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.  

  • AlanBrochsteinCFA — I posted this as a PUBLIC article Posted 4 months ago
  • Blu_HorseShoe — Great read Alan Posted 4 months ago
  • AlanBrochsteinCFA — This is downright ridiculous: Regarding the CannaVest "offering": The money being raised from the sale of the restricted common stock will enable CannaVest to increase harvests and production, which will lower overall cost of hemp CBD. This in turn will enable MJNA and our subsidiaries to have higher margins and to lower the overall cost to the consumer, thereby increasing availability and affordability of hemp CBD. The Company supports this action and anticipates stable, long-term growth from this offering. As of this writing, CannaVest (OTC:CANV) stock remains at $25.50/share. Posted 4 months ago
  • AlanBrochsteinCFA — This was a total scam - the transaction was supposed to leave MJNA with a substantial ownership stake while reducing costs by $10mm: #Fail Posted 4 months ago
  • DW Events — Is Canv the one you referred to some time back as "trading by appoitment" or am I confusing that with another? Posted 4 months ago
  • Mr. Twister — Why was there a little bump on news? Not understood by the hopefuls me thinks. Posted 4 months ago
  • AlanBrochsteinCFA — DW, yes Posted 4 months ago
  • AlanBrochsteinCFA — Mr T, just to hear that the company could afford a press release! Posted 4 months ago
  • Mr. Twister — Ha! Posted 4 months ago
  • Joelvest — Mr T. it might be easy to forget you are now getting really fast, reliable info through this community. Others are behind the curve. This is one reason for the bump, the other.. MJNA is an emotional stock - it was the first one, the one with the most press, and the ticket. MJNA. Although the facts are there, it takes time to break it down and truly understand it. Many people cannot do it (myself included) hence why we're all here. Posted 4 months ago
  • Mr. Twister — Well put. Posted 4 months ago
  • Mr. Twister — I have been in and out. Made a couple. Sold at a loss last time. Happy to have sold at not as big of a loss given the info you mentioned earlier. pHOT has been my real winner thus far. Got in around .03 and have traded and accumulated. Holding a decent amount now. Had a $17k swing today, which was nice. Stressful, but holding probably would have made me the most money v/s trading. So even with the pullback from the highs today, I need to keep reminding myself of that. Posted 4 months ago
  • Mr. Twister — And that may be a lesson to all the immediate profit chasers, if I could time the market I'd be way way up. But I can't. Except in retrospect. Posted 4 months ago
  • paulbahi — ManJina is no good! Sell MJNA! Just got off work...see ya at chat AB! Posted 4 months ago
  • Jo B — lol.. ur a riot Paul Posted 4 months ago
  • Raven — Alan...if you're grandfathered into the introductory price (22/month), is that forever? Or just for a year? Posted 4 months ago
  • AlanBrochsteinCFA — Maven, I am assuming forever (whatever that is!). It wouldn't be for just a year. Posted 4 months ago

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Alan Brochstein

I have worked in the investment industry since 1986 and earned the CFA charter in 1997. I worked for Kidder, Peabody in bonds from 1986-1992 and then First Boston's investment management subsidiary from 1992-1994, both in NYC. I then joined Criterion Investment Management (later acquired by Nicholas Applegate and then West LB) as a portfolio manager helping to manage $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 left in 2006 and formed my own business, AB Analytical Services.

From 2007 until March, 2014, when I made the decision to devote my time exclusively to the cannabis sector, I worked as a research consultant to several investment advisors. Additionally, I offered a model portfolio service to individual investors from 2008 (www.InvestByModel.com), adding a private blog in 2011. In 2009, I began working with an independent research firm that focuses on evaluating the management teams of publicly-traded companies. In 2013, I came to the Marketfy platform and launched The Analytical Trader, with the goal of providing swing-trading ideas that would offer 4:1 reward-to-risk over a two-week time-frame. Later in the year, sensing an unmet need in the market for objective information on cannabis-related stocks, I launched 420 Investor as the go-to place to help investors capitalize on the "Green Rush". Finally, I have been one of the most successful bloggers at Seeking Alpha since early 2007. You can access my 600+ articles at http://seekingalpha.com/author/alan-brochstein/articles

I am very dedicated to the idea that people can manage their own money and get market-beating performance at a reasonable all-in cost, avoiding costly middlemen who tend to deliver mediocre performance, at best. My goal is to help you by providing ideas that are based on sound processes and decades of experience, letting you make the ultimate judgment regarding the commitment of capital. I enjoy interacting with subscribers and look forward to working with you.

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