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Thursday, October 29, 2020

Marijuana Company Of America Inc (OTCMKTS:MCOA) A Lesson in Valuation

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Marijuana Company Of America Inc (OTCMKTS:MCOA) is a micro cap stock trading in the Cannabis industry and overall they can be tricky to value. Mainly because the information about it’s valuation are wrong on many quote services, so investors look at a company like Marijuana Company Of America Inc (OTCMKTS:MCOA) and say it is just a languishing low priced stock. It takes a closer look to understand that the company has been around for many years, experienced the ups and downs of a new asset class and has been operating a real business all along. Because of Federal Laws against Cannabis these under-covered companies in a under-covered sector never have garnered the attention of CNBC, Bloomberg or the Wall Street Journal, making it easy to miss what is important about them.

I found the best way to look at them is to make sure you know the real-time valuation.  The best way to do this is to go to Google Finance and check the current market capitalization number, and the share count. These numbers are just to the right of the last sale and are easily recognizable. If you cross check with another free quote service (Yahoo or OTCBB) they often have different share counts so it computes the market cap valuation wrong – making you only look at the price of the stock.

Marijuana Company Of America Inc (OTCMKTS:MCOA) is a micro cap – and it’s wrong to only look at the price in micro cap stocks, because the companies are always distributing shares, and in the case of MCOA (for example) they have 1.58 billion shares out. That is a big number, and a closer look gets you to the real valuation of the company (not the price), which is a $82.3 million valuation.

This is the only way to look at the true value of your shares, because dilution will eventually catch up with price. And yes I know if you buy it at one price and sell it at another you get real money back in your account, yes I get that. But if you are a long term investor not flipping shares in and out this becomes a critical point that needs to be understood.

If you are evaluating a stock and trying to determine if it is growing or shrinking you need to use the market cap valuation in real-time. Also know that if the share count is rising, eventually the price will decline.

Let us look at Marijuana Company of America Inc. in a yearly chart (below) and if you look back to pre –election October 2016 you can see shares trading around .01, or a penny.  A few days after the election the company had a 13x move to the upside taking its valuation from (these are approximate numbers) $15m to $203m which is a huge increase in 1 month.  In effect a 400% rise in 30 days.

The company value exploded after being dormant for 5 years. The current value of the company is $82 million. But if you look below you can see the parabolic rise in share price, the issuance of shares, and the decline in prices as one of the many factors in determining its value.  This $82 million dollar benchmark valuation will allow you to look at the stock in 2 weeks, 2 months or 2 years and know its value.

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$MCOA 10-Day Chart Below:

We talked so much about price action (technical analysis), but it is also important to talk about the fundamentals of the company and what they are doing in the real world to achieve these valuations. During February 2017, MCOA announced that it entered into a non-binding LOI while performing due diligence to finalize a joint venture agreement with Bougainville Ventures, Inc. for the purpose of housing tenant growers engaging in the cultivation, processing and commercial availability of legal marijuana in the State of Washington. Subject to the final agreement, MCOA will invest up to $1 million in JV for 50% equity ownership and share in profits. While, Bougainville Ventures, Inc. will contribute its expertise in establishing the facilities.

MCOA operates in the Marijuana industry that has rapidly & recently turned into a multi-billion dollar massive growth market across the US and Canada with many new states legalizing it. According to a recent estimate, the cannabis market crossed $6.7 billion in the U.S. alone in 2016, and the sales of cannabis are set to rise to $22.8 billion in the U.S. by 2020. Also, combined recreational cannabis sales could total an estimated $40-$45 billion, if cannabis is legalized across the United States of America.

The company also recently announced that it has completed due diligence and entered into a binding joint venture agreement with GateC Research, Inc. for the purpose of engaging in the cultivation of legal marijuana in Adelanto, California.

The terms of the agreement include that MCOA will invest cash and stock in a newly formed entity, and receive a 50% equity and share in the net profits produced in the joint venture in Adelanto, California, where GCR owns a permit for cultivation.

A three-person board of managing members will oversee operations of the newly formed entity. GCR will contribute its expertise in marijuana cultivation, as well as establish partnerships and licensing agreements that will enable the legal cultivation of marijuana in the State of California.

Donald Steinberg, MCOA President and CEO, commented, “We are excited to work with the GateC Research, Inc. team, and we look forward to strengthening our supply chain pipeline in California. We have some very exciting marketing ideas to implement as regulations allow.”

“Our partners have managed many successful and legally compliant cultivation projects in California and we are looking forward to expanding our operations with MCOA’s assistance into Adelanto County and starting a cultivation model that we intend to successfully replicate with MCOA,” said Adam Agathakis, an Officer of GateC Research, Inc.

Cannabis companies are getting attention, and companies like Marijuana Company of America Inc. (OTCMKTS:MCOA) have been through the wars since 2012. MCOA is a real business that has turned the corner – generating revenue and now that you know how to determine the company valuation you will know when it is expensive relative to it’s historical pricing. It certainly is one to watch as this sector begins to come into focus. For continuing coverage on shares of $MCOA stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

 

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