Could Medical Marijuana Be a Millionaire Maker Stock?
To answer the headline question: Sure, Medical Marijuana Inc. (NASDAQOTH: MJNA) could be a millionaire-maker stock -- if one started out as a multimillionaire, perhaps.
With that said, let's examine why Medical Marijuana stock isn't likely to pan out as a good investment and discuss some better alternatives -- including Canopy Growth (NYSE: CGC) -- for those who want to invest in the hemp-derived cannabidiol (CBD) space. (CBD is a nonpsychoactive cannabinoid, or naturally occurring chemical, found in both marijuana and hemp that's been linked to various wellness benefits.)
Indeed, there are good reasons to want exposure to the CBD realm. The U.S. Farm Bill, which became effective on Jan. 1, made it legal across the country to grow and process industrial hemp, opening up a potentially huge market for hemp-derived CBD products. This market is projected to rocket from about $591 million in 2018 to $22 billion by 2022, according to cannabis research firm Brightfield Group. That's a 37-fold increase in just four years!
Image source: Getty Images.
Medical Marijuana's business in a nutshell
Medical Marijuana, based in San Diego, was the first publicly traded cannabis stock in the U.S. In March, it will have been a public company for 10 years. Despite its name, the company isn't involved with marijuana. Its core focus is on developing and selling products containing hemp-derived CBD, and it also has stakes in various other cannabis businesses. Hemp, marijuana's cannabis cousin, contains a negligible concentration of tetrahydrocannabinol (THC), the psychoactive substance in marijuana that's responsible for getting users "high."
Medical Marijuana: Basic stock and financial data
|
Metric |
Medical Marijuana |
|---|---|
|
Market capitalization |
$260.8 million |
|
Price per share |
$0.0726 |
|
Revenue (TTM) |
$51.6 million |
|
Net income (TTM) |
($313 million) |
| Total cash (MRQ) | $3.3 million |
| Total debt (MRQ) | $9.3 million |
| Operating cash flow (TTM) | ($322.4 million) |
| Institutional ownership | 0.2% |
Data source: Yahoo! Finance. Data as of 2/22/19. TTM = trailing 12 months. MRQ = most recent quarter.
There are some red flags here. For one, a share of Medical Marijuana trades at just over $0.07, making it a "penny stock." One big problem with penny stocks is that they don't garner institutional support -- institutions own a negligible 0.2% of Medical Marijuana's outstanding shares -- and without this support, it's very difficult for stock prices to rise, or at least for rises to be sustained. Secondly, Medical Marijuana's liquidity situation is a concern. The company had just $3.3 million in cash at the end of its most recently reported quarter, while it had debt of $9.3 million, and a negative cash flow from operations of $322.4 million.
Medical Marijuana stock's performance
One of the top things a potential investor in any stock probably wants to know is how its performed. Shares of Medical Marijuana have performed poorly over the short and long terms.
Data by YCharts.
Data by YCharts.
Better alternatives in the hemp-derived CBD space
CV Sciences (NASDAQOTH: CVSI) is probably Medical Marijuana's closest peer. Its main focus is also on making products from hemp-derived CBD, it's also a U.S.-based company and on the small side, but not as small as Medical Marijuana, as it has a market cap of $474 million and a price per share of $4.90. Reasons to prefer CV Sciences to Medical Marijuana? It's growing revenue faster, it's profitable, and there appear to be no liquidity concerns.
Canopy Growth -- the largest cannabis stock by market cap -- is on track to be a good way to get exposure to the hemp-derived CBD market in the U.S. The Canada-based cannabis grower began positioning itself to profit from the legalization of hemp in the U.S. before the Farm Bill actually passed, so it was ready to hit the ground running as soon as the legislation became effective. Indeed, on Jan. 14, Canopy announced that it received a license from New York State to process and produce products derived from hemp.
On Canopy's recent fiscal third-quarter earnings call, founder and co-CEO Bruce Linton said that the company's hemp-derived CBD products should be commercially availability in the U.S. by the fourth (calendar) quarter of this year or the first quarter of 2020. A big reason to like Canopy Growth stock in general is that the company has a boatload of cash -- more so than any other cannabis company -- after receiving $4 billion last fall from alcoholic beverage giant Constellation Beverages, which upped its ownership stake in Canopy to 38%.
All this said, CV Sciences and Canopy Growth stocks have a good amount of risk. CV Sciences' currently profitable business could suffer as deep-pocketed, bigger competitors (such as Canopy) enter its turf, and there's no guarantee Canopy will ever achieve profitability.
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Beth McKenna owns shares of Canopy Growth. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.