AB Analytical Services

MJNA - Thoughts on the SEC Inquiry

MJNA is tanking hard.  Beyond stop-losses being triggered, there are many potential fundamental reasons - weak Q3 results, the CANV dilution, the product safety accusations and the SEC inquiry (as of June 17th and disclosed in August through the OTC disclosure statement).  It is the latter where I would like to share my thoughts.

MJNA first announced its own internal investigation earlier this year.  It began in January, as was disclosed in the Q1 filing  (note that this should have been disclosed as a subsequent event in the annual report and wasn't).  Keep in mind that every single director at that time has left the board with the exception of Michelle Sides, the Chairman and COO (rather alarming).  Here is what was disclosed:

 

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Capitalizing On Cannabis: New Leaders Emerge From A Cloud Of Pink Smoke

When I reviewed the entire cannabis sector two months ago, I pointed to a big change: Not all of the stocks were moving in the same direction. My thesis was and remains the same: Investors are beginning to differentiate on both transparency as well as leverage to the big themes of recreational legalization and a more enthusiastic embracing of the medical benefits of marijuana. Again, the DOJ "hands-off" policy that gave the green light to Colorado and Washington to proceed with their implementations as well as Sanjay Gupta's reversal of his previously negative view on the medical aspects, both August events, paved the way for investors to sharpen their focus on these themes.

As I suggested then (note: here is a link to all of my previous articles on the sector) and reiterated last month, two of the better stocks to take advantage of these themes are GW Pharma (GWPH) for medical and GrowLife (OTC:PHOT) for recreational (but also medical). While they have held up, most of the sector hasn't fared as well. Here is how the cannabis stocks I track have performed over the past month:

 

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MJNA: Why I Say Sell

I have followed Medical Marijuana, Inc. (MJNA) closely for 9 months.  It has been a story that has disgusted me as far as the lack of transparency and the poor corporate governance but also one that has offered hope, as the company seemed poised to capitalize on cannabis despite all these short-comings.  Specifically, the company is able to ship CBD-based products derived from hemp to any consumer in the U.S. or even beyond.

I shared my most recent update at Seeking Alpha in an article that examined several issues that arose  in the most recent quarterly filing.  I submitted that article on Saturday 11/16, a day after the company had sneaked in its quarterly filing a day late and after the market had closed.  I published with the caveat that the company hadn't yet released a press release.  Today, almost four full trading sessions later, the company did so, and you can access it here. The p.r. lacked substance, failing to address why board members left (to go back to agriculture???) or why the company had turned to outside financing when CannaBank was supposedly capable of funding the company.  Why did the company still not sell the 47mm shares allocated to fund research (and change the time-frame from three years to up to five years).

Rather than raise the points I have already addressed, I want to point to new issues that have arisen subsequently, all of which we have discussed at length on 420 Investor, the best place to learn about publicly-traded cannabis stocks.

 

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Medical Marijuana, Inc.: Definitely a Dope Opera

It has been nine months since I first learned about Medical Marijuana, Inc. (OTC:MJNA), the first publicly-traded company focused on cannabis (following its 2009 reverse-merger) and clearly the most popular name in the sector, with a purported 40K shareholders earlier this year and over 6500 Seeking Alpha readers signed up for alerts. I have gotten to know the company very well since then, but, even after sharing my thoughts here twenty times, there is never a shortage of twists and turns in this exciting drama. At a price of $0.135 (market cap of about $130mm), down from $0.50 in February and from about $0.25 at the peak this summer but still up from $0.10 at the end of 2012, MJNA is frustrating both bulls and bears. The story just took a shocking turn.

Q3 Review

In typical fashion, MJNA missed the soft deadline for Pink Sheet Current as described in the OTC Pink Basic Disclosure Guidelines, as they were technically due on the 14th (45 days after 9/30). After one quarter in which they were actually early, they lapsed again. Who can forget the scramble in May as they posted the document, with several pages missing, at 11:59 PM PST! The company continues to scan in its filings (crookedly too) rather than uploading a document, a process which leaves them unsearchable over the internet (and impossible, without creating an image, to cut and paste into Seeking Alpha articles!).

In any event, not surprisingly, the quarter showed little signs of business momentum, with negligible sales and operating losses. This wasn't really a big surprise, though the results were worse than expected. 

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GW Pharma: Capitalizing on Cannabis Science

GW Pharma (GWPH) is a NASDAQ-traded biotech based in the UK with a primary listing on the London Stock Exchange (GWP is the symbol). After trading quietly for months following its May 1st IPO, the stock has more than tripled. Though it has traded publicly since 2001 without much success, the recent move following an analyst upgrade and dramatic target hike pushed the stock to a multi-year high. The move earlier this year to gain a U.S. listing was brilliant, as it has expanded the investor base and more than doubled analyst following. GW has done a lot of things correctly in my view, and it is poised to benefit from increased investor awareness of its opportunities. I believe that the stock could offer significant returns to investors over the next few years as its rich pipeline develops, with potential 2015 U.S. approval of its lead drug Sativex, already on the market in several other countries, serving as a catalyst.

What is GW Pharma?

GWPH is the first company to market a natural cannabis plant derivative under regulatory approval, with its lead product, Sativex, approved now in 22 countries and on the market in several of these. The "GW" doesn't stand for "good weed", but rather is the initials of its two co-founders, Dr. Geoffrey Guy and Dr. Brian Whittle, who worked with the UK Home Office and other authorities to launch their company in 1998 with a 2001 IPO.

 

 

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Middleby Finds Another Growth Driver

Middleby (MIDD) has had a fabulous year, even as it consolidates from its all-time high of $239 after its recent Q3 earnings release, rising 69% through November 7th. The stock was trading at 127 almost a year ago when I described its smaller Food Processing Equipment Group as asubstantial growth driver. At the beginning of the year, MIDD announced a game-changer when it acquired Viking Range and entered the residential market, creating a 3rd growth platform. After the analyst day in May, I updated my views regarding the strong growth prospects. While the stock has clearly outperformed my expectations, I think that 2014 will be another year of gains. Today, I am updating my target following a very strong Q3 and discussing the company's entry into yet another market.

Q3 Review

MIDD grew sales by almost 40%, which exceeded the consensus by about 4%. Most of the growth was from the Viking acquisition, but both the Commercial Foodservice Equipment Group and the Food Processing Equipment Group grew sales organically by about 12%. Here are some key highlights:

 

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