Although the cannabis industry is the fastest growing industry in the world, investors need to be selective, conduct thorough due diligence, and understand who and what they are investing in before buying in.
The emergence of the cannabis industry has led to an influx in the number of publicly traded companies focused on this incredible growth sector. Although some of these companies may wow you with exciting investor presentations, attractive business model and remarkable high growth estimates; don’t believe everything you read!
From the management team to the financial structure, investors need to conduct proper due diligence. We recommend incorporating some basic guidelines into your investment strategy to help you focus on more qualified investment opportunities. These guidelines include:
- The company is current in its disclosures with the SEC
- The company has a financial structure that is free of toxic debt
- The company answers the telephone when you call the main line
What to Watch For
Let’s be real, you’re not investing in a value stock.
First things first, you are investing in developmental companies that are naturally speculative in nature. However, with big risk comes big reward. Before investing, we recommend carefully considering factors such as:
- What exchange does the company trade on?
- How many shares are outstanding and what is the company’s dilution potential?
- Who makes up the company’s executive board and what is their track record?
- Is the company generating revenue?
- Is the company taking steps to capitalize on growth opportunities?
An Insider Selling Story
In an effort to increase transparency and help you focus on quality companies, we want to highlight two stocks that we would recommend staying away from on account of continued insider selling activity.
United Cannabis Corp (CNAB) filed two Form 4s last week after COO Chad Ruby and VP Tony Verzura sold stock in the company on December 14th and 15th, respectively. Ruby sold 20,000 shares at $1.0735 and Verzura sold 60,738 shares in the $1.08-$1.09 range.
We remain on the sidelines and cautious with CNAB as insiders continue to sell stock and decrease the size of their respective positions in the company. We view the shares as overvalued and the current risk-reward scenario heavily favors risk.
Today, one of the dogs of the cannabis industry announced that its subsidiary was awarded Patent PP27,475 for a cannabis plant named Ecuadorian Sativa. The company, Cannabis Sativa (CBDS) also said there are anecdotal indications that the strain may prevent some cancers and may cause apoptosis of cancer cells in vivo.
Although this development seems significant, we remain far on the sidelines with the shares as we view CBDS as one of the worst cannabis investment opportunities. Despite favorable remarks from management, the CEO and President have continued to sell shares and we urge caution with CBDS.
Important Investor Disclosures
Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks. The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments. This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report