Advanced Cannabis Solutions - Research Paper Example

Introduction It is important for people to think about their financial futures and put money aside. Saving your money to putting it in the bank is awise move, but there are ways to further increase the value of your money by making it grow. This can be accomplished by establishing an investment strategy. Investing money is the best way for a person or business to generate a return that can allow an individual to accumulate wealth. On this stock simulation game I have $100,000 to invest. My strategy is to find a stock with the capability of of providing me with double digit year return. I am not a risk adverse person which implies I am willing to assume risk. The stock that I selected to purchased stocks was Advanced Cannabis Solutions (CANN). On February 4, 2015 I purchased $100,0000 on CANN stocks. Company Background Advanced Cannabis Solutions is a company dedicated to the rental of commercial space and equipment to companies dedicated to the regulated marijuana industry. The corporate headquarters of the firm are located in Denver, Colorado. The chief executive officer (CEO) of the firm is Robert Frichtel. The companys executives are reasonably paid in this early stage of development of the company. The salary of the CEO is $125,000 a year which is relatively low considering that most CEO of public companies in the United States make millions of dollars per year of compensation. The firm targeted service is to provide leasing space for players in the cannabis industry, but the firm also offers consulting services for its clients including agricultural expertise, logistics, and distribution. The firm is currently targeting its home state of Colorado. In 2014 marijuana sales were expected to reach $540 million. The national legal marijuana market is currently worth between $2-3 billion, but by the year 2018 this market is expected to grow to $6 billion. The Marketplace The legal cannabis market is an emerging market that has the potential to grow exponentially as more states begin the legalization process of marijuana. Currently three states, Washington State, Colorado, and Alaska have legalized marijuana for both medical and recreational purposes. In these three states the consumption of recreational marijuana is going increase drastically as the drug continues to gain social acceptance. On February 23, 2015 Alaska became the third state to legalize marijuana consumption (Abcnews). Currently the legal marijuana market has only penetrated 6% of the U.S. States. Further penetration is expected and eventually once the Federal government approves weed then 100% of Americans will have access to buying marijuana legally. The legalization of marijuana opens up the opportunity to take advantage of its legal cultivation to exploit other marijuana derived products. Products that can be made with or from cannabis include medicine, fuel, paper, food, rope, clothes, nets, lace, soap, sails, shoes, plastics, explosives, caulking, fiberboard, paint, sealant, methanol, gasoline, fibre for fuel, bricks, charcoal, auto bodies, packing mass, lubricants, oil for lighting, oil for fuel, oil for lights, animal food, furniture, mats, varnish, lotions, ointments, lacquer, and salad dressing. The wide variety of products that can be manufacture using cannabis makes marijuana truly a cash crop considering the fact that there are 50,000 potential commercial uses for marijuana. CANN financial outlook Advanced Cannabis Solutions did not have any revenues in 2013. The company incurred in operating expenses of $711,254. The net loss for 2013 was $710,962. Since the at that time was not generating revenues it profitability numbers will be impacted negatively. The total assets of the company amount to $882,433. Cash accounts for 48.43% of the total assets with a balance of $427,436. The total liabilities of Advance Cannabis Solutions at the end of fiscal year 2013 were $659,758. In terms of total equity the company has $222,665. The cash usage of the company in the statements of cash flow is divided into three activities: operating, financing, and investing. Advanced Cannabis Solutions in 2013 used its cash the following manner: Operating - -$488,192 Investing - -$432,753 Financing - $1,349,260 Ratio Analysis The net margin is a financial metric that measures the profitability of a company. It is calculated dividing net income by revenues. The net margin of Advanced Cannabis Solutions cannot be calculated due to the nonexistence of revenues. The return on assets (ROA) metric measures how effective management has been at employing its assets. Advanced Cannabis solutions in 2013 had a return on assets of -81%. Return on equity shows the effectiveness of the company of using its equity to generate revenues. The companys return on equity in 2003 was -319%. Both the ROA and ROE metrics do not show the true potential of the company since in 2003 the firm did not have any revenues yet. The EPS of Advance Cannabis Solutions for 2003 was -$0.05. The current ratio shows the ability of a company to pay off its short term debt. The formula to calculate current ratio is current assets divided by current liabilities. Advanced Cannabis Solutions had a current ratio in 2003 of 8.80. The current ratio of the company is outstanding considering the fact that a current ratio is considered to be acceptable of is above the 1.0 threshold. Based on this current ratio the firm does not face any solvency problems. To further examine the solvency of the company we are going to calculate the working capital ratio. Working capital measures the ability of a company to pay off its current liabilities using solely its current assets. In 2003 Advanced Cannabis Solutions had a working capital of $381,112. The result of this ratio further shows that the company is solvent. The debt ratio shows the leverage position of a company. A company that is too highly leveraged would face liquidity issues. In 2003 Advanced Cannabis Solutions had a debt ratio of 0.75. Since the firms debt is below its assets it indicates that the firm is not too highly leveraged. Advanced Cannabis Solutions Financial Strategy Despite the fact that the latest financial numbers from the most recent annual report of the company did not show any revenues, the firm has a plan in place. On December 31, 2013 the company purchased a building for $450,000. This transaction was paid $280,000 in cash and the remaining balance of $170,000 in a promissory note. The company already has this building leased up to a long term leasing agreement that starts in January 1, 2014 and ends December 31, 2022. The revenues that the firm will obtain from this lease are significant, but the firm has other plans in place that can make this deal extremely profitable. The company has in the leasing agreement an option to construct up to five greenhouses in the property. Once constructed each greenhouse can generate $100,000 per year in renting revenues. The company has already identified four other locations for future real estate expansion. These four projects have an investment range of between $750,000 to $5,000,000 per project. The firm has a well laid out plan for short and medium term growth of the company. Technical Analysis A technical analysis illustration for the period between February 4, 2015 and February 26, 2015 is illustrated below. The technical analysis perform on CANN stocks was for a period of about two weeks. Based on the results the overall tendency is of a downward trend in the price of the stock. Based on Dow theory the tertiary or minor trend evidence during these two weeks is a daily fluctuation of little importance. Analysis CANN During the two and a half week period in which I invested in the stock there were market news released by Yahoo news that marijuana stocks had skyrocketed in 2014 to then bottom out this year. Based on these news the CANN followed the pattern. I think these news were indicative of a market trend, but based on sound business logic stock such as CANN have benefited from this trend because its value has bottom out. Right now is the best time to invest in stocks such as CANN because its price is real cheap. Conclusion Advanced Cannabis Solutions was the stock selected for investment back on February 4, 2015. that time I invested $100,000 on CANN stocks. I researched the company and knew from the start that the investment was a high risk proposition. Risky investments can either pay off or suffer the consequences. Without taking into consideration my long term investment plan for this stock, my investment was a bust. In a period of less than three week the value of my portfolio went down from $100,000 to $64,814. From the start that investing in this stock was a risky proposition. Despite the fact that I experienced a major loss I believe that if I was given more time this stock would turn around and provide me with good profits. Buying cheap and selling high is a long term investment strategy that has worked for investors for a long time. Work Cited Page Abcnews.go.com. 24 February 2015. Alaska Quietly Becomes 3rd State to Legalize Marijuana. 26 February 2015. Read More