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Why Weed Stocks Only Trade OTC

By  +Follow January 16, 2014 9:00AM
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Equities.com invites you to watch Legalized: Making Sense of the Marijuana Green Rush our ground-breaking roundtable discussion on the impact of recreational marijuana's legalization in the United States. Our amazing panel of leading experts offer incredible insights from their perspectives of the regulatory, legislative, medical and business aspects of the industry. Click here to watch now.

 

Traders who have followed marijuana stocks over the past several weeks have witnessed some of the most incredible, volatile trading in recent memory. Weed stocks rise and fall in the mid to high double digits on a daily basis, often with no particular pattern. A move of 10 percent is now considered uneventful, and with marijuana legislation changing by the day, there seems to be no end in sight to the madness.

Additionally, traders who have been watching weed stocks have likely noticed something else: none of them trade over major exchanges. They all trade on Over-The-Counter (OTC) exchanges, which are decentralized trading markets without a physical location. They are typically subject to fewer regulations and are, therefore, typically less transparent. Additionally, traders often pay a higher commission to buy a stock over an OTC market. They may also receive delayed pricing quotes.

So why exactly do marijuana stocks trade over these markets?

Lack of Revenue and Income

To be eligible for listing on the NASDAQ, stocks need to meet one of the following criteria:

A) $11 million in aggregate three-year pre-tax earnings

B) $27.5 million aggregate three-year cash flows plus $110 million in revenue plus $550 million market cap

C) Either market cap or revenue that far supersedes one of the above requirements

Because the legal marijuana industry is in its infancy, most cannabis companies have not yet turned a profit, and some may even be pre-revenue. As the legality of marijuana unfolds, many of these are still figuring out their business models, so most marijuana stocks are only eligible for listing on OTC markets.

Most are Penny Stocks

With legal marijuana in only two states, the marijuana market is still small compared to its potential. With a general lack of income and revenue, marijuana companies have small market caps. Cannabis Science (CBIS) is worth $81 million, Hemp Inc. (HEMP) is worth $13.5 million, GreeGro Technologies (GRNH) is worth $62 million, Terra Tech ($TRTC) is worth $40 million, and so on.

To provide investors and stakeholders with an adequate number of shares, the price per share of marijuana stocks needs to be small, typically below a dollar.  Because the NASDAQ and NYSE require a minimum $4 share price, in addition to meeting the above requirements, marijuana companies have no other option than OTC exchanges.

Legal Issues

In many ways, marijuana companies are better off in OTC markets. With so much oversight from state and federal governments, marijuana stocks have more freedom trading over-the-counter. Drug legalization is relatively uncharted territory, and the last thing pot stocks need is more oversight.

