Garbage Companies & The Marijuana Industry: Expert Warns About Overvalued Cannabis Stocks

Investing in marijuana stocks isn't easy and definitely not for the risk-averse. With so many penny stocks out there, how can individual investors tell the good from the bad?

Investment banker and President of cannabis advisory firm Electrum Partners, Leslie Bocskor, recently shared a look at how to pick the right cannabis stocks.

Earlier this week, Benzinga reached out to Alan Brochstein, who regularly points out overvalued stocks to avoid in the cannabis industry.

Since the year started, Benzinga singled out eight marijuana stocks that seemed overvalued; These stocks on average have lost more than 25 percentage points.

Stocks To Avoid

Brochstein wanted to highlight the fact that there are great cannabis companies out there and what he works on is on telling them apart from the bloated penny stocks.

The fist company Brochstein mentioned was Greengro Technologies Inc GRNH.

“My number one issue with the company, just from the get-go, is that, even though they have been around for quite a while, they still don't file with the SEC. That's always a huge red flag,” he noted. “In addition, they haven't been showing a lot of revenue.”

On Wednesday, the company put out a press release and a few things that caught Brochstein’s eye.

"Their stock has been hammered year-to-date," Brochstein started. "Suddenly, they come out with a press release where they talk about acquiring what they call a 'popular social network community, www.weedwall.com.'"

"I follow this industry full-time and I've never heard of this site. So, I went to weedwall.com... All I could find were advertisements for illegal drugs for sale."

A look at their balance sheet shows Greengro didn't have the resources to make an acquisition like the two they mentioned in the press release, Brochstein said.

"They are throwing out big numbers [revenue projections] and they are not likely to ever pan out. They are several times higher than what they ever produced."

A Trash Stock, Literally

The second company in Brochstein’s radar is Mentor Capital Inc MNTR.

"Mentor is a different kind of animal," Brochstein said. "The guy running it has been doing it for a very long time, and he failed in his first effort, in my opinion. I say that mainly because I looked at the numbers and the stock chart. The stock has been going at best sideways for a decade."

Brochstein thinks the stock has done well recently because traders got hold of it, "not because of anything the company is really accomplishing."

"[I]f you look at their financials," Brochstein said, "they actually have little or no exposure to the cannabis industry. It's really a waste services company. More than 90 percent of the company is related to waste services in Arizona. And they never say that in their press releases, even though it’s in all the SEC filings. It seems like they are trying to capitalize on people’s interest in cannabis, but they are actually a garbage company, literally."

To get in the cannabis industry, Brochstein said, Mentor bought $1 million worth of GW Pharmaceuticals PLC- ADR GWPH.

"If you go back and review beyond that," he continued, "they've done very little in the cannabis space except a few deals in the past that have blown up including an investment with Bhang Chocolate Co that ended up going into litigation, and a cannabis stocks webcast company that blew up as well."

More recently, Mentor closed a deal with Stereo Vision Entertainment Inc SVSN, another penny stock off Puerto Rico.

Track Record

In the past, Brochstein singled out:

• General Cannabis Corp CANN, which lost more than 37 percent since the publication of our article on January 5.
• CANNAGROW HLDGS IN COM USD0.001 CGRW, down over 23 percent since the article – January 6.
• Helix TCS Inc HLIX, down 58 percent since we discussed it – January 6.
• Vitality Biopharma Inc VBIO, down almost 29 percent since our piece came out – January 9.
• Axim Biotechnologies Inc AXIM, down 7.4 percent since our January 9 comments.
• ChineseInvestors.com Inc CIIX, down 28 percent since our January 30 exposé.
• Ubiquitech Software Corp UBQU, down almost 21 percent since January 30.
• Earth Science Tech Inc ETST, down 6.25 percent since we put out our article – February 10.