Two days ago, I penned some pessimistic comments on marijuana-related names Cannabis Science Inc. (PINK:CBIS), Medical Marijuana Inc. (PINK:MJNA), and Growlife Inc. (OTC:PHOT). The basic thesis was, hype drove these stocks too high late last year and earlier this year, and when that hype bubble popped, MJNA, PHOT, and CBIS deflated in a hurry. Although marijuana and hemp are legal in many states now and there is at least some opportunity within the industry, the dust cloud created by recent mania has made it difficult for investors to know exactly what they're getting into. Yet...
Not to suggest that Medical Marijuana and Cannabis Science are illegitimate organizations, but among the three in question, Growlife is the only one that's a fully-reporting (to the SEC) and fully-accountable company. MJNA is a pink sheet stock, and so is CBIS. PHOT is an OTC-listed stock, and as such is held to higher reporting standards. Its results must be audited, while the two pink sheet names [though both have technically filed quarterly numbers] are not required to undergo an audit, and could technically stop reporting numbers and other investor information at any time.
That alone adds a layer of comfort for traders looking to step into the marijuana space, but it's not the only reason an investor may want to choose Growlife Inc. over other players in the industry.
Growlife is a well-diversified small cap. The $14.4 million company sells marijuana-growing equipment. Its top product is the Phototron, which assists individuals looking to legally grow their own marijuana. What investors may not fully appreciate, however, is everything else PHOT does. It's also the owner of Stealth Grow (LED lighting for plants), SG Sensors (wireless control of growing-operations), Greners (supplier of hydroponic equipment), Phototron (self-contained plant growing systems) and GrowLife Productions (planner of industry-relevant special events). All those divisions function well on their own, but together, achieve a significant synergy.
That synergy is showing up on the top and bottom lines too. Last year, the company generated $1.45 million in revenue. What that number obscures, however, is the rate of revenue acceleration. Q1's top line of $90K reached $210K in Q2, which became $480K in Q3, with the fourth quarter's revenue total reaching $670K. The company swung to a profit in Q4 too. The growth and new profit reflect not just new acquisitions, but also the successful integration of several different companies into one congruent company.
More of the same synergy-driven earnings growth is on the way too. On April 4th, PHOT announced its intentions to acquire three more related companies - Rocky Mountain Hydroponics LLC, Evergreen Garden Center LLC, and 58Hydro.com.
Between the three target organizations, the company should add about $4 million worth of annual revenue... at least based on the numbers each one drove last year. Realistically, however, the odds favor the acquisitions leading to a "the whole is greater than the sum of its parts" scenario, where offering more products and service draws an exponentially-increased crowd size. Some industry analysts believe the company's synergies and current acquisition mode could lead to a top line of more than $20 million by 2014, with revenues of more than $100 million by 2016.
The numbers seem phenomenal - what could possibly spur that kind of growth? It's not a completely out of line outlook for Growlife Inc., however. Remember, medical marijuana only reached social acceptability by the majority of Americans last year. A recent Pew Research poll indicated that 52% of the country decided marijuana should be legal.
But marijuana is still illegal at the Federal level, jeopardizing the legalization of marijuana in the 19 states where medicinal use is considered legal (two of which even allow for recreational use)? Possibly, though the White House has already said it's not interested in fighting that battle. Just to make sure Washington D.C. doesn't make waves in the future, however, California Representative Rohrabacher has introduced (HR 1523) that would say state law supercedes federal law on the matter. Such legislation has been introduced - and shot down - in the past, but each new proposal seems to get a little more traction than the last.
The bottom line is, the proverbial planets are lining up for Growlife Inc. They're lining up for Cannabis Science Inc. and Medical Marijuana Inc. too, but it's Growlife that has the credibility and a proven plan. Investors who want a 'serious' stake in the budding marijuana industry can safely start and finish with PHOT.
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