Back in the Nixon-Ford era when I was a rebellious teenager, if you had told me that marijuana would become legal in several states and a booming, multi-billion dollar mainstream industry, I would have suspected you of smoking a controlled substance.

Today, a wide variety of companies are exploiting the trend toward marijuana legalization, not only by growing and selling pot but by creating medicines, branded edibles, tourist junkets, vaping parlors, paraphernalia, retail shops, seeds, fertilizers, trade shows, real estate investment trusts, exchange-traded funds… you name it. Welcome to the “green rush.”

Problem is, most marijuana companies are tiny and highly risky penny stocks, reminiscent of the dot.com bubble of the late 1990s. You remember how that turned out.

Which brings me to GB Sciences (OTC: GBLX), a micro-cap that extracts compounds from the cannabis plant to make various recreational and medical products.

GB Sciences is yet another cannabis penny stock. But investors are fascinated with the company and shares have spiked up and down in recent weeks, depending on the vagaries of the news.

Is GB Sciences a viable investment that’s undervalued and poised for substantial growth? Or are we, once again, looking at a lot of marijuana-spawned hype? Below, my assessment of GBLX will answer those questions.

But first, a quick answer to emails I’ve been getting from social conservatives. These readers disapprove of Mary Jane and they admonish me for recommending certain pot stocks. That is their right and I respect their views. But when it comes to the “morality” of marijuana legalization, I’m agnostic.

As an investor, I try to remain coolly dispassionate and leverage investment opportunities as they are, not as I wish them to be. For example, no sane person is in favor of war, but from time to time, I recommend defense stocks.

If you think cannabis is the devil’s weed, tell your member of Congress or local editorial board. But if you want to make money from the unstoppable trend of marijuana legalization, read on.

What Is GB Sciences?

GB Sciences is developing cultivation and extraction techniques and combining them with biotechnology to produce cannabinoid (CBD) products for medical and recreational purposes. The company holds an agreement with Growblox Sciences, Puerto Rico, LLC that grants the right to its technology and intellectual property.

GB Sciences also holds agreements to distribute cannabis-infused coffees and teas and grow various marijuana strains.

Management states that it “intends to operate as an intellectual property company that…owns all patents and related technologies developed by it and its subsidiaries.”

With a market cap of $38.3 million, GB Sciences is based in Las Vegas and primarily operates in Nevada. Let’s see if the company is a smart value play or, apropos of its home city, a roll of the dice.

How Has GB Sciences Stock Performed?

• Over the past year, GBLX shares have fallen 78.4% whereas the S&P 500 has lost 7.4% (see chart).

How Has GB Sciences Stock Performed in 2017/2018?

• In 2017, GB Sciences rose 165% whereas the S&P 500 gained 19%.
• In 2018, GB Sciences fell 81% whereas the S&P 500 lost 5%.

Who Are GB Sciences’ Rivals?

22nd Century Group (NYSE: XXII)

With a market cap of about $271.1 million, this biotech focuses on genetic engineering and plant breeding and is developing a new strain of hemp with zero THC, the main psychoactive compound found in cannabis (the compound that produces the “high” that’s keeping marijuana illegal on a federal basis in the United States).

22nd Century Group also is creating genetically engineered tobacco plants with 97% less nicotine than conventional strains, as well as a strain high in nicotine that allows for the lowest tar-to-nicotine ratio in the cigarette industry.

The low-nicotine variety has proven effective in helping smokers kick the habit. At present, 22nd Century is the only company in the world capable of producing tobacco cigarettes at this extremely low level of nicotine, without having to use potentially harmful artificial extraction or chemical processes.

INSYS Therapeutics (NSDQ: INSY)

This biotech (market cap: $262.1 million) is developing pediatric epilepsy treatments. INSYS has other products in the pipeline that could boost its shares exponentially if they receive approval.

INSYS is developing cannabis-derived drugs for easing opioid dependence and moderate-to-severe pain. The company already has received approval for Dronabinol, an orally delivered solution that eases nausea and vomiting associated with chemotherapy and AIDS.

