Don’t go to sleep on cannabis. Despite the media’s current hyper-focus on Bitcoin, taxes, and opioids, some cannabis companies are laying the foundation for the next phase of the industry’s growth.
Case in point, our favorite cannabis small cap, GB Sciences (GB), has been on a tear lately. The stock has nearly tripled, in the last three weeks going from $0.24 on November 30th to $0.62 today. What makes the stock run up particularly noteworthy is that there’s substance behind the ascent.
On December 5th the company announced that it had achieved a breakthrough in the field of cannabis tissue culture propagation. In plain speak, that means that the company has figured out how to take a fully-grown mature female plant, and manufacture genetically identical replicas. That’s important because plants grown outside of a clinical setting are offspring and not identical twins, so they change slightly from generation to generation which is referred to as “genetic drift”. This genetic drift is a significant problem for the implementation of cannabis as a medicine, because it can create inconsistency in batched dosing. This irregularity is a significant hurdle to FDA approval and widespread adoption of cannabis as a medicine.
By eliminating genetic drift, GB is able to maintain absolute consistency and maximize the genetic potential of each strain. That achievement alone could position GB to become the grow and propagation leader in cannabis industry. Were that to come to fruition, the implications for the company would be significant. Ostensibly, this technology could be licensed out to other grow facilities, drug manufacturers, and universities, or the company could just keep the technology in house and corner the U.S. market. Either way, the scientific achievement appears to be a fairly significant milestone for GB.
As of September 14, 2017, the LSU AgCenter finalized their agreement with GB Sciences Louisiana, LLC, a wholly-owned subsidiary of GB Sciences, Inc., to produce therapeutic cannabis products for qualifying patients. This venture aims to modify and patent strains to achieve cannabinoid and terpene ratios designed to match components for medical compounds. The research will likely include variety development, growth management practices, extraction techniques, compound identification and isolation, drug delivery methods and efficacy testing.
What this all means for investors is that GB is demonstrating its ability to produce material results in the propagation and clinical side of its business. Our thesis is that success from either of these two business units could result in a valuation for the company similar to that of GW Pharma’s. But what makes GB unique is that unlike most research and development biotech companies that don’t generate revenue while they’re developing new science, GB has a second to none cultivation and extraction business in Nevada. According to the company, it is on a run rate to generate $3 million in gross sales during the fiscal year ending March 31, 2018, and over $5 million in gross sales during the twelve months ending March 31, 2019 from its cultivation operations alone. Additionally, the company is starting its production operations before the end of its current fiscal year. We could also foresee a scenario whereby GB expands its grow and cultivation business into other large population states, such as California, Texas and Florida and with licensing opportunities to smaller markets. There’s clearly plenty of room for growth and expansion.
Based on the company’s most recent press releases, it seems like all three units of GB’s business are excelling, just as the U.S. cannabis market is hitting its stride. We continue to be very bullish on GB going into 2018 and its our favorite idea in the cannabis space.
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