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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. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for hemp
OTC Alerts
20 Apr 15 19:57:25
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PennyPlaya
20 Apr 15 19:41:02
RT @GMTech4: MARIJUANA/HEMP is the new "GREEN RUSH" and NGCG is in the perfect place at the right time! $NGCG $NGCG $HEMP http://t.co/Une…
zinvestmentz
20 Apr 15 19:26:16
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Pass the Puck
20 Apr 15 19:25:14
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Mark Trader
20 Apr 15 19:24:45
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Mark Trader
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Stock Rocket
20 Apr 15 18:23:33
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WolfOfGreenStreet
20 Apr 15 18:01:20
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JRS
20 Apr 15 17:46:43
RT @GMTech4: MARIJUANA/HEMP is the new "GREEN RUSH" and NGCG is in the perfect place at the right time! $NGCG $NGCG $HEMP http://t.co/Une…
GM Tech
20 Apr 15 17:13:12
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KC BBQ
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20 Apr 15 15:11:37
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Marijuanacharts
20 Apr 15 14:03:45
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Marijuanacharts
20 Apr 15 14:03:43
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T3MITAYO
20 Apr 15 12:33:33
$HEMP could not even bounce on 4/20!!! What a sad Piss of Shit
Stockguy22University
20 Apr 15 12:20:09
RT @stockguy22: since its #420 today thought to check old list of #MarijuanaStocks .. they aren’t very “high” at all — $CBDS $TRTC $$MDBX $…
StockenheimerSchmidt
20 Apr 15 12:20:00
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Stockguy22
20 Apr 15 12:17:59
since its #420 today thought to check old list of #MarijuanaStocks .. they aren’t very “high” at all — $CBDS $TRTC $$MDBX $CBIS $HEMP etc
Jose Otero
20 Apr 15 12:14:37
$HEMP, Inc. and Dewmar International Showcase Kush Cakes at Cannabis Cup 2015 http://t.co/zzzpPRiazE via @YahooFinance
Jason ■□■□■□
20 Apr 15 11:59:40
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Baked Inve$tor
20 Apr 15 11:59:25
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Hemptress
20 Apr 15 11:43:20
$Hemp Inc. and Dewmar International Showcase Kush Cakes at Cannabis Cup 2015 - http://t.co/DFksKwTuR0 http://t.co/4jBpJWs4kK
zinvestmentz
20 Apr 15 11:07:25
RT $MJMD MediJane Holdings Inc. Alert for Medical Marijuana Stock Breakout! Above .01+ $GWPH $HEMP $ICBU $IGRW $ILIV $INCC $INSY $LATF $LO
Benzinga.com
20 Apr 15 10:42:23
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Stock Rocket
20 Apr 15 10:24:44
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Mark Trader
20 Apr 15 10:23:05
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20 Apr 15 09:46:47
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20 Apr 15 09:40:41
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James Bryron Love
20 Apr 15 09:35:31
RT @GMTech4: NGCG~~>HEMP + MARIJUANA= PRICELESS $$$$$$$$$ $NGCG $NGCG $HEMP http://t.co/K28EnuCzhk
PennyCollector
20 Apr 15 09:34:37
RT @GMTech4: NGCG~~>HEMP + MARIJUANA= PRICELESS $$$$$$$$$ $NGCG $NGCG $HEMP http://t.co/Kk1TIkfb4p
UNCLE OTC
20 Apr 15 09:33:37
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JRS
20 Apr 15 09:32:29
RT @GMTech4: NGCG~~>HEMP + MARIJUANA= PRICELESS $$$$$$$$$ $NGCG $NGCG $HEMP http://t.co/K28EnuCzhk
GM Tech
20 Apr 15 09:27:53
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GM Tech
20 Apr 15 09:27:45
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JRS
20 Apr 15 09:24:43
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Uptrendz
20 Apr 15 09:23:17
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OTC Alerts
20 Apr 15 08:59:35
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MyStockTargEt!$$
20 Apr 15 08:20:59
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DayTraderChoice
20 Apr 15 08:20:47
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OTC Alerts
20 Apr 15 08:18:51
$HEMP received a new alert.See why at http://t.co/vCgAlapL57 $MSEZ #Penny #pennystocks #PinkSheet #OTC #OTCBB #stocks #stock 51
Marijuanacharts
20 Apr 15 08:17:38
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stockschamp
20 Apr 15 07:56:03
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20 Apr 15 07:42:51
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Pass the Puck
20 Apr 15 07:39:32
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slchemp
20 Apr 15 07:03:08
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IDIG_INVESTMENTS
20 Apr 15 06:59:19
HAPPY 420 !!! $HEMP
My Info
20 Apr 15 06:34:20
RT @IDIG_INVESTMENT: HAPPY 420 !!! $QASP $DGRI $HEMP $PHOT $CNAB
Relax
20 Apr 15 06:33:43
$CBIS $MJNA $ERBB $HEMP green lights
				
				
By  +Follow January 16, 2014 9:00AM
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