"Medbox stock has skyrocketed into the New Year and I was hoping you could give me insight on to why that is and if it is a viable long-term investment holding. Because it is a "marijuana" stock, I would assume most of its success its attributed to Colorado's new recreational use law. What are your thoughts?"
Introduction
The Marijuana debate has officially tipped in favor of its users. Starting on January 1st, 2014, Colorado residents were officially allowed to purchase up to one ounce of marijuana for recreational purposes. And possibly most importantly – between the long lines at dispensaries, product shortages, and cold temperatures – the transition was incident free. I, for one, have no interest in smoking the drug regardless of its legal status, but think it will be a fantastic source of tax revenue for the government (25%+ in Colorado) and great source of legal profits (which will be taken from violent drug cartels and gangs). For the first time, Americans favor legalizing marijuana. 58% now say the drug should be legalized, with 39% saying it should remain illegal. As long as this trend continues, public opinion will push the government to continue its acceptance of the drug, resulting in massive profits for dispensaries, growers, accessory-makers, and others involved in the industry. From a “macro” perspective – marijuana is a high growth industry with lots of potential for massive returns over the next 5 to 7 years.
Volatility Concerns
The first thing that needs to be mentioned regarding Medbox, Inc. is that it is HUGELY volatile. Over the last 18 months, the stock has been trading as high as $205 and as low as $2. If the stock follows a trend similar to that of January 2013, it will pop then drop again. In December 2012, the stock went from the low $20 range to a high of $98 on January 11th, only to return to the $20 to $30 for the rest of the year. Recently, the stock continued its December 2012-like climb in December 2013, only to continue into the New Year.
The Company
Medbox essentially produces highly secure “vending machines” for the “alternative medicine industry”. What makes the company’s core product (the “Medbox Machine”) confusing is that it is only intended to be used by the clinic employee/pharmacy/nurse as opposed to directly to the end-consumer. I suppose I was expecting more of a Redbox-style user interaction than asking an employee to interact with the machine for me. The company does not directly hold any patents (according to the website), but holds rights to 5 patents through an “affiliate entity” – a euphemism meaning they bought the licensing rights for these patents from a different company. I think the company has potential in the long-term, but marijuana dispensaries that start up in recently legalized states will most likely focus their expenditures on building inventory – not high-cost vending machines.
How to Invest
This is a very thinly traded stock only available in the OTC markets (if you’re not familiar – OTC is everything that doesn’t trade on a major exchange – including penny stocks). This means that it may be hard to buy or sell a large position in one day. Based on the current share price and average 3-month trading volume, less than $1.7 million worth of shares change hands every day. Compare that to over $6 billion for Apple and over $43 million for AutoNation (one of the smallest companies in the S&P 500).
Recommendation
In my opinion, this is a pure momentum play. The money to be made here is in the very short-term (holding time should be measured in hours, not days). This is a buy high, sell higher scenario. If that’s your style, this is the opportunity for you. I would recommend choosing a dollar amount that represents the maximum you could fathom losing. Then invest twice that amount. Don’t pay more than $50 a share for the company, and set a limit sell order around $75 to automatically sell your position at that price or higher. I do not recommend holding onto it for more than a week, and definitely sell before they report earnings at the end of the month.
One Final Thought
An interview with the CEO of a company can either make or break my opinion of the stock. There are many great companies with great CEOs that have performed extremely well in the market last year – Boeing’s McNerney, Berkshire’s Buffett, P&G’s Lafley, Goldman’s Blankfein, and Sprint’s Hesse to name a few. I have seen all 5 of these CEOs speak and have been nothing but impressed with each: a clear vision for the company, implementing meaningful changes, a clear understanding of their business and where it is headed, etc. I watched a few YouTube videos of Medbox’s CEO speak, and while he appears to know what he’s talking about, when he was questioned on the performance of Medbox, he appeared uneasy and began stuttering and started looking off the screen. I suppose it’s important to note that OTC companies have much more laid-back reporting requirements than NASDAQ or NYSE components. Maybe it’s just me, but I don’t trust the guy – especially when he tries to make it sound like they developed the patents when they simply license them from a different company. However, the dependability and trustworthiness of a CEO is not really a factor when it comes to short-term momentum trading, so take this with a grain of salt.
