The rise of medical marijuana along with “recreational use” being approved for the drug in both Colorado and Washington has sent investors looking for ways to cash in; but perhaps the best way to make money would be to consider a small cap drug testing stock like Psychemedics Corp. (NASDAQ: PMD) rather than risky small cap medical marijuana stocks like Medical Marijuana (PINK: MJNA) or Cannabis Science (PINK: CBIS). For one thing, MMJ Business Daily is predicting retail medical cannabis sales in the USA could hit the $1.3 billion to $1.5 billion mark in 2013 for a 10% to 15% growth rate – and that’s just the legal sales of the stuff by legitimate entities like Medical Marijuana and Cannabis Science and not from the guy hanging out on your street corner, meaning there is still going to be plenty of new business out there for drug testing stocks like Psychemedics Corp to detect.
What is Psychemedics Corp.?
Founded in 1987, Psychemedics Corp. provides drug testing using hair analysis. According to the company website, 85% of the drug users identified by Psychemedics would have been missed by urinalysis thanks to the much longer detection window of approximately three months and unique patented technology. Since Psychemedics Corp's technology removes virtually 100% of the drugs from the hair, its able to provide superior detection and accurate results for pre-employment and employee drug screening.
Psychemedics Corp.’s clients include over 10% of the Fortune 500 along with some of the largest police departments in America plus six Federal Reserve Banks plus the company has also successfully defended its hair test drug results in lawsuits, union arbitrations and government agency hearings with results being routinely upheld in employment cases. In addition, the company has FDA clearance on all drug categories and is the only lab to have clearance not limited to head hair.
Why Might Investors Get Interested in Psychemedics Corp.?
Back in February, Psychemedics Corp. announced a 5% revenue increase to $25.2 million while net income fell 15% from $3.5 million to $3.0 million plus fourth quarter revenue rose 2% to $5.7 million while net income for the quarter fell 38% from $438k to $273k. The company’s balance sheet remained strong at the end of last year with approximately $3.1 million in cash and cash equivalents and no long-term debt.
It was noted in the press release that back in the second quarter, Psychemedics Corp. received FDA clearances for five new assays to test for the detection of cocaine, opiates, PCP, methamphetamine and marijuana using enzyme immunoassay (EIA) analysis of hair which will meet and perhaps exceed the standards of radioimmunoassay (RIAH). Changing from RIAH to EIA technology impacted the Psychemedics Corp’s bottom line in the third and fourth quarter and required a major capital investment in excess of $1.5 million, but it also strengthens the company’s position moving forward.
Psychemedics Corp. also announced at the end of February an agreement with TruTouch Technologies, Inc. to market its rapid optical alcohol detection and biometric test in the US. This workplace sobriety assurance solution utilizes an optical based, non-invasive near infra red sensor to measure alcohol consumption and is intended as a preliminary screening tool for fit for-duty applications.
Beyond that bit of news, there is not much regular news coming out of Psychemedics Corp. It should also be mentioned that Psychemedics Corp. has a $0.60 forward dividend for a 5.10% dividend yield, but the payout ratio on the dividend is a rather high 105% according to Yahoo! Finance. Nevertheless, the most recent declared dividend was the company’s 66th consecutive quarterly dividend.
Stock Performance: Medical Marijuana Vs. Drug Testing
On Tuesday, Psychemedics Corp. rose 0.17% to $11.98 (PMD has a 52 week trading range of $9.46 to $12.49 a share) for a market cap of $63.16 million plus the stock is up 9.4% since the start of the year, up 21.5% over the past year and down 28% over the past five years. A quick look at Psychemedics Corp.’s stock performance verses Medical Marijuana and Cannabis Science shows that investors have been left with a greater high had they invested in drug testing rather than an actual medical marijuana or cannabis stock:
For technicians, here is a closer look at Psychemedics Corp.'s recent chart:
The Bottom Line. If you are thinking of a way to cash in on medical marijuana or cannabis, a small cap drug testing stock like Psychemedics Corp. might be a better bet.