Yesterday I wrote about the reasons you should consider investing in marijuana. Today I’ll start sharing a few of the best weed stocks available today. Ironically, I’m going to start with a weed stock “without the weed.”
I’m talking about Surna (OTC: SRNA). Unless you run a large-scale commercial marijuana growing operation, I’m guessing you’ve never heard of it.
What does Surna do? It manufactures equipment for the legal cannabis industry. In case that doesn’t give you a crystal clear image of what the company does, here are some examples:
The company makes water-chilled and insulated light fixtures designed to reduce the heat associated with the lights that are required to grow marijuana indoors. It also manufactures and installs ductless and water-chilled cooling systems. Using Surna’s patented water-cooled light fixtures along with its water-cooled chilling systems, a large-scale marijuana grower can save as much as 50% on its energy costs.
Energy costs make up roughly one-third of the price of marijuana. Thus, using Surna’s systems can reduce the net cost of marijuana by almost 20%. It’s numbers like this that have me very interested in this weed stock “without the weed.”
Indeed, Surna could quickly become a company that is vital to large-scale marijuana operations around the world without ever touching the actual plant or finished product. Making the investment case even more compelling is the lack of complexity offered by Surna’s business model.
Because Surna isn’t in the business of growing, processing, distributing or making value-added products out of marijuana itself, it doesn’t carry the same risks or obstacles associated with operating across state lines in the marijuana industry.
Even if you’re not trying to grow, sell or buy marijuana you should be rooting for Surna to succeed: More than 1% of all energy used in the United States goes into marijuana production – a number that Surna could take a big bite out of.
Why is Surna so compelling to me from an investment perspective?
Consider that the legal cannabis industry is expected to grow to $35 billion by 2020 and is one of the fastest-growing industries in the United States right now.
Since April 1, the stock is down roughly 95%. Meanwhile, its sales are surging. Thus far in 2014 the company has generated $1.2 million in revenue, $859,000 of which was generated in just the third quarter.
Conservatively assuming no growth in the fourth quarter, the company will generate around $2 million in revenue this year. When you consider that the entire company is only worth $33 million, Surna trades at a price-to-sales ratio of 16.5 using my conservative revenue assumption.
But I don’t think my conservative revenue assumption is realistic.
When I visited Surna in mid-November to listen to a presentation, the company had just returned from a marijuana industry trade show in Las Vegas. Nevada had just begun to issue permits for legal marijuana grows and Surna backlog grew significantly. Every indication was that the company is hiring, the fabrication and manufacturing shop is working at capacity and the business is booming.
I think Surna’s 2014 revenue will turn out to be significantly higher than $2 million, giving us a chance to buy at a bargain.
Facebook (Nasdaq: FB), by comparison, trades at a price-to-sales ratio of 18.2.
Do I recommend everyone go out and buy shares of Surna hand over fist today? Certainly not.
It doesn’t trade on one of the major stock exchanges and also trades on very low volume. As such, it is very volatile. Shares have fallen 95% since April and I don’t know what will be the catalyst that turns the tide for this company. But I am confident that Surna is an important player in a booming industry and that eventually the market will wake up to this reality.
Surna is a weed stock without the weed, a bet on the infrastructure behind the commercial marijuana industry. It’s a speculative weed stock that could pay off huge if the industry even remotely lives up to its promise.
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