The Marijuana debate has officially tipped in favor of its users. Starting on January 1st, 2014, Colorado residents were officially allowed to purchase up to one ounce of marijuana for recreational purposes. And possibly most importantly – between the long lines at dispensaries, product shortages, and cold temperatures – the transition was incident free. I, for one, have no interest in smoking the drug regardless of its legal status, but think it will be a fantastic source of tax revenue for the government (25%+ in Colorado) and great source of legal profits (which will be taken from violent drug cartels and gangs). For the first time, Americans favor legalizing marijuana. 58% now say the drug should be legalized, with 39% saying it should remain illegal. As long as this trend continues, public opinion will push the government to continue its acceptance of the drug, resulting in massive profits for dispensaries, growers, accessory-makers, and others involved in the industry. From a “macro” perspective – marijuana is a high growth industry with lots of potential for massive returns over the next 5 to 7 years.
Volatility Concerns
The first thing that needs to be mentioned regarding Medbox, Inc. is that it is HUGELY volatile. Over the last 18 months, the stock has been trading as high as $205 and as low as $2. If the stock follows a trend similar to that of January 2013, it will pop then drop again. In December 2012, the stock went from the low $20 range to a high of $98 on January 11th, only to return to the $20 to $30 for the rest of the year. Recently, the stock continued its December 2012-like climb in December 2013, only to continue into the New Year.
The Company
Medbox essentially produces highly secure “vending machines” for the “alternative medicine industry”. What makes the company’s core product (the “Medbox Machine”) confusing is that it is only intended to be used by the clinic employee/pharmacy/nurse as opposed to directly to the end-consumer. I suppose I was expecting more of a Redbox-style user interaction than asking an employee to interact with the machine for me. The company does not directly hold any patents (according to the website), but holds rights to 5 patents through an “affiliate entity” – a euphemism meaning they bought the licensing rights for these patents from a different company. I think the company has potential in the long-term, but marijuana dispensaries that start up in recently legalized states will most likely focus their expenditures on building inventory – not high-cost vending machines.
How to Invest
This is a very thinly traded stock only available in the OTC markets (if you’re not familiar – OTC is everything that doesn’t trade on a major exchange – including penny stocks). This means that it may be hard to buy or sell a large position in one day. Based on the current share price and average 3-month trading volume, less than $1.7 million worth of shares change hands every day. Compare that to over $6 billion for Apple and over $43 million for AutoNation (one of the smallest companies in the S&P 500).
Recommendation
In my opinion, this is a pure momentum play. The money to be made here is in the very short-term (holding time should be measured in hours, not days). This is a buy high, sell higher scenario. If that’s your style, this is the opportunity for you. I would recommend choosing a dollar amount that represents the maximum you could fathom losing. Then invest twice that amount. Don’t pay more than $50 a share for the company, and set a limit sell order around $75 to automatically sell your position at that price or higher. I do not recommend holding onto it for more than a week, and definitely sell before they report earnings at the end of the month.
One Final Thought
An interview with the CEO of a company can either make or break my opinion of the stock. There are many great companies with great CEOs that have performed extremely well in the market last year – Boeing’s McNerney, Berkshire’s Buffett, P&G’s Lafley, Goldman’s Blankfein, and Sprint’s Hesse to name a few. I have seen all 5 of these CEOs speak and have been nothing but impressed with each: a clear vision for the company, implementing meaningful changes, a clear understanding of their business and where it is headed, etc. I watched a few YouTube videos of Medbox’s CEO speak, and while he appears to know what he’s talking about, when he was questioned on the performance of Medbox, he appeared uneasy and began stuttering and started looking off the screen. I suppose it’s important to note that OTC companies have much more laid-back reporting requirements than NASDAQ or NYSE components. Maybe it’s just me, but I don’t trust the guy – especially when he tries to make it sound like they developed the patents when they simply license them from a different company. However, the dependability and trustworthiness of a CEO is not really a factor when it comes to short-term momentum trading, so take this with a grain of salt.