This isn’t to say that marijuana stocks will always trade OTC. When marijuana is legalized in more states, perhaps even nationally, some companies will emerge as marijuana leaders. At that point, more will be listed under major exchanges.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for hemp
Best Penny MMJ Plays
31 Oct 14 00:52:57
RT @TheStockDok: #1 in volume Thursday $SWRF - Merger announcement confirmed. LAST .0004 up 33.33% - The race to copper has begun! $MINE $E…
The Stock Dok
31 Oct 14 00:52:21
#1 in volume Thursday $SWRF - Merger announcement confirmed. LAST .0004 up 33.33% - The race to copper has begun! $MINE $ERBB $VPOR $HEMP
WallStreet Pennies
31 Oct 14 00:25:16
Dollar$OnPennies: $HEMP Weekly http://t.co/13mAdEWiUn
WallStreet Pennies
31 Oct 14 00:25:15
Dollar$OnPennies: $HEMP Daily http://t.co/bbbnRCKjzf
mystockchoice
31 Oct 14 00:20:34
Dollar$OnPennies: $HEMP Weekly http://t.co/9zWgrgLQgm
mystockchoice
31 Oct 14 00:20:34
Dollar$OnPennies: $HEMP Daily http://t.co/c56f3gQ4jz
Stockaholics
31 Oct 14 00:18:11
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/dvxYQnSJab $AVL $HEMP $CANV
Joseph Catania
30 Oct 14 23:46:34
#Buy $DNAX #DNA #Energy #Drinks #New #CEO #Real #Experience > $FNMA $HEMP $PMCM $PHOT $PLPL $CBIS $JPM $GS $MS $TSLA $FB $TWTR $GOOG $MSFT
Marijuanacharts
30 Oct 14 23:46:32
myopinion: LOCK & LOAD $HEMP http://t.co/RugyfYheQ6
Tommy S. Colina
30 Oct 14 23:13:46
10/31 Watchlist $ALGA $ERBB $GBLX $GRNH $HEMP $MGON $MYEC $NDEV $PNTV $SPRWF $TRTC #marijuana #cannabis #potstocks
Staude
30 Oct 14 22:12:06
RT @TrentBlair19: Buy pot stocks for the election hype. $AGTK $GRCU $HEMP $MJNA $QASP $TRTC $VAPO $VPOR
Trent Blair
30 Oct 14 21:40:50
Buy pot stocks for the election hype. $AGTK $GRCU $HEMP $MJNA $QASP $TRTC $VAPO $VPOR
OhNo5000Bees!
30 Oct 14 20:53:32
Fri. watch: Momo: $CDTI, $DHX, $ONCY, $CALX, $PACB, $ERBB, $HEMP Chart: $JDST, $CNET, $DENN, $GPT, $MACK, $MDXG, $IG
Johnny Rockville
30 Oct 14 20:18:27
MJ sector gonna blow up...too many good tickers to pic. Rich Boy Problems #GRCU $TAUG $ERBB $MCIG $MJNA $HEMP MJ Wanna Play Hard Ball
Alan Brochstein, CFA
30 Oct 14 20:02:35
Is it just me, or do others think it is kind of sad the way people pile into names like $MJNA and $HEMP that don't appear to be real players
Johnny Rockville
30 Oct 14 19:29:26
@Mark_Fane @Invest420 $vgpr Will blow up in 2015.....I'm looking at $ERBB $TAUG $HEMP $GRCU for elections
Carlos Quinones
30 Oct 14 19:15:06
RT @realwingate: DC looks good for legalization. Better buy $taug $grcu $mjna $hemp
Carlos Quinones
30 Oct 14 19:13:35
RT @Blackopstocks: @HempInc $HEMP 8 days now trading above the 50MA. #GreenRush http://t.co/Rsnf3liCkD
Elias S
30 Oct 14 19:12:11
RT @JJJpennycharts: penny watcher for tomorrow.... $IGRW $ERBB $HEMP $EDXC $CBIS $GRNH $THNS $WCUI $ABAT
Marijuanacharts
30 Oct 14 19:09:37
myopinion: Huffington Post: (Hemp not $HEMP. ) Interesting Article.. http://t.co/0RNDxdy6V7
OTPicks.com
30 Oct 14 19:05:16
http://t.co/hjgLwIcNgz DennyT: EPI Interactive Chart $EPI $JDST $EIDO $HEMP: DennyT http://t.co/CfkZhKwptB http://t.co/hjgLwIcNgz
OTPicks.com
30 Oct 14 19:05:14
http://t.co/QkCFZ8H3V8 DennyT: EPI Interactive Chart $EPI $JDST $EIDO $HEMP: DennyT http://t.co/06Uc3sAHu8 http://t.co/QkCFZ8H3V8
Dan
30 Oct 14 18:56:31
RT @JJJpennycharts: penny watcher for tomorrow.... $IGRW $ERBB $HEMP $EDXC $CBIS $GRNH $THNS $WCUI $ABAT
Joey Joe Joe Junior
30 Oct 14 18:52:53
penny watcher for tomorrow.... $IGRW $ERBB $HEMP $EDXC $CBIS $GRNH $THNS $WCUI $ABAT
Johnny Rockville
30 Oct 14 18:38:03
RT @Invest420: With the elections next week, MJ stocks could run, but watch out for anonymous pumpers pushing pinks like $MJNA and $HEMP
