There's probably no marijuana stock with a better name than Medical Marijuana, Inc. (NASDAQOTH:MJNA). What marketing team wouldn't want to lay claim to a corporate identification so closely aligned with one of the hottest markets around?
Medical Marijuana, Inc. became the first publicly traded marijuana stock in the U.S. in 2009, which seems like ages ago considering the changes that have swept the marijuana industry in the past couple of years. It's also one of the largest marijuana stocks in terms of market cap, with the company currently valued at more than $250 million. If you're an investor interested in marijuana stocks, here are three things you really need to know about Medical Marijuana, Inc.
1. Why the stock has more than doubled over the last 12 months
In the last 12 months, Medical Marijuana, Inc. stock is up more than 130%. Are these gains because of tremendous revenue and earnings growth? Actually, no.
Medical Marijuana, Inc. reported revenue in 2015 of $9.2 million, with a net income of nearly $26 million thanks to a large extraordinary gain related to its acquisition of interest in HempMeds Brazil, LLC. Last year, however, the company reported revenue of a little over $8 million, with a net loss of $25.9 million.
With both top and bottom lines looking worse in 2016 than 2015, why did Medical Marijuana, Inc. stock soar so much during the last year? Marijuana stocks in general were simply that hot. Also, Medical Marijuana, Inc.'s longer track record likely made the stock more appealing to some investors.
2. Why the stock is down around 50% in 2017
What the market gives, the market can also take away. After enjoying big gains last year, Medical Marijuana, Inc. stock is now down 50% so far in 2017.
The crazy thing about this steep drop is that, from a business perspective, Medical Marijuana, Inc. appears to be in better shape this year than it was in the previous two years. In the first quarter of 2017, the company posted sales of $3.6 million. On an annualized basis, that would amount to $14.4 million -- much better than revenue generated in 2015 or 2016.
One reason behind Medical Marijuana, Inc.'s decline is that there has been a pullback with marijuana stocks in general. Concern about the possibility of the Trump administration cracking down on marijuana providers in states that have legalized marijuana is one factor behind this pullback.
However, Medical Marijuana, Inc. would be the first to tell anyone that their products, which include cannabidiol (CBD) oils, contain only ingredients that are excluded from the Controlled Substances Act. That means that any attempts by the Trump Administration, in theory, at least, shouldn't affect sales of the company's products.
Realistically, though, Medical Marijuana, Inc.'s valuation is tightly linked to prospects for the overall marijuana industry. Bad news for the industry is bad news for the company -- and its stock.
3. What opportunities and risks lie ahead
The opportunities for Medical Marijuana, Inc. are significant. As public acceptance for marijuana legalization and use climbs, demand for the company's products should also grow. Increased sales in the first quarter of 2017 could be a reflection of this.
Medical Marijuana, Inc. also owns a sizable stake in Axim Biotechnologies (NASDAQOTH:AXIM). Axim ranked as the top marijuana stock of 2016 with a market cap of at least $200 million. The company's lead product is a marijuana-based chewing gum, which is being evaluated for the treatment of several diseases, including multiple sclerosis spasticity. If Axim succeeds in ultimately gaining regulatory approval for its candidate, Medical Marijuana, Inc. could benefit significantly.
But while the opportunities are great, so are the risks. There is a possibility that the growing number of marijuana providers in states where the drug is legal could eventually take market share away from Medical Marijuana, Inc. If large tobacco companies enter the marijuana market as has been rumored in the past, Medical Marijuana, Inc. could also be at risk.
Despite the impressive gains over the last 12 months, Medical Marijuana, Inc. stock has lost roughly 89% of its value since the company's initial public offering in 2009. That number underscores the level of risk associated with the stock all by itself.