Marijuana Penny Stocks: Let the Buyer, ‘Beware’
Currently, 11 states and the District of Columbia have legalized the recreational use of marijuana, with 33 having legalized its use for medicinal purposes. In June, Illinois became the first state to OK the use of marijuana legislatively; last December, President Trump signed the bipartisan Farm Bill into law, legalizing hemp — a plant roughly identical to marijuana but void of THC, the compound that produces the “high” associated with the substance.
Last October, Canada legalized marijuana on the federal level, becoming the world’s first major industrialized country to do so.
This activity has lately fueled speculation on marijuana penny stocks, many of which have as much as tripled in value, as more states legalize marijuana and hemp.
Low prices and lack of liquidity, however, dog the penny stock market —- and those interested in marijuana trade are duly advised that these factors may affect the prudence behind the investor’s choice.
The U.S. Securities and Exchange Commission defines a penny stock as a security issued by a small company initially trading at $5 a share. Penny stocks are also called OTC stocks, as they are traded over the counter. They can also trade on securities exchanges and can include the securities of some private companies.
The FBI reports widespread fraud in the penny stock market, as the low stock price fuels promoter manipulation. Additionally, penny stocks have little liquidity, making it difficult for shareholders to cash out their shares.
The financial news magazine Money Morning, meanwhile, recommends a microcap stock whose risk factors pale against the high upside potential. It adds that the risk of investment in marijuana companies can actually spur long-term growth in the new industry, citing the craft beer market as an example.
The magazine recommends that investors look into the Colorado-based Cannabis One Holdings, Inc. (OTCMKTS: CAAOF), which develops, markets and packages marijuana-related products in Colorado, Washington State, and Nevada.
In April, the story said, Cannabis One acquired the assets of some other industry players in three transactions. The story said the activity means that Cannabis One now has a bigger product base from which to grow in the future. This is important, the story said, because the size of marijuana companies will become more important as cannabis becomes more widely used in the United States.
CAAOF shares currently trade for $1.49 a share, the article says, but doubling to $3.50 a share is a possibility.
The story reminds readers that marijuana isn’t legal in all states. It notes, however, that that scenario is changing quickly and adds that it expects the federal prohibition on marijuana will end soon, sending Cannabis One’s valuation higher.
The Balance, another financial news periodical, noted meanwhile that many local and state governments monitored Colorado closely in anticipation of civil disobedience when marijuana was legalized there in 2014. Since then, the magazine reported, Colorado’s crime rate has dropped, vandalism rates decreased and revenues from taxation and pot tourism increased. Colorado’s move apparently did not compromise the state’s social fabric, nor was marijuana acting as a so-called gateway drug.
Meanwhile, the magazine said, local jurisdictions in Washington State have tried to promote criminal justice by expunging marijuana-related convictions incurred prior to legalization in 2012 given the impact those convictions have on job and education opportunities for ethnic/racial minorities. Recently, Mayor Jenny Durban said, the City of Seattle filed a motion to remove pre-legislation misdemeanor possession convictions from criminal records. Removing hundreds of misdemeanor convictions dating back to 1997, she asserted, will help communities disproportionately impacted by the criminal justice system.
But the financial and sociopolitical trends aren’t necessarily uniform. Anaheim, Calif.-based GreenGro Technologies, The Balance says, has tripled its stocks in price over a period of weeks in its past but has since trended down, where it trades at just 2 cents per share as of early 2019.
The stocks increase, The Balance says, because of the underlying idea of legal marijuana. There is no hard-cash value involved; neither is there a reason for the increase in the price of the stocks.
GreenGro, the story says, is simply one more cannabis-related company sitting on a wave of poor financial results. In 2017, the company only brought in $1.5 million in total revenue, losing $8.2 million.
The good news and bad news seem to outweigh each other as regards penny stock shares related to marijuana. The idea of sweeping legislation on marijuana is admittedly a new one, and the marketplace will decide on its viability in due course. For now, investors may wish to adopt a wait-and-see attitude until activity in the marijuana trade becomes more routine.