PUBLIC TRADING COMPANIES UNDERCAPTITALIZED
This title was published on March 16, 2018.
By following the advice and staying out of the "hot stocks" and "can't lose cannabis plays" you would have preserved all of your invested capital. But, if you listened to the "noise" and "plunged into the insanity" 85% or more (on average) of your invested capital would have been lost. Even the big four brokerages - Charles Schwab, Fidelity Investments, E*TRADE, and TD Ameritrade - comprise the top in terms of customers and assets fared a bit better, losing on average only 75% of their clients' cannabis category investments.
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Now for the March 16, 2018 article. By forgetting the date, you would think it was written today.
Public funding of the commercial cannabis market has produced ineffective results. The issue is the questionable dynamics caused by the federal government’s reluctance to remove cannabis as a Schedule I and Schedule II Controlled Substance and amend Section 280E of the Internal Revenue Service Code, which deals with businesses that are associated with “trafficking” substances. The IRS has resolved that Section 280E applies to licensed, regulated cannabis businesses and must be in full compliance with state marijuana laws and federal rules. Thus, state-legal recreational cannabis companies are prevented from deducting normal business expenses from their total income. Therefore, such companies are unable to present a conventional business plan to attract permanent capital. Without a unified financial structure corporate funding cannot be fully achieved. The conclusions are anemic US based public companies operating on the fringe of long term success and unable to compete with their international competitors.
Outside the US, their global market counterparts are well funded and have become the major players in the medical and recreational cannabis markets. Unless the federal government levels the playing field, public companies would remain a “cottage industry” oddities with limited long-term potential since funding would be unavailable in sufficient quantities to compete with their international rivals.
Only two major public companies, Constellation Brands (STZ) and Scott’s Miracle Grow (SMG) have expressed interest. STZ acquired a 9.9% stake in Canopy Growth (TWMJF), which is a provider of medical cannabis products. Constellation being a beverage company, the only explanation for the investment would be a line of cannabis-infused beverages. Whether that’s the case remains unknown. Maybe the stake was strictly as an investment since Canopy is Canadian based and outside the “influence” of US federal laws and regulations? Indeed, Canopy is well funded because of the purchase and proves the point that capital is flowing outside the US to support international cannabis related companies.
As for Scott’s Miracle Grow, their Hawthorne Gardening Company unit provides tools for gardening needs, which dovetails as a perfect vehicle to incubate a start-up cannabis equipment and seed play.
At present the small investor is providing the fund in domestic cannabis public companies. However, there is a small risk that cannabis enterprises could be completely shut down which has kept many seasoned professional investors on the sidelines. Will it happen? History and the United States Constitution say “no”. With the ratification of eight states to sanction recreational cannabis, states’ rights are political powers kept for the state governments rather than the federal government as stated by the Constitution and embraced in the Tenth Amendment. This fact will remain true unless the US Constitutions is set aside; not a likely circumstance.
US based public companies undercapitalized and face financial risk of extinction:
Medical Marijuana, Inc. (MJNA)
Cannabis Sativa, Inc. CBDS
Cannabis Sciences Inc. (CBIS)
CannaGrow Holdings, Inc. (CGRW)
United Cannabis Corporation (CNAB)
VAPE Holdings Inc. (VAPE)
Surna Inc. (SRNA)
American Cannabis Company, Inc. (AMMJ)
MedCareers Group, Inc. (MCGI)
General Cannabis Corp. (CANN)
MassRoots, Inc. (MSRT)