.  Today, almost four full trading sessions later, the company did so, and you can access it here. The p.r. lacked substance, failing to address why board members left (to go back to agriculture???) or why the company had turned to outside financing when CannaBank was supposedly capable of funding the company.  Why did the company still not sell the 47mm shares allocated to fund research (and change the time-frame from three years to up to five years).

Rather than raise the points I have already addressed, I want to point to new issues that have arisen subsequently, all of which we have discussed at length on 420 Investor, the best place to learn about publicly-traded cannabis stocks.

  1. CannaVest actually has begun selling shares at $1 (1.2mm)
  2. The company didn't address most all of the issues I have discussed
  3. "Wellness Services" was mentioned as shut-down.  This is at odds with the OTC filing and also points to misrepresentations made in press releases last year
  4. A former employee of Dixie has gone public with not only quality issues but also will be unveiling financial wrong-doing as well from what I understand
  5. The company blatantly lied in its press release, confusing "sales" with "earnings" by stating that subsidiary "HempMedsPX posted net earnings of $248,859 in Q3, up from $6,448 in Q2."

I was optimistic that the company's improving sales momentum could drive the share price higher despite my concerns.  Our trading-oriented model portfolio, which we call "Flying High", had a long position with a cost basis of just under $0.14, but we exited immediately on 11/13 upon learning about the dilution at CannaVest.  I had been contemplating buying it back but was waiting for the press release, to see if they could somehow constructively address this mess.  The stock traded as low as $0.105 today before closing down just slightly at $0.113. 

What now?  I know how hard it can be to take a big loss, but I suspect that MJNA will trade below $0.05 in the near future.  The company's misrepresentations and poor financials have resulted in even its staunchest supporters exiting.  Many have hoped for "uplisting", but the fact that their financial statements are rife with errors suggests to me it won't happen, even in 2015 as I had hoped.  Further, I believe that the SEC, which the company discloses is "inquiring", will find plenty.  One big issue is that CannaBank, then known as HDDC, appears to have failed to convey assets that it promised in exchange for control of the company.

MJNA was the industry bellwether.  Now, all I can say is that at least it isn't Hemp, Inc. (HEMP), which has no real business beyond selling shares.  Fortunately, a new bellwether has emerged, GrowLife (PHOT), and I expect more names to enter the public market in the near future.  MJNA can't justify its current market cap of $110mm, and it lacks growth capital while not generating positive cash flow.  All of this suggests to me that those remaining folks who were tricked by the company's misrepresentations earlier this year will exit, booking their losses to reduce capital gains tax and/or seeking out companies with better transparency.

If you are interested in investing in cannabis-related stocks, I hope you will consider joining us at 420 Investor.  We get RAVE REVIEWS and the value is incredible.  We will be  raising the price effective 12/1 to $36 per month ($360 per year for annual subscription), but you can lock in the introductory price of $22 per month ($220 per year for annual subscription) until then.  If you aren't satisfied, you can get a full refund within 30 days of subscribing by simply canceling, with no questions asked.

If you would like to access all of my articles on MJNA published on SA, you can do so here.  If you would like to access my publicly-posted articles on the cannabis space, you can do so here.  

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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