Top Marijuana Penny Stocks

Marijuana dispensary in Portland, OR.
••• Heath Korvola / Getty Images

There has been a lot of . It is because many of them have doubled or tripled in price in recent weeks. This move has mostly been predicated on investor beliefs that there will be an opportunity for marijuana and pot companies after the Presidential Election.

Like Colorado, many states are slated to legalize marijuana. A few other States have followed suit. There is an old expression that says nothing can stop an idea whose time has come, and for the legalization of marijuana (based on the social outlook), it appears that municipalities have become much more open to the benefits, and less concerned about the risks.

 And since the Democrats are expected to retain control of the White House, many people anticipate that the Government will become much more open to the concept of the legalization of recreational marijuana.

When Colorado originally took the first step to legalize recreational marijuana, they became the first State to do so, which was monitored very closely by many other locales. Well,  Colorado's crime rate dropped, vandalism rates decreased, and revenues started flowing in. It turned out that marijuana was not treated as a gateway drug after all, nor did it result in the deterioration of social values.

However, you need to distinguish the difference between companies directly or indirectly involved with the marijuana "concept," and companies which are worthy of investing in because they represent compelling value.

There is a difference!  

An inability to spot those differences will result in just about every "marijuana penny stock investor" losing the majority of their money. In most cases that will happen pretty quickly and soon.

To give you an idea just how horrible the majority of these dramatically-overvalued recreational marijuana penny stocks have become, we decided to take a look under the hood of many of them. Here are some of the top pot penny stocks which are being gobbled up by shareholders right now, and a snapshot of their underlying train wrecks in their financial statements.

General Cannabis Corp. (CANN — OTC-QB)

Here is a stock which has increased pretty significantly, from $0.75 two months ago, to as high as $5.19 one month ago. Shares have even been driven up as much is 33% today alone.

CANN Trades OTC, on the Dark Markets, which on its own is a fact that should scare you away from investing in the company. Based on our analysis, the shares are worth about zero. Here's why:

  • The shares increased in price in-line with the dramatic run-up in trading activity. Thousands of people feel (all the same time) that there may be some upside to cannabis-related companies.  However, as you see the trading activity and interest dramatically dropping off, the shares will begin to move lower, .
  • As well, during the price run-up over the last couple of months, the money flow demonstrates that there's about $16 million in fresh cash coming into this tiny, obscure company. Without that influx of money, the shares have nothing to hold them at current levels. Therefore, as the money starts to slosh back out of this investment, the shares will drop significantly lower.

    Just like most businesses which are trying to pretend that they are loosely related to cannabis, CANN explains that they are involved with consulting, advisory, , and management services to the marijuana industry.

    In other words, and to put it simply, they do not have a clue as to what they're doing. All they know is that they got the word "cannabis" into the name of their company, and are benefiting from the miniature stampede which we are seeing across the entire industry right now.

    CANN is a company which brought in $1.8 million in revenues for fiscal 2005, over which period they lost $8.8 million (even after their sales). Just between you and I, losing almost $9 million on less than $2 million in sales is very hard to do.

     Even now, they're still losing more than six figures every single week.

    More alarmingly is the balance sheet, which reveals that they only have $264,000 in current assets. So basically the entire corporation is worth about the value of a nice car and a boat.

    Unfortunately, that contrasts very poorly with their nearly $4 million in current liabilities. So, in other words, the value of 40 nice cars and 40 boats.

    In the longer term, they have more total liabilities than they have in total assets. It means that even if they liquidated every single thing they owned, including pens, paper, and coffee cups, they would still be worth less than some negative value.

    Like just about every overvalued cannabis company right now, CANN is coming down. It will decrease in value soon, and significantly.  

    If you do not agree, or you do not understand what I'm talking about, just wait a couple of weeks, and you'll exactly see what I'm trying to say. This is about to get ugly.

    GreenGro Techs (GRNH — Pink Sheets)

    Here's another one which has tripled in the last couple months. In fact, , which should be cause for concern.

    When the entire industry is acting the same! You know that the price moves are not based on the underlying companies, but rather are being moved by the stampede surrounding the overall concept.

    The difference between a concept and a company is that the company could find a way to make enough money to justify their share price. On the other hand, a concept alone will typically not be strong enough to justify current share prices.

    In other words, the stocks are increasing because of the underlying idea of legal marijuana. There is no value there or reason for the increase in the price of the specific penny stocks.

    GreenGro was trading at 4 cents per share, at which point it was about 4 cents overvalued. It has now traded as high as $0.16 a few weeks ago and currently is closer to $0.10.

    Having fallen slightly from the recent highs, this particular marijuana penny stock has a lot further down to go. Just like CANN, the trading volume had increased significantly, which helped push the share price much higher.

     As that trading activity (and investor interest) subsides, the investment value will crumble.

    GreenGro is simply just one more cannabis-related company sitting on a train wreck with their financial results. In 2015, the company only brought in $570,000 in total revenue.  

    Over this time, GRNH lost $3.5 million, even after their sales. The year prior to that they lost over $6 million. Since inception, this company .