Zynerba Pharmaceuticals (NSDQ: ZYNE)

Zynerba is developing transdermal synthetic CBD treatments for both pediatric and adult epilepsies.

With a market cap of $84.7 million, Zynerba could witness explosive growth. However, because it’s lagging in the regulatory approval process, Zynerba is particularly risky.

Will GB Sciences Stock Go Up in 2019 (Should You Buy?)

Two catalysts have benefited GB Sciences and its peers in recent months:

• Passage of the 2018 Farm Bill, signed into law on December 20, 2018 by President Trump. The bill essentially decriminalizes hemp-based CBD.
• On October 17, 2018, Canada legalized possession and use of recreational cannabis for all adults. Medical marijuana has been legal in Canada since 2001.

In November 2018, GB Sciences signed a binding letter of intent with 4EVERGRN, LLC in Oklahoma, a company that holds cultivation, processing and dispensary licenses from the Oklahoma Medical Marijuana Authority.

Under the agreement, GB Sciences will design a cultivation and processing facility in Oklahoma and show 4EVERGRN how to run it. In turn, 4EVERGRN will produce and distribute GB Sciences’ products in exchange for a royalty to GBLX.

GB Sciences is generating real revenue. The company posted revenue of $717,000 in the quarter ending September 30, 2018, representing a year-over-year increase of about 140%.

GB Sciences also generated $2 million in revenue in the last two reported quarters, a nearly sixfold increase over the same time frame in the previous year.

For the 12 months ending March 31, 2018, the company’s total revenue was $2.5 million, up from literally nothing the year before. In the last reported quarter, gross profit margins came to about 60%, a healthy number.

However, the company is getting clobbered on general and administrative (G&A) expenses, as well as its interest expense. The most recent six months saw more than $9 million in G&A expenses, and more than $4.5 million in interest expense. The upshot: a $15 million net loss for the most recent six months.

But let’s adopt a positive spin. The fact that lenders are willing to loan money to the company is a good sign.

GB Sciences has $2.9 million of cash on its books, along with $655,000 in account receivables. The company holds about $1.4 million in promissory notes, most of which could be converted into common stock.

Compared to many of its dubious peers in the penny stock realm, GB Sciences stands out for running a genuine business that generates growing revenue.

Here’s a video that provides a handy primer on investing in marijuana stocks.

https://www.youtube.com/watch?v=HgXcK63mIRs

Will GB Sciences Go Down in 2019 (Should You Sell?)

Let’s not forget that penny stocks are inherently risky and they often burn investors. In addition, GB Sciences is valued at about 10 times the revenue run rate, which is fairly expensive on an absolute basis.

Sure, it’s refreshing that this cannabis company is posting tangible revenue. And I’m not too concerned about the cost of goods sold, because the company is still yielding healthy gross profit margins.

Those G&A expenses are a red flag, though. Also keep in mind, the company occupies an increasingly crowded niche. It’s not the only seller of medical and recreational marijuana. The pot industry is on the verge of becoming commoditized, which in turn will trigger a shakeout among the increasing number of overpriced marijuana stocks.

Read This Story: Our PotNetwork Holdings Stock Prediction in 2019 (Buy or Sell?)

When an industry becomes commoditized, profit margins get crushed.

Overall GB Sciences Forecast and Prediction for 2019

GB Sciences is simply too small and volatile for prudent investors.

Don’t get me wrong; the marijuana industry abounds with solid ways to reap market-beating gains.

Read This Story: Our Trulieve Cannabis Stock Prediction in 2019 (Buy or Sell?)

But you need to be selective. The marijuana industry is highly susceptible to the news cycle, as headlines about legal or regulatory changes whipsaw share prices.

I expect GB Sciences’ share price to trade in its usual range of 15-19 cents. GB Sciences is generating revenue but the company doesn’t provide any product or service that’s unique or special.

When the inevitable marijuana industry shakeout occurs, GB Sciences is likely to be one of the victims. There are better places to invest your money.

John Persinos is the managing editor of Investing Daily.