Marijuana Stocks Hover After Soaring on Talk of Bank Regulation Reform
NEW YORK ( MainStreet) Marijuana penny stocks spiked on Valentine's Day on news that the federal government gave the banking industry a green light to do business with legal marijuana companies. But they have since come back down from that high.
"The relaxation of the banking law is absolutely huge for the entire marijuana sector," said Sterling Scott, CEO of GrowLife (PHOT). "Public companies like AVT and ours and the private sector will benefit enormously but I do not think that the market has priced in yet the importance of the changing federal position."
GrowLife (PHOT) shares increased 8.5% compared to 30% for Tranzbyte (ERBB) stock and 15% for AVT (AVTC) stock, according to the Marijuana Stock Index.
"Both AVTC and PHOT dropped from last Friday, February 14, along with many of the other pot stocks that are on my marijuana stock list," said Fred Fuld, creator of the Marijuana Stock Index at WallStreetNewsNetwork.com. "This is mostly due to profit taking plus the glow of marijuana stock seems to have temporarily subsided. ERBB is one of the few stocks that has increased since the previous Friday, up 29%."
The closing price on Friday February 21 for AVTC was 3.62 compared to .0388 for ERBB and .37 for PHOT.
"The pattern is investors take their profit on good news and then once the news fades away the stock price drops," Fuld told MainStreet. "For investors that didn't sell, they should wait until fresh cannabis news comes along but it's hard to know which companies will go out of business before then."
The gist of the Obama administration guidelines is that bankers who comply with local state law in providing services to cannabis companies won't face prosecution.
"For now the commitment is just a statement in a memo," said Troy Dayton, co-founder of the Arc View Group, a marijuana investment and research company based in San Francisco. "They are just guidelines. It's not yet law, which means the government could change its mind at any moment."
Shares of companies, such as AVT, PHOT and ERBB, are particularly attractive for investors who want to get in on the ground floor of what will most likely become a very large industry eventually. "Banking regulation reform related to the marijuana industry is a positive development as the industry looks to grow and fit the structure of traditional industries," said Timothy Sykes, entrepreneur and penny stock expert. "AVT is one of the many corporate beneficiaries of this new industry so it's logical that the stock would spike on bank reform news."
But simply signaling intent by the government may not be enough to convince large and powerful banks to jump in feet first.
"Colorado banks are lukewarm to the announcement because cannabis is still illegal under federal law and financial institutions, subject to that law, cannot yet legally process funds from the proceeds of cannabis sales," said Darrin C. Duber-Smith, marketing professor at Metropolitan State University of Denver. "The lack of banking services remains the single largest barrier this industry faces at this time."