[rongillispei]

Ok, so the marijuana industry is quickly becoming not only a reality but a targeted industry rife for investment and possible small fortunes for those that get in early........or that's what a lot of these OTC companies would like you to believe......

I only recently expanded my research to include the US (with regards to production.....as they "technically" are breaking Federal law no matter what state law is)....and they have a "budding" industry that's creating some interesting investment opportunities in what's largely regarded, as the penny stock exchange (stock's listed on Over The Counter (OTC) exchanges) with it largely focused on the ancillary side of it....vapor companies, equipment suppliers, research etc.....

Now.....one has to also consider where they are listed, the fact that for the first time in history, The SEC (Oversight of traditional exchanges like NASDAQ and NYSE) has put together a team to specifically target the marijuana industry OTC markets.....and warnings that were issued months apart, but first in early 2013 then again over the summer months, that investors needed to be extra diligent when researching possible investments as due to it's historically "black" market only producers etc as it's a great way for criminals to perfect the "pump n dump"......all I'll say is HOLY F__K, what a shit show the US OTC as well as Canadian (although ours is only recently where the US is in year 2 more or less)!!!!

First, I'm a finance person by trade, business banker for years as well as now working as a business consultant specializing in business plans and / or finance proposals for new and existing customers.......

Anyway, as I stated above, it's only recently that I started to look into these listed co's largely because I'm working with a group trying to put together a successful application to be an LP in Canada for medicinal marijuana......and if anything, what's lacking is "hard" numbers to rely upon for forecasting etc.....so I thought maybe looking / researching these "successful" companies (only because I thought OTC market was at least somewhat regulated) would provide me with necessary knowledge that could be used in our planning.......what I discovered is just awful!!!!

The OTC in both the US and Canada with regards to companies listed in the industry, there is a alarmingly high number of NOTHING companies (no sales in some cases, all operating at losses)which somehow have market capitalization of 10's of millions of dollars (some in the 100's of millions) with absolutely NO FUNDAMENTAL financial data to justify a listing let alone million dollar valuations.....due to it being a black market product, the amount of financial data available is “grey” at best, ………I mean, just the medicinal market in Canada is estimated (and these are very conservative estimates) will be 10 times as large in 10 years, with a growth rate this year alone expected to surpass smart phones…..of about $2 Billion for the medicinal market alone…..I say conservative because, firstly, this isn’t taking into account the large number of people that will seek a medicinal approval so that they can buy their pot legally, but aren’t technically using it for medicinal purposes……so if one was even going to just use the domestic market over 10 years, 2) the export potential because of the high quality product the Canadian markets has already been producing and will continue and 3) making room for at minimum, the idea and current Liberal political platform to decriminalize “personal” amounts in Canada in the next 2 – 5 years….one can easily see how it’s a sure thing it will be its own industry in the not so distant future, with Billions in revenues and other intangible benefits…..so there is very much going to be opportunities to make large amounts of money, if invested in the right companies......

Where it is today, it's f'n crazy what they are able to get away with....two prime examples, because they are considered leaders are: 1) Medical Marijuana Inc (OTC US Symbol: MJNA and 2) Creative Edge Nutrition (OTC symbol in US is FITX and is 75% owner of CEN Biotech, a subsidiary setup up to apply for MMPR status here in Canada....and who by the way hasn't even broken ground on their facility that's going to have sales in excess of $5Billion by year 3 ....which is being quoted and re-quoted by the current CEO as sales figures, but with nothing to back it up....but it's not just that, you need not look any further to understand this gentleman's ......honesty or lack of, with respect to what he relays as "approval" from HC he's been stating to investors (conferences even) in US markets, not outright because then it's a straight up LIE, but instead leaving it to the persons understanding....


The infamous "ready to build" and "approval to track 1.3 million pounds" letters he's gotten from HC......I can tell you this, both of those letters mean squat......if he truly was at the cusp of approval and so sure due to his "close relationship with managers in charge of approving that he has at least weekly hour long conversations" telling him how it's just a waiting game, they're "ready to build" approval is his first piece of proof he likes to talk up.....why then has there been not one thing done on the site? what's happening that he hasn't started construction if things are that certain?



