Source: Anthony Cataldo, December 25 2014
- I have selected 12 marijuana stocks to research, where 8 (~67%) of these 12 stocks are incorporated in the state of Nevada.
- Nevada has only 8% of the market in “the market for corporate law,” but provides a “safe haven” for fraudsters.
- These stocks might be good for a “day-trade,” but unless something very significant changes, they are not good for a long-term “buy and hold.”.
- Look at the event dates, how and why most of the 52-week highs were achieved.
- You can still make money trading these stocks, but, most likely, only if you are able to anticipate and “go along for the ride” on the next “pump and dump.”.
My first marijuana stock article on Seeking Alpha drew a bit of fire, but mostly from those associated with Nevada Corporations. This is the first of a series that I will putter with, over the next few months. There are just too many of these “wanna be” marijuana stocks to examine and review in a single SA article. It seems, really, that they are just falling out of the sky. I hope you find this first installment helpful. I am guessing that 4 more, in groups of 12, may be necessary in the months that follow. I will be looking at fundamentals, but also “the company they keep.”
Marijuana is the New “Next Big Thing”
Marijuana is the new “next big thing,” so expect some firms to go from, say, energy exploration or gold mining (two of the last “next big things”) into marijuana (e.g., Bayport International Holdings, Inc. (OTCPK:BAYP), a Nevada corporation). Bayport is not included in the 12 stock examined, but is a Nevada Corporation and “the poster child” for the “next big thing” pump and dump, followed by a reverse-split.
Investigating “Next Big Thing” Marijuana Stocks
Generally recommendations before buying any marijuana stocks follow:
First, check the state of incorporation. If incorporated in the state of Nevada, proceed cautiously. Note that the state of Nevada has a differentiated product, minimizing disclosure. Minimal disclosure is good for executives and officers, but bad for shareholders. It is the opposite of transparency. Nevada uses their differentiated corporate law to attract those interested in this feature of their corporate law and to generate premium tax revenues from corporate filing fees.
Delaware is the leader in “the market for corporate law,” at about 54% market share, and the tax revenues are so high that they do not need a sales tax and their property taxes are relatively low. Because I live in Southeastern Pennsylvania, I know about the 0% sales tax rate in Delaware and their enjoyment of the lower property taxes made possible by their leadership position in the area of corporate law and their collections of corporate filing fees.
Second, check the firm’s auditor, accountant and legal counsel and their other publicly-traded clients. We are known by the company we keep. This website works well for this research. Merely enter the ticker symbol and examine the “company profile” tab on the left. Click the link for the accountant/auditor and counsel. Look for stop signs, skull and cross bones insignia, and yield signs associated with their client lists. The more warning signs, the more likely that your target stock is engaging accountants and attorneys likely “making a market” in representing scoundrels. Some examples follow:
Finally, look at a variety of fundamental measures: (1) Look at the working capital position. If negative, why buy the stock? This represents a failure to maintain a “going concern” assumption. U.S. GAAP requires that these firms restate assets at net realizable value (a conservative approach). (2) Where are cash flows coming from? If negative cash flows from operations are being funded by positive cash flows through stock and debt sales, why are you