Even though it regularly turns people into that guy, marijuana is going to be legalized all across North America. It’s only a matter of time. Even American cops hardly bother with people who have a small amount of pot anymore. Recently, both Washington and Colorado made headlines for legalizing the drug for recreational use, joining almost 20 other states that have legalized it for medical use. This author has never tried it, mostly because he is a huge bummer at parties. No wonder I never get invited to any. Sad face 🙁
Clearly the trend is working against me, and soon I’ll be forced to dodge stoned people just as I’m currently forced to avoid drunk people. But hey, maybe if I invest in weed and actually make some money at it, then those stoned people won’t be as annoying. Plus, as the chip guy, you know they’re going to get the munchies.
When Sustainable PF picked MJNA (Medical Marijuana Inc.) for the stock picking contest last year, I sure did laugh at him. Well the joke’s on me, as the stock has risen approximately 500% in the last year, and has most likely lifted Simon to an easy victory. But how exactly is the business?
After some digging, I managed to find some financial statements. They currently have no auditor, and the company has almost 750M shares outstanding. The company has a market cap of $62M, with only a little over $8M in book value. The company made approximately $1.2M in the third quarter, which means the company trades at approximately 15 times annual earnings. Their earnings report is also clearly scanned, since the page appears crooked. It doesn’t exactly inspire confidence in me, but maybe it’s up your alley if you’re some sort of unwashed stoner.
Okay then, how about Medbox? (MDBX) They make a machine that lets people verify that they’re getting the drugs they’re supposed to, via fingerprint scan. Because hey, nobody wants dirtbag Jimmy to be able to waltz into the pharmacy and get Dad’s Oxycontin, right? It’s not a pure way to invest in weed, but maybe that’s a good thing.
The company makes money, enjoys 22% net margins, and has been featured in all sorts of major publications. It’s also up almost 3000% since it started trading in March. Oh, and it was a book value of $1.2M, but has a market cap of over $900M. Uh, no.
Next up is Cannabis Science, (CBIS) a company that is working on various medical solutions using weed. Because apparently marijuana is a wonder drug that should clearly be altered and refined to become better drugs. Alright, let’s look at the company.
It trades at a little over 5 cents per share, and does approximately 7.5M in daily volume. They are issuing shares like crazy, the number of shares outstanding has risen from 5.92M at the end of 2008 to 676.6M at the end of their most recent quarter. Oh, and they’ve never made money and they barely have any revenue. I’m pretty sure a lottery ticket is a better bet.
Okay, so the publicly traded marijuana companies kinda stink. Just how should you play this trend? Hell, maybe if you’re looking to invest in weed your best bet would be to just buy a bunch of it and resell it. Profit margins would be higher, assuming you don’t get caught.
No, here’s how I think you should do it. You should invest in big tobacco.
I don’t know if you’ve heard, but smoking is bad for you. Big tobacco companies are losing customers every year in North America, since most kids are smart enough not to start the habit in the first place. Fortunately for them, Asian markets have grown to bridge this gap. Apparently they didn’t get the memo about it killing you.
Big tobacco has the capital, the sales force, and the facilities to make this work. The government will want production centralized so they can easily track and tax the newly legal substance. They’ll come out with all sorts of different sku’s, meaning pot smokers can pick the specialized flavor they like, something that’ll be extremely difficult for their neighborhood dealer to replicate.
You know the folks over at Philip Morris and RJ Reynolds are patiently waiting, wanting to get into the business. It represents the first growth business they can get into in decades. It’s a perfect fit, it’s just a matter of when it’ll happen. The U.S. government is starting to soften their stance on marijuana, but it could still be a couple decades before the funky leaf becomes legal.
Or, you could just buy shares in Pepsico. You know those stoners are gonna want snacks, and I hear they make some good potato chips.