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.
- CannaVest actually has begun selling shares at $1 (1.2mm)
- The company didn't address most all of the issues I have discussed
- "Wellness Services" was mentioned as shut-down. This is at odds with the OTC filing and also points to misrepresentations made in press releases last year
- A former employee of Dixie has gone public with not only quality issues but also will be unveiling financial wrong-doing as well from what I understand
- The company blatantly lied in its press release, confusing "sales" with "earnings" by stating that subsidiary "HempMedsPX posted net earnings of $248,859 in Q3, up from $6,448 in Q2."
I was optimistic that the company's improving sales momentum could drive the share price higher despite my concerns. Our trading-oriented model portfolio, which we call "Flying High", had a long position with a cost basis of just under $0.14, but we exited immediately on 11/13 upon learning about the dilution at CannaVest. I had been contemplating buying it back but was waiting for the press release, to see if they could somehow constructively address this mess. The stock traded as low as $0.105 today before closing down just slightly at $0.113.
What now? I know how hard it can be to take a big loss, but I suspect that MJNA will trade below $0.05 in the near future. The company's misrepresentations and poor financials have resulted in even its staunchest supporters exiting. Many have hoped for "uplisting", but the fact that their financial statements are rife with errors suggests to me it won't happen, even in 2015 as I had hoped. Further, I believe that the SEC, which the company discloses is "inquiring", will find plenty. One big issue is that CannaBank, then known as HDDC, appears to have failed to convey assets that it promised in exchange for control of the company.
MJNA was the industry bellwether. Now, all I can say is that at least it isn't Hemp, Inc. (HEMP), which has no real business beyond selling shares. Fortunately, a new bellwether has emerged, GrowLife (PHOT), and I expect more names to enter the public market in the near future. MJNA can't justify its current market cap of $110mm, and it lacks growth capital while not generating positive cash flow. All of this suggests to me that those remaining folks who were tricked by the company's misrepresentations earlier this year will exit, booking their losses to reduce capital gains tax and/or seeking out companies with better transparency.
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