The Good and the Bad of Marijuana Penny Stocks
Few industries are as exciting as the marijuana industry, and fewer stocks are more volatile than penny stocks. Combine those two in the form of marijuana penny stocks and you have an investment that is equal degrees exciting and (at times) terrifying. While marijuana penny stocks may not be everyone’s game, they are certainly an investment that could yield massive gains, if played right.
Which is what we’re here to discuss, and a little later we’ll be taking a look at CBIS stock and what type of marijuana penny stock that company, Cannabis Science Inc (OTCMKTS:CBIS), represents.
First, let’s tackle the good. Not to toot my own horn here, but my investment picks in the marijuana penny stock market have yielded some pretty fantastic results.
Consider this piece I wrote on marijuana penny stocks last April. I made three recommendations in that article for marijuana penny stocks that I believed were set for growth.
I was not mistaken.
While one pick misfired and ended up down about 18% on the year, my other two picks experienced meteoric rises, with Aphria Inc (OTCMKTS:APHQF, TSE:APH) jumping by 129%. But even that pales in comparison to my next pick, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) which gained 417% in a single year.
Chart courtesy of StockCharts.com
That’s why people love the marijuana penny stock market, because these types of gains are simply unlikely to occur anywhere else (or at least, not with as much frequency).
When it comes to marijuana stocks, they have the right combination of genuine promise, hype, strong companies, massive industry-wide events on the horizon (like legalization), and spectacle that draws in investors. These factors interweave to create the type of frothy market we’re seeing.
And now the bad. The marijuana market is prone to corrections due to quick thrusts of investment, and that goes double for marijuana penny stocks that can see their value rise at too rapid a pace and outstrip its valuation, at least in the eyes of the market.
What often follows is a downturn that hits penny stocks particularly hard. We already experienced that earlier in 2018.
Not to mention that there are reasons why a stock is valued in pennies. They can be perfectly legitimate ones, like a newer company just starting out. Or they can have graver implications, with the market valuing a company so low because, well, there’s no value to begin with.
So there are definitely pros and cons to getting into marijuana penny stocks, but there’s one thing in particular that investors need to be wary of with these types of investments, and that brings us to CBIS stock.
The Difference Between CBIS Stock and ACB Stock
Being labeled a penny stock can be a little misleading these days because, well, most aren’t pennies.
Aurora, for instance, is worth $8.69, but typically anything under $10.00 is safe to label as a penny stock.
But of course, there are still many marijuana penny stocks that are actually valued at a penny. It’s just important to make that distinction.
Moving past that, CBIS stock is a “true” marijuana penny stock, semantically speaking. For eight pennies, you can own a share of the company. Which is kind of ironic, considering that Canada no longer produces pennies and so many marijuana penny stocks are Canadian, but I digress.
The point being is that it is dirt cheap to own CBIS stock. The question is, do you want one?
CBIS stock is up 21% in the past five days—so far, so good. But dig a little deeper and there are plenty of reasons to be wary of Cannabis Science stock.
The company is a medical marijuana developer, but what’s important to note about Cannabis Science is that its CEO and co-founder, Raymond C. Dabney, has been the subject of lawsuits in the past by the U.S. Securities and Exchange Commission (SEC).
The final judgments permanently enjoin Raymond C. Dabney of Vancouver, British Columbia, Richard A. Dabney of Rancho Palos Verdes, California, Charles J. Smith of Reno, Nevada, and Philip M. Young of Scottsdale, Arizona, from violations of the securities registration provisions of the federal securities laws, and also enjoin Richard Dabney from violations of the antifraud provisions. The four defendants were ordered to pay more than $1.4 million in disgorgement, interest, and civil penalties. The Commission’s complaint alleged that the defendants engaged in an unregistered distribution of the securities of Alliance Transcription Services, Inc. (formerly Strategy X, Inc.) from April 2005 through September 2006 and that Alliance and its officers participated in a scheme to manipulate the price and trading volume of its stock.
And that brings us to that second, scarier part of marijuana penny stocks. Volatility is worrying for some, sure, but it’s also part of a fair game. This type of moves, one that involves litigation, is another beast entirely.
Of course, these types of problems are not limited to penny stocks, but penny stocks do tend to be more vulnerable to these types of problems due to their relative anonymity, lack of value, and ability to operate under the radar.
Which isn’t to say that CBIS stock is doomed to repeat the past, but investors ought to know what they’re getting into with the company’s management before investing.
A good way to separate strong marijuana penny stock buys from ones that may contain these less savory elements is to see if a company is listed on an exchange. That means that while they may trade over the counter (OTC), they are also listed on another foreign exchange.
Aurora, for instance, has a spot on the respected Toronto Stock Exchange (TSE), as well as being listed as OTC for American investors. Many of the largest Canadian marijuana stocks operate in this manner.
Cannabis Science stock, however, is only available over the counter, which means it remains unapproved by a legitimate market.
There are also other aspects, like a “personal loyalty gift” offered on the company’s web site, that is giving away stock for free for being “loyal” to Dabney. This is obviously not the type of thing you want to see out of a company, especially one with a C-level executive who has been in front of the SEC in court.
These are things that you need to make note of as an investor. ACB stock was and is a fantastic marijuana penny stock that is ripe for growth, while others may be masquerading as such in order to profit off the hype. Telling the difference is critical to making sure your investment dollars work for you rather than disappear.
There’s a valuable distinction to be made between good and bad penny stocks. That goes double for the marijuana industry, where massive interest has sparked a number of efforts for people to make money off the hype. That means establishing companies that don’t provide much in the way of value, but promise big returns down the line due to the projections surrounding the marijuana industry.
It’s an old trick, and one that is surprisingly effective at wrangling in the uninformed.
Awareness, in this case, is your best friend, and that’s what this article endeavors to achieve: to make our readers more aware about the options out there for marijuana stock investors, as well as which ones are better for you.
With research and diligence, you can usually tell the difference between a solid company and one that has gaps. It’s the difference between a CBIS stock and an Aurora Cannabis stock, which, as the numbers show, could be massive.
The rules to follow are simple: do your research, make sure the company is credible (usually demonstrated by being listed on a reputable exchange), and if it seems too good to be true, it probably is.