Buy low, sell high: 4 pot stocks for impressionable investors?

The medical marijuana sector has been smoking the ASX over the past year after the federal government introduced legislation first to let medical marijuana be prescribed for medical purposes and more recently to allow its cultivation and exportation abroad assuming suitable licences are granted and regulatory hurdles cleared.

In fairness the cultivation and export of cannabis on a commercial scale could be big business in theory.

If you consider estimates that just 1 gram of cannabis could retail for $7.50 (I hear the street price is around triple) then 10 tonnes of the stuff could mean a $75 million pay day. Still oversupply could be the fly in the ointment as cannabis is just a commodity and I’ve heard it’s pretty easy to grow in your own backyard.

Still none of these companies have generated much in the way of revenues yet, so is this just another giant addressable market story for gullible punters trying to get-rich-quick, or could the companies actually deliver investors sustainable capital gains. Let’s have a look at some of the leading contenders on the local market.

Auscann Group Holdings Ltd (ASX: ACH) shares are up 200% over just the past year, although the company has no revenues and posted an operating cash loss of $1.2 million for the quarter ending December 31 2017. Despite the financials it has a market value of more than $225 million. According to the company it is “targeting medications for neuropathic and chronic pain in Australia and Chile, whilst exploring global export opportunities”. It would need to generate sales around $45 million per year to trade on 5x its enterprise value to sales.

Cann Group Ltd (ASX: CAN) reported no revenues for the quarter ending December 31 2017 and an operating cash loss of $929,000. Over the quarter the company completed a $60 million capital raising at $2.50 per share, with the proceeds partly to be used to fund giant cultivation facilities including a 16,000 sq metre greenfield development in Victoria. The company has a market value around $308 million at $2.91 a share today and would need around $60 million in sales per year to trade on 5x sales.

Creso Pharma Ltd (ASX: CPH) reported sales of just $14,000 and an operating cash outflow of $2.78 million for the quarter ending December 31 2017. The company also provided a “loan” of CAD$5.5 million to Canadian medical marijuana hopeful Minerva Medicinal Inc. over the quarter and finished the quarter with $12.3 million cash in hand. In late February the company reported $311,900 in first sales from its cannabis products and is focused on medical marijauna products in the human and animal health space.

The company recently hit the headlines for issuing more than 3 million new shares to corporate partners in exchange for services provided, so dilution remains an issue alongside the cash outflows.

Establishing Creso’s market value is complicated due to the options over shares, although according to the company report there were 83.14 million ordinary shares on issues as at the end of 2017. Today the stock changes hands for 88 cents which gives it a market cap of $75 million on that basis.

The Hydroponics Company (ASX: THC) posted cash receipts of $821,000 and an operating cash loss of $925,000 for the quarter ending December 31 2017. As at quarter end it had $11.03 million cash on hand and THC is also investing in cultivation facilities to serve demand from Australian and international patients. Just today, THC shares are up 6% to 68.5 cents, although it’s a relative minnow with a market value around $54 million.

You might want to forget the pot stocks as our #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.