California: The Land of Opportunity
Although marijuana headlines tend to focus on Canada, investors should occasionally turn their attention back to the biggest state in the union: California.
There are a lot of formidable companies coming out of the Golden State, which for years was famous around the world for its illicit substances. It is now birthing some of the hottest marijuana penny stocks on the market.
Today we’ll look at three California-based marijuana stocks: Medmen Enterprises Inc (OTCMKTS:MMNFF, CNSX:MMEN), High Hampton Holdings (OTCMKTS:HHPHF, CNSX:HC) and Harborside, Inc. (a California-based firm going public later this year).
You’ll notice that all three marijuana penny stocks are (or will be) listed on Canadian stock exchanges. This is simply because Canada is legalizing marijuana at the national level and the U.S. is not (yet). Weed remains a fractured market across the 50 states.
In the U.S., nine jurisdictions (including the District of Columbia) allow the sale of recreational cannabis. In total, 20 states have legalized marijuana in some other form (i.e. for medical purposes or for the creation of cannabidiol (CBD) oils) and the remainder are slowly warming to the idea.
California is the biggest marijuana market—at least until Congress rewrites the Controlled Substances Act. It is no wonder that companies are investing hundreds of millions of dollars in the state. With 40 million potential consumers, who can blame them?
3 Best Marijuana Penny Stocks
North of the 49th parallel, you’ll find dozens of new marijuana companies. Many of them are just starting out, because Canada has been fast-tracking its cannabis legalization process. But in California, where medical marijuana is extremely popular, companies are more established.
MedMen Enterprises LLC
Stock Price: $3.35
MedMen likes to call itself the “Apple Store of Pot.” It has a pristine look that customers find inviting. If you’ve ever wandered into an Apple Store and spend a few hours there, you’ll know exactly what they’re talking about. There’s a cleanliness that puts you at home.
The company went public using a reverse takeover, which is essentially a backdoor to get listed on a stock exchange. You can find it under the symbol “MMEN” on the Canadian Securities Exchange.
The MedMen brand, however, was cultivated in California. The first store opened three years ago in West Hollywood, long before the state legalized recreational cannabis. There are now eight dispensaries in total.
New York has four MedMen dispensaries. Nevada has two.
Ordinarily, I don’t care about “brand appeal.” In the marijuana market, however, there’s very little to separate the different retailers, so brand actually matters a great deal. Also, having an eye-popping store might help legitimize marijuana in the eyes of people who’ve never tried it before.
Considering the low price for MedMen stock, and the fact that the company did not dilute ownership because it entered the stock market via a reverse takeover, I say there’s a lot of promise to this marijuana penny stock.
High Hampton Holdings
Stock Price: $0.34
High Hampton is the inverse of MedMen—it is based in Toronto, but is expanding quickly into California. For example, the company recently acquired an edibles maker for $8.1 million. (Source: “High Hampton Successfully Closes Acquisition of CaliGold,” Cision, July 31, 2018.)
As part of the deal, High Hampton will absorb HS Airway Holdings, the parent company of Cali Gold Bars. It will pay $5.5 million for 13.1 million shares, and $2.6 million for additional sales, marketing, and development.
This adds to High Hampton’s presence in California. All told, it has:
- CoachellaGro Corp.: This firm is building a 254,000-square-foot production facility in Coachella, California. You might recognize the name, since it is a famous music festival that attracts hundreds of thousands of tourists every year.
- 420 Realty, LLC: This company has yet to receive its permits in California, but the outlook is rosy. High Hampton should be able to use this arm for growing, processing, and distributing marijuana in the Golden State.
- 8 Points Management LLC: Diversification is important, which is why High Hampton has one holding strictly for logistical support. This firm provides transportation and supply-chain management for other cannabis retailers and manufacturers.
For the exposure you get, I think High Hampton stock is a steal.
Harborside, Inc. is the quintessential California pot company, founded by a true believer whose history with marijuana runs decades deep. It will go public in Canada later this year via a reverse takeover, much like MedMen did earlier in 2018.
Here’s how the transaction will work:
- Toronto-based Lineage Grow Company Ltd. (CSE:BUDD) will issue $152.2 million worth of new shares for the explicit purpose of acquiring Harborside.
- Lineage will buy Harborside (or, more accurately, it will buy Harborside’s parent company, FLRish, Inc.) using an all-stock purchase.
- The two companies will merge under the name Harborside.
- Harborside will raise $20.0 million of convertible debentures.
- Expansion, expansion, expansion.
According to co-founder Steve DeAngelo, this move gives Harborside “unparalleled growth and opportunity” to pursue what his partner calls a “vertically-integrated, California-centric business model.” (Source: “Lineage to Acquire Harborside’s Iconic California Dispensaries and Cultivation Campus, Creating California’s Premier Vertically Integrated Cannabis Company,” Cision, August 13, 2018.)
Fears of oversupply have weighed heavy on marijuana stocks. However, they mostly apply to the Canadian side of the industry.
Whether the fears prove to be true, I think it’s wise for speculative investors to diversify their exposure to other booming marijuana markets and consider marijuana penny stocks. California is the prime example.