Not surprisingly, the roster of publicly-traded North American companies whose businesses include at least an element related to medical or recreational cannabis has risen dramatically over the past couple of years.
Many of these companies are far too small, and in some cases have business plans that are too indefinite or otherwise hard to hang one’s hat on, to justify investment by most retail investors. As a result, I’d recommend against investing in the industry’s bit players in this “hot” new investment sector. Of course, cannabis isn’t new, but its rapidly-changing legal status and sustainable market growth leave no one in doubt that the industry is “hot” from an investment viewpoint.
At this point, I’d recommend you limit your own investment in the cannabis industry to companies that have confirmable business plans and communicate well with the investment community through regular press releases and informative regulatory filings.
One example of this class of company is Vancouver, Canada-based Aurora Cannabis Inc. (OTC: ACBFF, $0.37, Market Cap: $46 million), which announced on November 30,2015 it had received a license to distribute medical cannabis nationwide with patient deliveries to beginning back in December 2015. The company’s indoor cannabis growing and processing facility in Alberta province is expected by management to produce nearly 200,000 ounces of medical marijuana annually, making the company one of the largest growers in North America. To date, the company has had no revenue, but that will change as soon as patient deliveries commence.
Scottsdale, Arizona-based Praetorian Property (formerly Cannabis-RX) (OTC: CANA, $0.28, Market Cap: $43 million) is in the property business. In 2014 the company, which has a history of changing its core business fairly regularly, decided to offer property development and management services for cannabis companies. To date, it does not appear the company has operated profitably, so there is certainly a risk that what the company is offering is not what its target market is looking for. Nevertheless, the company had plenty of cash on hand at the end of June and their specialization in cannabis-related real estate services might be a profitable niche in the long run. (Note: The company was not able to file its required quarterly filing with the SEC on time for the September quarter. I’d suggest waiting until this report is made public before investing in these shares, if you decide you otherwise like what you see.)
Denver, Colorado-based MassRoots, Inc. (OTC: MSRT, $1.06, Market Cap: $49 million) is clearly a rising star in the world of cannabis companies. The number of registered users of the company’s social network for medical marijuana users reflects strong and sustained growth last year and there is no reason to expect that growth to slow down in 2016. MassRoots still needs to figure out a way to “monetize” that large and growing user base; reported revenue for the nine months ended September 30 were only $64,000. More importantly, the company reported a $4.2 million operating loss for the same period, about half of which was due to payroll costs and other management and large shareholder compensation. It appears the company has been saving cash by paying for services with its own shares, which, one would hope, can be replaced by operating cash flow and more normal/less expensive payment terms in the new year.
At this stage of the industry’s development, the shares of all of the above companies are going to be prone to significant swings. However, all appear to have core businesses that fill a need and can make money for their shareholders in 2016, so they are certainly worth a look as an average investor’s first three investments in shares of companies that will benefit from the expansion of the cannabis industry in North America. If for any reason any of these companies don’t meet your criteria as a buy right now, don’t despair. I expect 2016 will continue to be a banner year for both new company introductions and increasing financial success for well-managed existing companies.