Marijuana stocks went on their annual January surge last week. While most of the 20 publicly traded companies associated with marijuana settled back to reality by Friday, the increase in volume was unprecedented.
To find out why, I called Charlie Larsen, Chairman of the Advisory Board for the Hemp Industrial Innovation Institute (www.Hemp-iii.org), advisor to the North American Industrial Hemp Council (www.NAIHC.org) and newly-appointed CEO of Arris Holdings, (CNSX: AAF) a Canadian/German company building a global network of hemp farmers and processors. During the last 30 years working as an executive manager and securities trader, Larsen has been on the ground floor of several publicly traded cannabis companies.
“That Sanjay Gupta thing got it rolling. The Colorado thing pushed it over the top. The public sees those long lines of people in the news and they say, ‘Holy shit, this is really happening. They’re not stopping it this time.’ I really do believe that's what it is. I see all the messages every day on the boards. It’s a frenzy, it’s like the dot com boom.“
Last April I interviewed Tripp Keber, of Red Dice Holdings/Dixie Elixirs (MJNA) in Denver. He lamented that the company had been shorted by “financial terrorists” using the popular penny stock website Seeking Alpha to manipulate public opinion. Seeking Alpha hyped and then eviscerated MJNA’s stock value though a series of press releases and timely trades. Keber estimated MJNA’s shareholders lost at least $25 million in market capitalization value.
According to Larsen, short selling is, “Selling stock before you buy, instead of buying before you sell. It’s selling stock you don’t own.” A client tells a broker to buy a stock at high price, the broker pays the client for those shares, later on the client buys back those shares (hopefully at a lower price) and pays the broker the difference. While an attractive option to those trying to make a quick buck, Larsen doubts many short sellers are targeting pot stocks.
Recently, cannabis industry trade shows have found themselves invaded by packs of business casual investors looking for the next big thing. “That is only half of what we are going to see with the election coming in November. I guarantee it’s going to be crazy in August running up to November. It’s nuts.”
As the boom continues, investors should gauge spikes in public interest based on market news, as well as state and country cannabis legalization. Remember: keep your head and don't get caught up in the hype.