Medical Marijuana Inc (MJNA)

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MJNA - New Year, New Outlook
2014 got off to a great start for the cannabis movement. There has always been a market for marijuana but it was truly remarkable to see lines out the door made up of first time buyers, grandparents and out of state tourists, among so many others. The first week or so of sales appears to have been incredibly successful on many accounts from sales to non-violence to excitement. Colorado's recreational legalization is a dream come true for many and the reality is only finally setting in.

So where does that leave MJNA for 2014?

Let's clear the bad out of the way so this can end on a good note.

Currently MJNA is fundamentally in a bit of a funk. The company is lacking a dedicated CEO which is disconcerting as a shareholder. A lot of time has passed since the CEO position was vacated. There has been a lot of speculation regarding this matter which I will discuss in a few paragraphs.

Not having a CEO is a pressing issue right now. Another concern is an SEC investigation which MJNA disclosed several months ago. While government bureaucracies move slowly, had the SEC discovered material offenses, they would have acted by now. It is also pretty doubtful that FINRA made any friends with their blanket "warning" about investing in publicly traded cannabis companies only months before the stocks exploded.

Either way, it is doubtful that MJNA faces any serious regulatory issues, especially regarding THC generated sales. Currently, MJNA maintains the company does not profit from direct THC sales. However, MJNA also owns 60% or Red Dice Holdings (RDH), the company responsible for Dixie THC products. MJNA, like other publicly traded companies, uses the term "licensing" in regards to any revenue that may be linked to THC. Again, there is a lot of speculation here which will be address below.

The third bit nagging MJNA is the lawsuit between them and Dixie. The dispute failed to entice the courts and therefore is tied up in arbitration. Once again there is a lot of speculation here. Dixie contends that MJNA did not fulfill MJNA's contractual obligations and therefore MJNA has no ownership rights to Dixie. MJNA has countered saying that Dixie has not provided revenues due. The legal action is pretty standard fare for business disputes so speculation is quite silly because the answers will be revealed at the end of arbitration.

Aside from those 3 issues, MJNA is facing normal growing pains. There has been rampant speculation about how MJNA has accounted for shares issued by CANV and the value of those shares, especially in relation to MJNA's value. Is MJNA selling these shares for capital? Are the shares properly valued? This issue is somewhat contentious and you either trust the company or not based in their accounting for the CANV shares. Certain popular, but severely underqualified media sites and individuals have maintained a constant cloud of negativity about the company. Hopefully some of the recent activity and the horrendous trading calls from these groups has helped highlight (more like lowlight) their true motivations. There has also been discussion about MJNA's product quality due to a disgruntled employee which I will not even address because of the absurdity (something endlessly touted by the aforementioned groups).

To finally address the wild speculation that occurs here and on other less than reputable sites, I base my investment/trading on the company's official statements and my own due diligence. I equate this speculation to watching a person drive past you on the street and trying to analyze their motivations, social status, destination, what they have in the car........it's all a guess no matter how educated. That's the risk of the markets.

Now that the negativity has been addressed, let's shine some light on MJNA and the greying black market of cannabis.

In the last half of 2013, MJNA had some major product advancements. Although CanChew sales were insignificant, MJNA has brought this product to market. Hopefully CanChew will be able to bring down development costs once domestic hemp production goes online. MJNA also started a massive marketing effort through HempMedsPX. So far this marketing effort appears to be a great success and the exposure has been growing.

Many of those products marketed through HempMeds are CBD creams, oils, lotions and more. MJNA is one of the leaders in CBD products. For years marijuana has been all about THC but recent medical discoveries have shown CBDs to hold significant medical properties. CBDs not only hold medical value but the compound also has nutritional and other supplemental qualities. Not only is there pharmaceutical potential with MJNA's CBD products, but the cosmetic and nutritional values could open doors to retail such as Whole Foods, Sephora or even Target to name a few.

Another exciting prospect comes from legal THC sales. As previously mentioned, MJNA contends the company does not profit directly from THC sales but the company also holds a 60% interest in Red Dice, proprietor of the Dixie brand, one of Colorado's leading THC product makers. The new recreational legalization will open doors to legally capitalizing on cannabis. As recently as this past week, delegates and legislators in Colorado have begun demanding the federal government amend the Controlled Substances Act to allow banking to get involved with marijuana based businesses (http://blogs.denverpost.com/thespot/2014/01/10/sen-michael-bennet-pushes-departments-of-justice-treasury-to-allow-marijuana-businesses-access-to-banking/104638/). These changes could unleash a flood of investment capital inaccessible under current laws.

Existent cannabis prohibition laws are perhaps the biggest impedance to the massive expansion coming to the legal cannabis industry. Along with the banking issues from the Controlled Substances Act, marijuana is still illegal is half the states in the US. But that is rapidly changing. It is likely that California will be introducing recreational legalization initiatives during this years mid-term elections with many other states considering medical and recreational legalization. MJNA is based in California so relaxing the cannabis prohibition laws in CA could open doors.

One of the reasons the Dixie lawsuit is so innocuous is that MJNA could find numerous other THC brands to partner with should the relationship with Dixie dissolve. Regardless, MJNA stands to benefit greatly and may already draw revenue from THC sales. To add to the speculation about the MJNA/Dixie lawsuit, it is very likely Dixie is unhappy with any THC revenue sharing provisions with MJNA that may have been part of a contractual obligations.

From an equity standpoint, MJNA has also stated the company is actively pursuing uplisting options for the equity. There has been quite some hold up, specifically regarding proper accounting procedures. The company will hopefully provide some insight in the first quarter earnings report.

And that's the next major step for MJNA and pretty much all cannabis companies, first quarter earnings. Has the HempMeds effort grown the business? Will there be upcoming THC revenues? Has any progress been made in the CEO search? What is MJNA doing with the CANV holding? There are many questions to be addressed. Unfortunately, MJNA needs to work on their disclosure and at some point it would be nice to have a long discussed shareholder meeting.

Regardless, 2014 has been a great start for the burgeoning cannabis industry and MJNA. The stock is up nearly 100% from recent lows. Over the past three years, publicly traded cannabis entities tend to pop in the first quarter and fade through out the year. However, I sincerely believe this year may be different. PEOPLE, ONE OF THE UNITED STATES JUST LEGALIZED MARIJUANA! That is an enormous advancement! Absolutely enormous! And then there will be mid-term elections with the potential for easing of other state's laws. These are the first steps to full blown legalization and who knows where we go from there.

So is MJNA a buy, sell or hold? I'd say buy. I don't think there is any real need to rush into MJNA but with a potentially solid quarter and excellent future prospects, I would not hesitate to commit a reasonable amount of capital. Of course there are risks of a total loss and covering the short side of MJNA is difficult, so I would certainly only commit a comfortable sum. Day trading MJNA is also difficult due to liquidity issues with large volumes and again, the lack of ease covering the short side via short sales of the stock and lack of any derivative plays. Take profits and recoup your investment quickly and let the rest ride if you can.

Disclosure:
I am long MJNA shares. Those shares have been paid for since the February 2013 pop. I repurchased around 250,000 shares in September. I did not sell any MJNA during the Jan 2014 pop. I did sell portions of my ERBB, SKTO and CBIS holdings to recoup investment costs and take profits.