The second letter I refer to is not even in the ballpark of what he perceives and presents it as......in my opinion he's again straddling the line of an outright lie to the public, referring to the boilerplate letters that 100's of other "applying" LP's have received from Health Canada, saying they're system for tracking xx number of pounds is up to snuff....but somehow he's spun this letter to mean that he's been approved to produce up to 1.3 million pounds a year.....I mean c'mon, if you extrapolate from that a growth factor on a sq ft basis and combine all the producers already granted their license, were going to be producing at min currently 15 million pounds worst case..........where the hell is this all going to go??? On top of that, the parent listed on the US exchange has no real income, if one spends time reviewing the financial statements and with special attention paid to, the Notes to financial statements, buried in all the shit is some pretty crazy deals and accounting of revenues etc......because it trades on the OTC market, it also allows for a lot of "creative" accounting, as it's not overseen by a regulator like the SEC for NASDAQ and the NYSE, and is left up to the company even if they want to report to begin with ....


The second big example is from what I can gather, referred to as the BIGGIE as well as the most sound company....Medical Marijuana INC (OTC MJNA) this company had some decent revenue last year, resulting in some nice financials......IF you took them at face value instead of researching into, inter company transactions (between subsidiaries and parent), structure of debt (and who owns that debt) and again, this company has no real "revenue" to speak of outside of those transactions between inter related companies (which in the case of MJNA, was almost 100% of their 2013 reported income........it was the manner in which they were able to report it due to the lack of oversight, which makes it look like "sales" when in fact they sold a subsidiary for $35million to be paid in installments and in either cash or stock of the company that bought it......soooo, if you were to back out the ONE TIME revenue related to the installment paid, they had about $1Million (I'm being pretty nice to them even with that) in top line revenue..........Other problems, and personally I think there are a LOT....are..money being lent to owners, or in MJNA's case, companies owned by the same people running MJNA, lending money by way of out of state holding companies (owned 50 / 50 with one of the owners of MJNA) to the public companies and using the stock of MJNA as collateral to secure the $6million loaned to MJNA......anyway, this started to come out through the last year, which resulted in the CEO resigning (he has been charged / convicted / sued for a couple previous "scams) and replaced .....but somehow, the previous CEO was the signature on the most recent financials........it's all very convoluted, and it took me a number of hours to trace these transactions and locate related information, which was relegated to a possible column in a paper and was largely either ignored by investors, or as I think, due to the lack of "true financial news coverage" of these companies in turn resulted in a lot of very important points not being disseminated and in my humble opinion, resulting in eventual disastrous losses for the everyday investor, while these crooked and criminal owners / operators walk away not only clean criminally, but with large amounts of money!! Look at the recent article written about the first Marijuana Billionaire......FITX is the company, and what created this huge valuation??? Daily releases of "breaking" news related to transactions that have no financial bearing but sound good......to the point they are at now, of releasing "news updates" on previously released "breaking news"....ie The statement released via some of the more popular online boards and sites a few days back, reminding people they have the "ready to build" letter packaged nicely with a couple of pictures of machinery overturning earth!!!!!!!!!!!!!!!!!!!! NUTS....





MJNA and FITX both have a dizzying amount of notes..... unfortunately, if you're not of a financial mindset, things look to be going gangbusters, resulting in the huge swings of valuation..... but then eventually come back to down (usually because insiders are selling their stakes in the company because they know it's a scam, and can only go on for so long)......



The semi regulator of the US OTC, FINRA has already issued two separate warnings to potential investors in the marijuana industry, essentially saying to be extra diligent as there are a number of pump and dump opportunities for criminals / crooked people to take advantage of at the moment

This is all not to say that the market is all a smoke screen, actually quite the opposite, it's a verifiable and real industry that is going to grow exponentially in the next few years.....and is going to become a booming sector for both Canada and US.....but until there is mass coverage of the industry, these players who basically register a company and just release statements with no real substance are going to thrive.............

There is one online column that has tried to expose some of these schemes and is noticeably ramping up coverage of companies / industry news and recommendations is Alan Brochstein (by way of website seekingalpha.com) ....who both exposes some of the more "questionable" companies as well as also covering "real" companies....there is another anonymous contributor to the site "Infitialis", who shreds the shams......

