Source: Joel Elconin, Benzinga Staff Writer March 24, 2014
Last week Benzinga sat down with Alan Brochstein of the 420 Investor newsletter. He has been one of the first analysts to cover the sector in-depth and offered his valuable outlook on the budding industry.
Benzinga was interested in how long Brochstein had been approaching the industry from a technical and fundamental perspective. As it turns out, he has been covering the sector from both angles since February 2013.
It should be noted that Brochstein does not make any investments in the public market. He does this in order to remain objective on his coverage. His goal is to be unbiased in an attempt to disclose the information in a professional manner. By taking this approach, he puts his subscribers interest first.
With respect to technical analysis and charts, Brochstein believes the stocks in this sector are very much technically driven. He notices peaks and valleys in the stocks he covers, along with consolidation periods that are similar to what one would find in technical analysis textbooks.
“It’s a wild west right now. There’s not a lot of fundamental information; there’s a ton of money flowing into the market,” said Brochstein. “There are certain players that will all the sudden target stocks with low floats. That’s the market.”
In other words, his newsletter attempts to identify how and when the “big money” is moving in and out of issues in the sector.
With many of the issues being “penny stocks” with minimal Wall Street coverage, Brochstein was asked if the initiation of coverage by Bank of America on GW Pharmaceuticals (NASDAQ: GWPH [FREE Stock Trend Analysis]) signaled a change of heart by the Street.
“GWPH is truly a biotech, and just happens to also be a marijuana stock. In no way do I think that signals them covering other companies. With the exception of GWPH and Cara Therapeutics (NASDAQ: CARA), Wall Street’s not going to be covering these stocks for a while.”
Brochstein added, the “penny stock conundrum is an issue. It’s an opportunity for some people. There are some good public companies now. Back when we launched they had market caps of 30-40 million. Institutional investors couldn’t touch these ‘cause they were penny stocks. Because of federal laws, these companies couldn’t go to banks to get loans, they couldn’t IPO with Morgan Stanley, so you do have a chance if you spend time to find the better companies in the space.
“The valuations have gotten so high that it makes sense for companies to become public. They typically become public through reverse merger. But there’s a NASDAQ IPO that’s going to blow everyone away.” Brochstein could not comment further on what this particular IPO would be.
Brochstein estimated at the beginning of 2014 that there were about 75,000-100,000 people invested in marijuana stocks. He expects this number to quickly multiply — so much so, that he has created the Marketfy 420 Investor Cannabis Stock Index. “People are going to be able to see how these stocks have been performing in the last year; they’re up 8X, but nobody has seen that.”
Benzinga asked if the current fervor has created a bubble, perhaps with the public is entering into the sector as the bubble is about to burst. “We’re definitely not at the tail end, but they could be paying too much. Now were starting to see what are the guys buying today, buy it up, then jump to the next stock. We’re seeing rotation.”
With respect to his experiences calling tops in bubbles, Brochstein said “I was shorting in late 1998 early 1999. When you say are we in a bubble, I say the beginning of bubble. I’ve learned to be a little more patient. SEC has halted two stocks and it’s had no impact on the sector.”
This is the first of a two-part interview. Check back soon for part two.
For those interested in further analysis on this new and controversial sector, visit the homepage for the 420 Investor.