By Quentin Fottrell
Arno van Dulmen / Shutterstock.com
A company that creates medical-marijuana dispensing machines says its stock is getting way too high.
Medbox MDBX -90.24% shares surged 3,000% this week -- from roughly $4 Monday to $215 Thursday -- before falling to $100 after executives sought to dampen investor enthusiasm.
In a news release today, the company said that the stock’s rocket launch, which sent its market cap skyrocketing from $45 million at the start of the week to a staggering $2.3 billion, was ignited by a MarketWatch story Tuesday on how to invest in legalized marijuana (see How to invest in legalized marijuana .) (That’s about double the market capitalization of retailer Jos. A. Bank Clothiers.) The stock, which fell around 50% in early trading Friday, still hovers at $100. “We believe an appropriate trading range is between $5 and $10 but, alas, the market will do what it will do,” says Medbox founder Vincent Mehdizadeh.
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At the height of trading this week, $600,000 to $700,000 worth of purchases were made, an unusually high volume for a company of this size. “It was astonishing,” Mehdizadeh says. “We couldn’t really understand why that was happening other than that there was a high demand for stock with limited supply.” It was “thin volume,” but Mehdizadeh says he doesn’t know whether it was one hedge fund or several big buyers.
The company says it’s also investigating ways to minimize any potential shareholder losses. Medbox is in discussions with its attorneys to see if it can reward early investors with company-owned shares should the price they bought at in recent days fall significantly. “We don’t want those investors to have sour feelings about what happened,” Mehdizadeh says. “Obviously day traders are having a field day lately trading our stock.”
But it’s very risky to invest in drugs prohibited at a federal level, experts say. Nearly 500 of the estimated 3,000 dispensaries nationwide have closed or were shut down by the federal government in the past year, according to StickGuide.com, an online directory for medical marijuana dispensaries. Currently, Medbox has 130 dispensers in the field and is due to install 40 more next month, and says it’s looking at the broader pharmaceutical market.
While the rush investors got from the company’s wild surge this week may be matched in coming years, the Hollywood, Calif.-based company says it is confident in its future prospects. Medbox reported a third-quarter revenue of $1.3 million, up from $850,000 in the second quarter. Medbox forecasts revenue of $24 million by the end of the fiscal year 2014 and $48 million by the end of fiscal 2016. It expects earnings before interest, depreciation and amortization to remain at a “healthy” $10.2 million and $22.1 million during those periods. “Real companies don’t need hype,” Mehdizadeh says.
“We feel within 10 years we could legitimately have share prices hit $215 again,” Mehdizadeh says. Currently, there are around one million shares available for trade and, this time next year, he says there will be another one to two million shares trading. Although the company focuses primarily on medical marijuana, he says the temperature-controlled dispensing machines could also be used in prisons and 24-hour drug stores for a larger range of drugs Marijuana-dispenser stock gets too high - MarketWatch.
Earlier this year, the Dutch government began phasing in restrictions on the coffeeshops, which sell marijuana and hashish legally and under regulation and pay taxes. On May 1, starting in southern provinces, Dutch citizens were required for the first time to present a government-issued “weed pass” for admission to the coffeeshops. Non-Dutch citizens could not get a weed pass, effectively killing the foreign trade. Dutch citizens have largely voided the weed pass.
The idea was to prevent mostly German, Belgian and French tourists from crossing the border to purchase drugs illegal in their own countries. The ban, imposed by the outgoing national government, was due to roll out – so to speak – to the rest of the country on January 1, 2013.
Yet in an interview yesterday in the Dutch newspaper Volkskrant, Amsterdam Mayor Eberhard Van der Laan said that the new measures will not take effect in Amsterdam, the nation’s largest city and biggest tourist draw.
“Amsterdam gets some 7 million tourists per year, of whom it is estimated that 1.5 million visit one of the city’s coffeeshops,” he said. If barred from the coffeeshops, “The one-and-a-half million tourists will not say, ‘then no more marijuana.’ They will swarm all over the city looking for drugs,” from illicit sources. “This would lead, to more robberies, quarrels about fake drugs, and no control of the quality of drugs on the market,” precisely the effects the ban was intended to avoid.
Amsterdam credits the coffeehouse system, in part, with cleaning up neighborhoods where illicit sales once reigned, such as the historic enclaves of Zeedijk and De Wallen. “The city council, the police and the residents have been busy 20 years to reclaim that area,” Van der Laan said. If the ban hit Amsterdam, “Everything we have worked towards would be lost to misery.”
The newspaper reports about 220 coffeeshops in Amsterdam, about one-third of the total nationwide.
To arrive at this deal with the national Minister for Security and Justice, Amsterdam had to offer assurances of policies of checks and balances on the coffeeshops. “Sales to minors, drugs which are too strong, stocking of too large a quantity, advertising or causing nuisance – we will close in and deal with offenders ruthlessly,” Van der Laan said.
Amsterdam To Weed Smokers: Party On. - Forbes.
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