UglyAmerican
30 Oct 14 18:13:27
http://t.co/PSabIxTglP $hemp $mcig $ATTBF
BOS
30 Oct 14 18:00:04
@HempInc $HEMP 8 days now trading above the 50MA. #GreenRush http://t.co/Rsnf3liCkD
Trading-Pennies
30 Oct 14 17:30:30
$HEMP today marked a potential swing trade - if not in position the the .042 is of interest for bid consideration to the .05
Stockaholics
30 Oct 14 17:13:25
Our Penny Stock Newsletter Alert On MGON Closed up 112.5% Today! Major News: http://t.co/dvxYQnSJab $AVL $HEMP $CANV
Real Estate Global
30 Oct 14 17:04:11
RT @realwingate: DC looks good for legalization. Better buy $taug $grcu $mjna $hemp
Johnny Rockville
30 Oct 14 16:58:25
DC looks good for legalization. Better buy $taug $grcu $mjna $hemp
Johnny Rockville
30 Oct 14 16:57:00
November 4th 2014 is get off your ass and vote day. AKA make me some moneyyyyy $hemp $mjna $taug $grcu
mystockchoice
30 Oct 14 16:49:52
carlcarlos: $HEMP chart $MMMW solar patent pending product to http://t.co/eRaUJphSpJ
hotpennystockalert
30 Oct 14 16:49:50
carlcarlos: $HEMP chart $MMMW solar patent pending product to http://t.co/6Ee4dCE8bF
TradingReversals
30 Oct 14 16:49:37
DailyWatchlistlongs outof120>> $ZQK $JRJC $XGTI $HEMP $UQM $PRKR $SMT $MEET $DLIA $STEM $PLUG $ZNGA $YOD $WPCS $TVIX $SYN $GENE $GTATQ $CYTX
Marijuanacharts
30 Oct 14 16:35:05
mckinley1: This run for $HEMP may be the big http://t.co/WTVQiAT4zw
Marijuanacharts
30 Oct 14 16:35:03
BackTheTruckUp: Until Bruce stuffs his turkey with $HEMP stuffing http://t.co/qj1lWGqel9
mystockchoice
30 Oct 14 16:21:15
carlcarlos: $HEMP smokin hot and $MMMW solar hot http://t.co/CWccUhIhY5
Marijuanacharts
30 Oct 14 15:34:02
ddm1082: $HEMP Significant close over MA(100) resistance on increased volume. http://t.co/i1tcPbLgvc
Stockchartz
30 Oct 14 15:33:06
ddm1082: $HEMP Significant close over MA(100) resistance on increased volume. http://t.co/pEsJYRhjle
OTPicks.com
30 Oct 14 15:23:53
http://t.co/hjgLwIcNgz DennyT: TRTC Company Info $TRTC $BIGG $FRAZ $UAMM $HEMP: DennyT http://t.co/xgrTwJsS32 http://t.co/hjgLwIcNgz
OTPicks.com
30 Oct 14 15:23:50
http://t.co/QkCFZ8H3V8 DennyT: TRTC Company Info $TRTC $BIGG $FRAZ $UAMM $HEMP: DennyT http://t.co/XiVxWJVQaT http://t.co/QkCFZ8H3V8
Jack_ofall_Trades
30 Oct 14 15:22:02
RT @Invest420: With the elections next week, MJ stocks could run, but watch out for anonymous pumpers pushing pinks like $MJNA and $HEMP
OTC Alerts
30 Oct 14 15:11:36
$HEMP received a new alert.See why at http://t.co/FwU0sYdHLW $MSEZ #Penny #pennystocks #PinkSheet #OTC #OTCBB #stocks #stock 126
OTPicks.com
30 Oct 14 15:10:42
http://t.co/hjgLwIcNgz DennyT: V Summary $V $RUSL $FXI $HEMP $DUST Buy or Sell: DennyT http://t.co/4xp1xfab8h http://t.co/hjgLwIcNgz
SmallcapStockTrades
30 Oct 14 15:07:07
If $HEMP can break 05c then it is a magnet to 06c Nice chart setup. I'm in at 044
Today's pick is
30 Oct 14 14:56:48
New #trading watchlist up for Friday 10/31->http://t.co/MPmFX4OnSA<-Read here. $IFAN $HEMP $GRNH on watch for Fri.; Happy Halloween! #stocks
Penny Stock Advice
30 Oct 14 14:55:44
New #pennystock watchlist up for Fri. 10/31->http://t.co/g9jCSkw3mT<-Read Now! #trading #stocks #finance $HKUP $THNS $ONCS $AMBS $CONX $HEMP
Penny Stock Experts
30 Oct 14 14:54:30
New #Blog Post: #PennyStocks To Watch For Friday 10/30->http://t.co/v2tedyv5zE<-Must Read! #Trading #Stocks $HKUP $HEMP $ERBB $IFAN $GRNH
k2electric
30 Oct 14 14:01:19
RT @realwingate: @MuRk_MoNsT3R @k2electric ahhhhh I love GRCU...what about $TAUG $HEMP $MJNA
				
				
By  +Follow January 16, 2014 9:00AM
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