A number of marijuana stocks have grown exponentially since September and October of last year, making it difficult to not get excited about the prospect of cashing in on a fast and growing industry. However, it’s important to note that revenues have to catch up to market caps.
If you consider OWC Pharmaceutical Research Corp. (OTCQB: OWCP), on February 24, 2017, the company closed at $2.20 putting their market value at a lofty $310,474,490. Five months prior, the company closed at a price of $0.20 with a $28,289,247 market value, resulting in a 48788.9% increase over a span of just five months.
No doubt investors who came in at $0.20 and held onto the stock are reaping in huge rewards, but here’s the thing: the company has no revenues.
OWCP is developing a topical cream infused with cannabis to treat psoriasis, but their product still needs to be approved and tested before they can even start the precarious journey of production, marketing and sales.
Without revenues and a market-ready product, there really isn’t anything going on with the company that can justify a $310 million market cap, and that seems to be a common case for a lot – not all, but a lot – of marijuana stocks.
For example, we recently had a conversation with Todd Davis, CEO of ENDEXX Corp. (OTC Pink: EDXC). His company is in the process of transitioning into a more cannabis based company with their most notable product being Phyto-Bites®, a hemp-infused soft chew that promotes health in our little canine friends.
As of February 24, 2017, EDXC was sitting at a market cap of only $14,610,334, but if you look at their company revenues, you’ll see a consistent growth year-over-year.
Price-wise, the company averaged at around $0.02 – $0.03 cents from June 2016 to October 2016 before spiking up a bit. Mid-January 2017, the company reached its all-time high of $0.09 but seems to have leveled off at around $0.06.
Not to say that OWCP is a bad investment, but rather, if investors are wanting to find a good marijuana stock at this point in time, they will see greater returns from companies like EDXC, companies with consistent growth in revenue year-over-year and market-ready products.
With regulations still being put into place, there is no doubt that the marijuana industry is still within the first inning of the game, but it is critical for investors to not overlook the basic fundamentals of a good stock.
It’s the investors who are just now stumbling upon the overvalued stocks that we worry about. Thinking they can ride the wave late in the game, they are the ones at the most risk for the most loss, and that’s frightening.
Marijuana stocks with enormous market caps and no revenues, those stocks are going to fall, and they’re going to fall hard. That’s inevitable.