Oct 30, 2014
Investor Place - Three states and Washington, D.C. will vote on legalizing marijuana
We’re skeptical of most penny stocks here at InvestorPlace and have been especially hard on medical marijuana stocks. But as dodgy and dangerous as medical marijuana
stocks may be, we have to admit they’re about to offer a great opportunity for a trade.
medicalmarijuanastocks 5 Marijuana Stocks to Buy Because of the Midterm ElectionsKeep in mind that a trade is not the same thing as an investment. Medical marijuana stocks have no place in anyone’s portfolio for very long.
In addition to being penny stocks, which are essentially unregulated, too many of them look suspicious. And even if a medical marijuana stock isn’t a scam, that doesn’t mean it’s a real business.
But that doesn’t mean marijuana stocks can’t be good for a some fast and dirty profits in a trade.
The midterm elections on Nov. 4 set up a potentially huge trade in medical marijuana stocks. Three states and Washington, D.C., will vote on marijuana legalization. Odds are that at least one of the initiatives to legalize marijuana will succeed. As we’ve seen before, marijuana stocks like to rally on any news that bodes well for the industry. All it will take is for one state or DC to join the legalization parade to send marijuana stocks soaring.
Based on past volatility and some truly minuscule market caps that still offer liquidity, here are five marijuana stocks to buy ahead of the midterm elections.
Marijuana Stocks — Medical Marijuana (MJNA)
MedicalMarijuanaIncMJNA185 5 Marijuana Stocks to Buy Because of the Midterm ElectionsMedical Marijuana (MJNA) owns a handful of companies related to cannabis in some way, including CanChew, a cannabis gum, and PhytoSphere Systems, which is a cannabinoid supplier.
Sounds good, but MJNA has some black eyes. The biggest eye-opener is that a former president stepped down after a federal grand jury indicted him as part of an alleged $10 million mortgage fraud. Furthermore, MJNA has said it won’t consider selling cannabis until it’s legalized at the federal level.
For the record, I said MJNA was a marijuana stock to dump back in April. It’s off 45%.
However, with a market cap of less than $150 million and a stock chart that looks like an EKG — the stock jumped nearly 300% from December to January, but has lost almost all of those gains since — MJNA has the potential to go stratospheric on just a bit of demand for shares.
Marijuana Stocks — CannaVest (CANV)
CannaVest185 5 Marijuana Stocks to Buy Because of the Midterm ElectionsCannaVest (CANV) looks more suspicious than most marijuana stocks, and that’s really saying something. Forbes published a detailed and disturbing analysis of CannaVest that sure makes it look like a shell game.
Indeed, CANV barely has a business. Annual revenue came to $2.2 million in 2013. Take selling general and administrative expenses of $2.4 million, and the whole ball of yarn comes out to a net loss of $2.3 million.
Another knock against CANV is that its not even a marijuana stock. It sells health and wellness products made from hemp.
Be that as it may be, those issues don’t keep CANV from trading on marijuana-related news. A market cap of just $118 million and a roller coaster of a stock sets CANV up for a big pop on election results.
Marijuana Stocks — Cannabis Science (CBIS)
CannabisScienceCBIS185 5 Marijuana Stocks to Buy Because of the Midterm ElectionsCannabis Science (CBIS) is another marijuana stock that actually has nothing to do with marijuana. Heck, it doesn’t grow, sell or distribute medical marijuana, or even sell health and wellness products.
CBIS has a beta coefficient of 5.7. That means it can be thought of as a stock that is five times more volatile than the S&P 500. Volatility is a trader’s best friend, especially when the swings are big. CBIS sure fills that order. The stock’s 52-week high is 900% higher than its 52-week low, proving there’s a lot of room for the stock to swing.
Throw in a market cap just $67 million, and it doesn’t take much action to send CBIS rallying when there’s the impression of good news in the medical marijuana industry.
Marijuana Stocks — GrowLife (PHOT)
GrowLifePHOT185 5 Marijuana Stocks to Buy Because of the Midterm ElectionsGrowLife (PHOT) sells the gear needed to grow marijuana in your garage or garden. That may sound like a promising business, but PHOT sure is having a bad year.
The Securities and Exchange Commission suspended trading in PHOT stock last April because of “questions that have been raised about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in PHOT’s common stock.”
In English, the SEC was worried about securities fraud. That move by regulators smacked down PHOT and it hasn’t really recovered yet — but some good news from the elections could change all that.
PHOT is off 60% for the year-to-date, but it could snatch a bunch of that back if legalization gets the thumbs-up from another state or two next week. After all, it has a market cap of $52 million, which is microscopic. That’s low enough to make shares bounce around a lot, but not so low as to make it impossible to buy shares in a rally. Furthermore, PHOT is volatile. The 52-week high is 80 cents, and the 52-week low is a penny.
Marijuana Stocks — Hemp (HEMP)
Hemp185 5 Marijuana Stocks to Buy Because of the Midterm ElectionsHemp (HEMP) has a pretty attenuated relationship with medical marijuana. Heck, it doesn’t have anything to do with cannabis. Rather, it’s all about developing and selling products made from hemp, a close cousin of cannabis.
Now hemp itself really is a terrific material. It’s the strongest natural organic fiber ever discovered and can be used to make everything from medicine to food to building materials.
Despite not being a marijuana stock, HEMP still trades on marijuana news. And when it trades, it swings a lot, helped by a total market value of only $32 million. Have a look at the chart and you’ll see that HEMP has traded between a penny and 34 cents over the last year.
Ordinarily, any stock that’s up more than 100% in the past year looks stretched, but in this case it only spells the potential for more gains. HEMP does’t trade on fundamentals. That 100% gain speaks volumes about bullish sentiment. Throw in a positive development in the elections and HEMP should get a huge lift.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.