Perhaps no company epitomized the pot stock boom and bust more so than Growlife Inc (OTCMKTS:PHOT). The company captivated investor attention as it aimed to become the nation’s largest cultivation service provider for cultivating organics, herbs and greens and plant-based medicines. Growlife classified its mission as “to best serve more cultivators in the design, build-out and expansion of their facilities with products of high quality, exceptional value and competitive price. Through a nationwide network of local representative, regional centers and its e-Commerce team, GrowLife provides essential goods and services including media (farming soil), industry-leading hydroponics equipment, plant nutrients, and thousands more products to specialty grow operations in 17 states.”
But all of this excitement ended on April 10, 2014 when the SEC suspended trading of PHOT shares. “The Commission temporarily suspended trading in the securities of PHOT because of questions that have been raised about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in PHOT’s common stock.” When shares resumed trading, they were relegated to the grey sheets after loosing its listing on OTC Markets.
At the time, Sterling Scott, then the CEO of GrowLife, tried to stop the collapse of his stock by issuing two press releases. In one release, Scott said the company has established a new shareholder hotline and email communication system to field shareholder questions over the next few days. In another release, Scott issued an open letter to shareholders that said the SEC had informed the company that it was not the subject of an informal or formal investigation and that the SEC has not requested any documents from the company or its board of directors. Scott also said that SEC staff had suggested to the company that regulators halted the stock because of concerns that 3rd party holders of Growlife stock were set to engage in some form of manipulative promotional activity.
Overall, none of these efforts appeased nervous shareholders and shares collapsed. But now the company is back after getting its OTC listing. PHOT resumed being quoted on the OTC Bulletin Board after receiving clearance from the FINRA on its Form 15c2-11. PHOT is coming back on the scene just in time. Roughly 14 states could legalize marijuana this year, adult-use cannabis or possibly both, either at the ballot box or through state legislatures. While it’s doubtful all those states will be successful, there’s a good chance at least a handful will legalize in 2016. No other single year has offered such incredible promise in terms of the sheer volume of states that could legalize, thanks to other pioneering marijuana markets and growing support for cannabis in general. Helping to drive Growlife is the fact that it has a high name recognition among pot stocks.
Growlife sees its future via ecommerce and direct-to-consumer channels instead of its 5 retail locations. Greeners.com caters to commercial cultivators, urban farmers, and home growers. On Greners.com, customers can find all the tools for cutting and propagation to complete indoor lighting systems, growing mediums, soils, hydroponics systems, growing accessories, bulbs, ballasts, reflectors, meters, timers and climate control equipment. We see ecommerce as a better business model for Growlife as margins are higher than the brick and mortar stores.
In looking at the current filings for PHOT, we see $62k in cash, $4.6 million in current liabilities, and just $525 thousand in quarterly revenues. As of November 2015, there were 902 million shares outstanding and the company will need to issue another $2 million in shares to settle lawsuits. This will result in more dilution and weigh on the company’s share price.
Currently trading with a market cap of $57 million, Growlife is still not out of the woods yet. The company has a lot of proving to do in order to win shareholder confidence back. CEO Marco Hegyi has been attempting to do so via his blog. We’ll be watching closely and seeing what news comes out of the company. After this week’s explosive move higher, we advise new investors to not chase this move and instead let the market consolidate before jumping in. The good news is that PHOT has proven once again that it still is a micro cap runner. For continuing coverage on PHOT and our other hot stock picks, sign up to Insider Financial today and get our free micro cap newsletter!
Disclosure: We have no position in PHOT and have not been compensated for this article.