420 Investor's Alan Brochstein — seen here in January, second from right, making his first legal marijuana purchase in Denver — hopes to help legitimize pot stocks. (Courtesy of Alan Brochstein)

Five pot stocks to watch, per 420 Investor guru Alan Brochstein (interview)

The Cannabist: What’s most exciting about 420 Investor right now?

Brochstein: We’re having a conference in Denver, June 29-July 1. Unofficially we’re calling it WeedStock. Officially we’re calling it the first annual Cannabis Investor Conference hosted by Benzinga. If people are curious they can email us, and we’ll soon announce the specifics: weedstock@marketfy.com.

The Cannabist: Is this news pretty unusual, a conference for pot stock investors?

Brochstein: I couldn’t have seen this — an investor conference in marijuana stocks? I had the good fortune to meet a lot of people in Denver who were helpful and I thought, “We should bring America here — not just me.”

The Cannabist: You mentioned earlier that most of these stocks aren’t legitimate.

Brochstein: It’s true. The one that is legitimate is GW Pharmaceuticals (GWPH), a UK biotech company. Investors might say it’s expensive, but they won’t say it’s not legitimate. We try to identify those three buckets — legitimate, maybe legitimate and illegitimate. Some people incorrectly say they’re all illegitimate, but I’ve found examples of very legitimate companies. Are they risky? Yes. That’s the thing: It’s easy to dismiss something, and it’s easy to blindly embrace something and the right way is to not be blind: Open your eyes, spend some time, dive into it, learn.

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The Cannabist: In the market you have power by numbers. Do you and your subscribers ever use those numbers as power by buying and selling at particular times?

Brochstein: We don’t pump, and we don’t dump.

The Cannabist: And since this isn’t a finance site, could you explain what those terms mean?

Brochstein: Pumping: You say only positive things. Dumping is saying only negative things. There are two sides to every story. We have some factions within 420 Investors because there are certain stocks that people either love or hate.

The Cannabist: What’s a good example of one of those truly polarizing stocks?

Brochstein: Creative Edge Nutrition (FITX) is the most polarized in our group. It’s a very ambitious project, and the company has a very bad history. So you have to be willing to look at their history, and you have to also be willing to discount how bold their project is. You have a guy swinging for the fences in Canada — it’s a Canadian project — and I’m very optimistic about the Canadian market. It’s one of the five trading positions we have. We bought some as high as 10 (cents) and as low as 5, and the average is 8, and it’s around that now. I am optimistic, but I discount very heavily the bullish taste and I’m cautious. I think the market is too skeptical. But that’s one that’s polarizing for a good reason.

The Cannabist: How do you feel about Twitter as a stock research tool?

Brochstein: We had that discussion on our site. I find it fascinating. I use Twitter, Facebook and LinkedIn. But Twitter, because of the $ symbol, is highly effective. You see these Twitter groups emerge. To me it can be a bit scary. It almost replaces real research with a gang-type mentality.

The Cannabist: Kind of like the Wolf of Weed Street and his Wolfpack?

Brochstein: Yeah, and I know the Wolf of Weed Street. He’s a member of 420 Investor. Twitter is all about quick hits. We have deeper relationships within 420 Investor. I’m not denigrating the way the Wolfpack operates.

The Cannabist: Do you see a lot of pumping and dumping going on in the pot stocks community?

Brochstein: We haven’t seen much. I told everybody the Wolf of Weed Street is a member. (People use the same Twitter names as they do on my site.) The people who are members of the Wolfpack and the people who belong to my site are smart, great contributors and they do not pump.

The Cannabist: How do you use Twitter then?

Brochstein: It’s hard to have a meaningful dialogue on Twitter. Look at mine and you’ll see that it’s marketing oriented saying thinks like, “Marijuana: Not addictive. 420 Investor: Highly addictive.” Or sometimes I use it to make a point: When I see behavior from a company that’s positive or negative, I point it out. I don’t use Twitter to say buy or sell this stock. The one exception to that is Seeking Alpha. In order for me to be top ranked in Seeking Alpha’s StockTalk feature, I have to put out five tweets every four days. I say, “This stock looks good.” But I wish I could do it a different way.

The Cannabist: Should people be wary of Twitter handles that say buy or sell this stock?

Brochstein: Twitter handles are anonymous. You should never ever trust an anonymous source explicitly. It doesn’t mean you can’t learn from an anonymous source. The problem is, if you can’t find out who’s saying it, it doesn’t mean it’s wrong but you need to be aware of that. Wolf is anonymous, he’s not anonymous to me, but anybody looking at that should be skeptical. I find him to be insightful. But I won’t say that you should listen to him or anybody else.

The Cannabist: You’ve said that most of your subscribers are novices. What’s your advice to other beginners who are curious about pot stocks?

Brochstein: Don’t put all your eggs in one basket. Don’t put all your money in this. It’ll be volatile. If you can’t afford a 50 percent drawdown, if your stocks drop 50 percent, you should keep your investment low enough that it won’t freak you out if you lose half. It’s the worst thing you can do. Don’t put them all into one stock, either. That’s even stupider, cause you never know what will happen to one stock. I will also say: Read the filings. Don’t just read the press releases; Read the SEC filings or the OTC Market disclosures. And if they’re not an SEC filer, be especially careful.

Read more of our interview with 420 Investors guru Alan Brochstein …