“Volatility”” In the Canna Stock Market

By February 11, 2015 Advice, Experiences, News, Thoughts

“Volatility” In The Canna Stock  Market

Brought to you by Rowe Financial Research

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This week (Monday, February 9, 2015) Alan Brochstein, a well know and respected analyst in the cannabis space, sent a message out to his subscribers to explain what he thinks happened to the price of MedBox last Friday. It reads:

The MDBX plunge on Friday can be explained:  http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=10461105  Former CEO Bruce Bedrick was hit with a margin-call and was forced to sell shares as low as 1.5716. In all, he sold 160K. I posted the filing to this Forum:

For reference I have included the trading history for MedBox for the last week:

Date Daily Ending Price Previous Closing Price Change (%) Daily High Daily Low Trading Range Trade Volume Volume VWAP (Volume Weighted Average Price) Dollar Volume
2/2/2015      4.0800      4.1100 -0.73      4.2900      4.0200      0 important source.2700 190        79,114 4.125188    326,360
2/3/2015      3.9800      4.0800 -2.45      4.1000      3.8800      0.2200 317    103,189 3.942212    406,793
2/4/2015      3.2800      3.9800 -17.59      3.9000      3.2700      0.6300 540    257,855 3.502571    903,155
2/5/2015      2.2900     3.2800 -30.18      3.1900      2.1800      1.0100 1495 1,093,559 2.471659 2,702,905
2/6/2015      1.5600      2.2900 -31.88      2.2400      1.4200      0.8200 1738 1,312,165 1.693587 2,222,266

 

The opening price of MedBox on Monday, February 2, 2015 was $4.13. So over the course of the week, the stock price fell 62.23% [Calculation of the holding period return for the week: =(1.56-4.13)/4.13))]

The reason why I wanted to bring this up is because the email and the trading history of the stock give insight into the volatility of cannabis stocks in general. One of the questions that people ask most about cannabis stocks is what causes the price changes? People want to know the “breaking news” or the “inside story”, but here is a prime example of a huge price fluctuation that really had nothing to do with the performance of the company at all. The guy needed to sell stock. He didn’t want to. The selling of the shares was not a signal. He just needed the money.

This happens in the stock market all the time. Someone needs to make a payment for their child’s college tuition, or someone gets ill unexpectedly and they must liquidate some assets to provide the cash for doctor bills and co-payments. The difference is that in a more seasoned stock, the market barely feels the effects of the sale.

One reason is that the stocks are much more liquid, meaning when someone wants to sell, they can do it for relatively close to the current price of the stock in the market because there are plenty of buyers in the market looking to purchase that stock.

The SEC filing shows that because of the large amount of stocks that were sold, the transaction took place over the course of two days in six different lots and at six different prices.

The take away here is that cannabis stocks are a unique type of investment. There is far more to consider than most people realize. And while most people are very hung up on the price of the stock, the price doesn’t matter at all, if you can’t sell it!!

 

Rowe Financial Research

www.rowefinancialresearch.com