    When we look at their , GRNH only had $101,000 in sales in the most recent three-month period. It worked out to an operating loss of $1.3 million. Anyone who understands business will understand that to lose $1.3 million, after making only $101,000 in revenues, is very hard to do.

    So . There must be a pretty strong cash position there to justify the current share price, right?

    The entire corporation's current assets are less than $1 million. Their current liabilities are only about half of $1 million, so from that perspective, GRNH is actually in better shape than most marijuana companies.

    However, this does not mean that the stock is fairly valued, even at the current price. GRNH is destined to go bankrupt, and almost certainly will once cannabis becomes more accepted and widely available.

    Based on the current trends, these guys do not have a hope to do anything other than reach zero cents per share in my opinion.

    Aurora Cannabis (ACBFF — OTC)  
    (In Canada— ACB)

    Big surprise, here's another marijuana company whose trading chart looks the same. Specifically, the shares have tripled over the last couple of months on massive trading volume.

    However, like all other cannabis companies right now, the shares are dramatically overvalued. Meanwhile, the financial situation of the company is tenuous.

    Last year, Aurora showed zero in revenues.  Not a dollar, not a hundred bucks, Zero.

    Over that time, they lost $9.5 million. Over the last three months, they brought in $220,000 in total sales which unfortunately worked out to an operating loss of nearly $1 million.

    At least their balance sheet must look a little bit better, right? Well actually, it isn't the worst we've seen from the industry, but it's very weak.

    For example, they have $9.2 million in total current assets, which compares favorably to $7 million in total current liabilities. While not horrible, those are not the numbers you want to see with an up-and-coming corporation (which has a lot of expenses and hope for rapid growth ahead of them).

    , and they are wildly overvalued. Based on an analysis of their financial situation, we anticipate that the shares are worth about 16 cents, not the $1.62 at which this one is currently trading.

    To save me some time here, please just understand that the entire industry is dramatically overvalued right now. There is a lot more downside from here than upside, and shares are closer to a top than a bottom.

    In fact, it will be a matter of weeks, not even months, before shares start tracking lower towards appropriate valuations.

    Unfortunately, every single one of these "appropriate valuations" is significantly lower than current trading prices.

    Aphria (APH — Canada)

    It is not to say that all marijuana-related companies are bad investments. In fact, even I own shares of Aphria (APH), which trades in Canada. Unlike many of these cannabis–wannabes, Aphria is actively producing hydroponic cannabis with the help of the Canadian government and selling it for medical use. 

    Besides ownership of APH stock, I am also a customer for . APH, as well as a lot of cannabis companies which are backed-up by the Canadian government, will be around for many years going forward.  

    It is decidedly unlike the fly–by–night pot penny stocks out there on the dark markets, such as those which trade on the Pink Sheets, OTC-QX, and OTC-QB.

    Investing well has to do with owning shares in companies which are growing fast, are financially secure, and expected to expand their market share rapidly. They need to have the wind at their backs, as well as a loyal client-base that supports their recurring revenues while taking on larger order sizes.

    Many of the Canadian-based pot companies can lay claim to such price drivers, and as such should be able to harness the current shift in the social fabric in North America. It will help to keep the upward momentum going.

    Your first step should be to check if a cannabis-related publicly traded company is listed upon . In such a case, walk away from the investment immediately, and save your money.

    Canopy Growth Corp. (TWMJF — OTC, CJC in Canada)

    Yes, the trading chart of . looks identical to the trading charts of the other cannabis-related companies we mentioned earlier. The difference between TWMJF  and most of the others is that they generate a significant level of revenues. Specifically, in 2016 Maeve brought in $12.7 million, which is up from $1.9 million in the previous year.

    This is another company which is based out of Canada, and as such has numerous advantages which will help keep the company running along nicely. However, even after the massive jump in revenue levels, they still lost $3.5 million for the year.

    That gets even worse if you isolate the last three months. Of operations. Their loss over that time was close to $4 million, although that is down slightly from the $5 million they burned through in the previous year.

    One aspect of this company which they have going for them, in which you will only find with some of these financially secure Canadian penny stocks, is their balance sheet. They boast over $50 million in current assets and $152 million in total assets. It compares favorably to the $8 million in current liabilities and the $20 million in total liabilities.

    As long as they can maintain these growth levels, backstopped by a very strong balance sheet and financial position, shares of Canopy Growth Corp. are much more fairly valued than just about every other marijuana-related company out there right now.

    While I would not suggest getting involved in any industry which is overvalued across the board, for those who are going to ignore the warning and still invest in cannabis companies, some options are much better than others. As examples, Canopy Growth Corp. and Aphria both represent more compelling value than others in their peer group.

    What Happens Now?

    The entire industry is about to come down pretty hard just like it did the first time it popped and the second time and will now the third time. It is just another speculative stampede. By the way, there will be a fourth time too; once most people have forgotten the sting of this next upcoming reset.

    People believe that marijuana is growing in popularity, so they assume that means that marijuana-related companies should increase in price. They are wrong.  

    If investing were that easy, more of us would be rich. If surmising the direction of stock prices was so simple, we would all make a lot more money investing than we do.

    In my opinion, just about any and every cannabis company is wildly overvalued right now, and due to come down soon and significantly. There will be no winners here.