All this to say, for now, yes, the industry is real and here to stay.....but if your considering investing in some of the OTC stocks, beware!! And do as much due diligence as is possible.....

[rongillispei]

This is the link to the article on MJNA, a must read for anyone considering investing in the industry

https://seekingalpha.com/article/1187...ical-marijuana

[rongillispei]

As per news release today: (no changes made below, simple cut and paste)

Sector Security

The Financial Industry Regulatory Authority (FINRA) website openly discourages investment in marijuana stocks, stating that “there is likely no opportunity” for investors, further stressing the minimal reporting standards of the OTC markets.

In contrast to FINRA’s grim outlook for the sector, the cannabis space has been incredibly bullish for traders.

Management is in the spotlight for companies in the marijuana space, because the decisions they make for their company can positively (over very negatively) impact the entire industry.

A way for ‘high-up’ management to improve transparency and investor confidence would be to self-report financial information and company details that exceed the minimum OTC requirements. This move could help distinguish legitimacy in the space, and discourage further SEC involvement. Managerial leadership is a crucial aspect to the cannabis-sectors’ longevity, so exceeding expectations could go a long way.

The OTC markets are notorious for hosting companies with no real business. Benzinga analyst Joel Elconin referred to the OTC market as the “Wild Wild West,” noting that the lax parameters of OTC policy creates an environment where “there are no rules.” Cannabis companies could set the bar on the new generation of penny-stocks, but to do so, they must start to take innovative measures regarding reporting standards.

The regulations for major markets such as NASDAQ provide an environment where investors can make confident trades in companies that provide transparent data. The OTC reporting requirements provide the opposite environment, where companies report the bare minimum.

The cannabis-sector is an exciting new opportunity for traders and long term investors, but if reporting standards are not improved, more companies will be halted, which will negatively impact the space.

The federal government is already skeptical of newly-legal marijuana businesses, so under-reporting will do nothing but bait the hook for a halt.

[HeadStash007]

Thanks for the heads up, keep the posts coming

[unregistered190]

I agree, one must do research and weigh risks vs rewards!

[Morcheeba*]

thx for posting the article


peace

[Picarus]

What are your thoughts on phot? they have brick and mortar retail locations as well as an online super store, so there are some assets held. After the SEC investigation and now a pending class action lawsuit the stock is as low as its been. I see them being like best buy in the 90's, they offer price matching and IMO are the best in the sector considering their local competition are growers who opened hydro supply stores. I like them but the 10Q's and quarterly reports still leave me scratching my head over the risk. Thoughts?

[rongillispei]

There might be very well upside potential, however the trick is how much? I like the strategy they've employed with multiple physical locations, but with this market being so new, it could very well be very risky depending on the model that'll work best in the next 5 years.

They have real revenue, whereas a lot don't, or if they do its highly suspect and if you spend time decrypting notes to FS, a lot of times the revenue being recognized is either one time gains or some other form....not true ongoing revenue streams.

I haven't done a lot of digging on these guys, what I've learned has mostly been gleaned by articles / analysis of others. But, I do believe these guys are playing around a bit with their revenues, they recognized UNREALIZED Gains on stock they were holding in MJNA. This is sketchy at best....but again, they do have real revenue and locations. I'm just not convinced that bricks and mortar locations are the best play. I mean, if one can order online and have it delivered, why not? What else could they do with the locations to generate incremental lines and revenue besides ? Dispensaries....

Also, there are questions I don't know the answer to

Such as how did they lose $21MM on $6mm in revenue? There isn't a explanation I could find fast

Another is the adjustment to net income of $14MM in the cash flow statement....do you know what either transaction is for / reason?

[nkxdnmxj773]

amazing article

[Picarus]

thanks for the reply, I bought in this week around .11. I agree with you on some ?'s regarding their financials, but I still see a lot of upside here. The current share price is right around where they were sitting when they first started before the outlandish speculation, so I think its 'safe' buy. Lets see what happens with the class action suit mid month. If it gets thrown out, which I assume it will, I think the price will take a nice little bump up. It'd be bad for a judge to set a precedent where investors can sue a company to recoop loses on a risky penny stock. The SEC investigation found no wrong doing that I am aware.