A company that creates medical-marijuana dispensing machines says its stock is getting way too high.
Medbox
MDBX
+50.00%
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.
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 StickyGuide.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.
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