There has been a lot of interest recently in marijuana stocks thanks to it being newly legalized in Colorado and Washington state. One stock in particular, Growlife Inc. (OTCQB:PHOT) is going rocky mountain high with over a 300% gain in just the last month, but is this a legitimate opportunity for investors or just another classic pump and dump penny stock scheme.
Let's start with the company fundamentals.
The most recent quarterly "reported" revenue growth for the firm is impressive with nearly 100% year over year growth. But at what cost is this growth coming from? From the $870k in reported revenue Growlife indicates a total loss of over $1 million, so in essence they are losing over a buck for every dollar they make in sales. With operational margins this horrendous it seems unlikely to make up this deficit regardless of future sales volume and growth.
You might also notice I use the term "reported" in quotations. The reason for this is that many of the claims of Growlife smell funky. Growlife, like many other pump and dump schemes, is the byproduct of a reverse merger in 2011. These types of companies are able to gain access to securities markets via low cost and unregulated transactions by purchasing the non-trading shares of another defunct company. The newly appointed CFO, John Genesi, seems to be an expert on these deals. His last listed CFO job was at LandBank Group, which according to SEC Reports was a company founded in 1997 that went dormant for years, came back as a network storage company called iStorage Networks, and then turned back into LandBank to make tax lien purchases at foreclosure auctions. Best guess is that next to no business occured during any of these changeovers, but plenty of stock issuances were done along the way to cash out the scheme for executives. Let's give the guy credit though, he certainly can spot bubble niches like a pro.
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