The 420 Investor Looks Into 2 Marijuana Stocks That Seem Overvalued

A few days ago, Alan Brochstein, founding partner at New Cannabis Ventures and founder at 420 Investor, shared a look at five overvalued cannabis stocks and explained what was going on with them. On Friday, Benzinga spoke once again with the expert, who went into two more stocks that could be overvalued.

ChineseInvestors.com

The first stock in question was ChineseInvestors.com Inc CIIX, which is active in the cannabis business, even though its name would suggest otherwise.

“I’ve been following the stock for a while, because they actually had a very small play into the cannabis market. They helped seed Medicine Man Technologies Inc MDCL, so I was paying attention to that," Brochstein said.

"[ChineseInvestors] disclosed in an 8-K filing this week that they are selling convertible preferred stock. What is going on is that they are selling 5 million shares at $1.00 each. This is convertible preferred stock, and what it means is that people that buy that stock get a 6 percent dividend and they have the option to convert each of their shares into 3 shares of common stock,” he explicated. “So, they are effectively paying $0.333 per share, which is way below where it is trading [$2.24 as of Friday's close]."

"They can't convert until six months go by, so that will be something to watch. But, it kind of tells you what the real value of the company is. The fact that they can't sell anywhere close to the $2.24 where it is trading right now is really funny,” the expert continued.

"This isn't a particularly expensive stock, in my opinion - and in a world of brutally crazy valuations [...] But, yet again, it tells you how hard it is for companies to raise money, and kind of the big spread... It's better to buy these private securities than to buy in the open market, for sure,” Brochstein voiced.

"You have 30 million shares total— You are talking $60 million fully diluted market cap [...] And, in the first six months of this fiscal year, which ends in May, they had total sales of $852.000. So, they are on their way for less than $2 million in sales. So, [it's valued at] 30 times sales [even though] they lose a ton of money. Through the first six months, they had a net loss from operations of $2 million. So, this is a company that is bleeding to death— Just another sign that people need to be very careful with the cannabis stocks because they fund themselves at a deep, deep discount to where they are trading,” he concluded.

Ubiquitech Software Corp

The second stock that Brochstein looked into was Ubiquitech Software Corp UBQU, which entered the cannabis industry via the acquisition of Hemp Life Today, which makes canabidiol (CBD) oil.

"They don't file with the SEC, which is always a red flag to me," the investor pointed out. In addition, two other things caught his attention:

    1. Ubiquitech recently paid 10 million shares to a company connected to MarijuanaStocks.com for promotion.
    2. In a recent filing, the company disclosed that, in September, there were 45.6 million shares converted at $0.001; and then, in October, another 30 million shares were converted at $0.001; and then, in November, another 15 million shares were converted at $0.001.

"There is another filing where they actually discuss their outstanding convertible notes. If this was it, and it was done, maybe it's not the end of the world, they just added about 90 million shares. But, there is a lot more ahead," he cautioned.

"On their balance sheet, they show long-term debt of $901,000 as of the end of November, and it's all convertible at $0.001 so, I figured it would add 900 million shares if they converted all that," the expert supplemented.

"So, this just looks like a pump and dump, and, once again, the public is out there paying $0.02 to $0.04 per share as the stock promoters run it up and the company says all these great things. But, other people are effectively buying the stock at $0.001. I don't get how that even happens,” Brochstein concluded. “The retail price, where the stock is trading, and the wholesale price, where the financiers are getting in — the spread is just huge — If these people can buy stock at $0.001 and sell it at $0.025, that's 25 times their money! That’s why you need to be careful, because the likelihood is, especially with 900 million shares potentially coming out, that these people are going to continue to just convert the debt and sell shares."

Posted In: 420 investorAlan BrochsteincannabismarijuanaBiotechShort IdeasTop StoriesMoversTrading IdeasInterviewGeneral

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