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Medbox: Emerging Marijuana Player, or Disaster Waiting to Happen?

Yahoo! Finance
The Exchange

By Roddy Boyd

If all you read are the PR headlines, Medbox Inc. (MDBX), a little company in West Hollywood, Calif. seems on the brink of carving out a handsome niche for itself as a key service provider in the medical marijuana industry.

Indeed, given the Justice Department’s recent announcement that it will defer to states in setting up their enforcement of marijuana laws, it would appear that the maker of an automated inventory control system that only dispenses marijuana--what is in effect a vending machine--to those with confirmed prescriptions would be in the catbird seat.

Medbox likes to tell investors that it doesn’t have to get its hands dirty directly selling pot and instead simply sells a risk-management tool to ensure compliance with state laws. (Whatever one’s view of the issue, this is certain to be an uncertain and expensive proposition in many states for years to come.)

That’s a big chunk of the reason that Medbox’s Pink Sheets traded shares have exploded to over $20 from below $3 in just one year after briefly rocketing as high as $215.

Not the whole story

But if you open the company’s filings a whole different picture emerges. The Southern Investigative Reporting Foundation uncovered a host of likely concerns during its months-long investigation into the company, its founder and the cast of characters surrounding it. What the foundation reports ought to give investors ample pause before hopping on the erstwhile legal pot gravy train stock promoters are touting.

To start with, Medbox’s founder and primary shareholder is a fellow named Pejman “Vincent” Mehdizadeh, a 34-year-old with a consistent record of legal problems going back to age 18, only one of which was disclosed to investors.

Make no mistake: What Mehdizadeh was getting rapped for is well north of a citation for drinking beer underage and serves to raise serious questions about what is known as “Fitness for Office.”

There were charges—and a series of no contest pleas--for breaking and entering, credit card fraud, solicitation of a prostitute and trespass with intent to injure.

What is even less savory is how a legal referral business Mehdizadeh ran with his dad and a job he had managing a law office in Los Angeles between 2005 and 2008 went so far off the rails that the District Attorney’s office was ready to take him to trial on consumer fraud this summer. Mehdizadeh agreed to a plea bargain that has him paying $450,000 in restitution to avoid a four-year jail sentence.

First to tell anyone that lessons aplenty have been learned and that he stopped screwing up years ago--Mehdizadeh also acknowledged posing as a lawyer without having gone to law school--the suddenly quite rich entrepreneur is laser-focused on Medbox’s future.

Which should be the real cause for concern among Medbox shareholders.

Real risks

Under the direction of Mehdizadeh and company president Bruce Bedrick, Medbox is a poster child for penny stock-type governance decisions gone wild. Despite financials which assert the company is rapidly growing, with both cash flow and profits, the Southern Investigative Reporting Foundation reveals that until September Medbox had a part-time chief financial officer, had one auditor sued by the Securities and Exchange Commission (the next auditor was Mehdizadeh’s personal accountant) and its main lawyer has worked for an array of troubled penny stock brokerages and busted companies.

None of this should give the investor a sense that the best people are being sought to help steward their capital. Nor are Medbox’s financials really that rosy, with accounts receivables--what is owed them by their marijuana clinic client base--mounting and a long, winding road to widespread legalization ahead of them before they can peddle their machines without worry. Indeed, the most recent quarterly filing shows the bane of many small business: fast growth but mounting expenses that sap cash flow and lead to losses.

Here is where investors traditionally have to trust management to execute on a business plan and protect their capital. The more they look into Medbox and the decisions management has made, the more they are, to paraphrase Nancy Reagan, “Just saying no.”

For more on Medbox, go to the story: http://sirf-online.org/2013/09/30/tinkerer-lawyer-hustler-lies-one-mans-path-to-a-dope-fortune/

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