The marijuana “green rush” has overtaken Wall Street, as investors jump aboard marijuana stocks the way frenzied gold miners descended on San Francisco in the 19^th century.

As with the gold rush of that bygone era, some green rush investors will get rich… and others will go bust. But the fact remains, marijuana commercialization is one of the most exciting investment opportunities that you will witness in your lifetime.

Medicines based on cannabinoid compounds extracted from marijuana and its cousin hemp are among the most intriguing plays in the entire biotechnology sector. The compounds derived from these plants are proving to be nothing less than wonder drugs, alleviating symptoms and conditions ranging from epilepsy to multiple sclerosis, to glaucoma, to even cancer.

The companies involved in making these products are attracting enormous interest from investors, entrepreneurs and venture capitalists.

Medical Marijuana (OTC: MJNA) is one such stock, which has risen lately on impending regulatory change. Is MJNA a buying opportunity in a hot industry, or just another hyped penny stock poised to burn investors? Let’s look behind the smoke (so to speak) for clear answers.

What Is Medical Marijuana?

Medical Marijuana produces and markets patented medical marijuana and industrial hemp products for the pharmaceutical, nutritional, and cosmetics industries.

With a market cap of $348.7 million, the company also licenses its proprietary testing, labeling, packaging, tracking, and production processes to other medical marijuana companies.

The company engages in the research and development of cannabinoid-based pharmaceuticals and the marketing and distribution of cannabidiol hemp oil-based products.

Medical Marijuana provides management support and consulting services to cooperatives, collectives, wellness facilities, and medical clinics in the legal cannabis industry. The company also focuses on the treatment of pain and other disorders through chewing gum-based cannabinoid products.

Headquartered in Poway, California, the company’s portfolio of brands includes HempMeds, Kannalife, Wellness Managed Services, Phyto Animal Health, and MPS International.

How Has Medical Marijuana Performed?

• Over the past 12 months, MJNA has lost about 11% compared to a loss of about 6.4% for the S&P 500.
• Over the past two years, MJNA has lost about 50% compared to a gain of about 11.9% for the S&P 500.
• Over the past five years, MJNA has lost about 9% compared to a gain of about 36% for the S&P 500 (see five-year chart):

How Has Medical Marijuana Performed In 2017/2018?

• In 2017, Medical Marijuana’s stock ended flat whereas the S&P 500 gained 19.4%.
• In 2018 year to date, MJNA has lost about 41% compared to a loss of about 7% for the S&P 500.

Who Are Medical Marijuana’s Rivals?

22nd Century Group (NYSE: XXII)

With a market cap of about $296 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: about $316 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 cannabinoid treatments for both pediatric and adult epilepsies.

With a market cap of about $63.1 million, Zynerba could witness explosive growth. However, because it’s lagging in the regulatory approval process, Zynerba is particularly risky.

Will Medical Marijuana Go Up In 2019 (Should You Buy)?

Medical Marijuana went public in March 2009, becoming the first publicly traded cannabis company. Considering the size and scope of the marijuana industry today, that’s quite a distinction.

Medical Marijuana also was the first company to take advantage of the 2004 Ninth Circuit Court of Appeals decision, HIA vs DEA, which prevented the federal government from regulating hemp in the same manner as marijuana, paving the way for MJNA to market some hemp oil products to the public. The company turned its first quarterly profit in 2013.

This video explains the company’s groundbreaking efforts in the medical marijuana industry:

Other tailwinds include changes in how the U.S. government treats hemp. The 2018 Farm Bill takes steps toward the legalization of hemp and derivatives such as cannabidiol-based products, removing the shackles from companies such as Medical Marijuana.

Despite the HIA vs DEA decision, hemp continued to face legal restrictions. Those are now slated to be removed. The Farm Bill passed Congress in December 2018 and President Trump has indicated that he will sign it. These political developments boosted Medical Marijuana’s stock.

Many investors are now hoping that the Farm Bill will open the door to Medical Marijuana forging a partnership with a larger rival, or getting acquired. The company’s improving operating results also hearten Wall Street.

Medical Marijuana reported improved third-quarter operating results. Revenue surpassed $16.8 million, an increase of more than 116% compared to the same quarter a year ago. Revenue for the nine-month period ending September 30, 2018 exceeded $42.1 million, an increase of 146% over the previous nine-month period.

Gross profit in the third quarter increased nearly 140% over the same year-ago period; ordinary income surpassed $600,000.

Also in the third quarter, the company unveiled a new cannabidiol hemp oil gel capsule product distributed through its subsidiary Dixie Botanicals. The company also signed a joint venture agreement with Canadian extraction and formulation company Salvation Botanicals, Ltd. to bring Medical Marijuana’s products to Canada.

The partnership with Salvation could open a vast new market for Medical Marijuana. On October 17, 2018, Canada became the second country, after Uruguay, to legalize possession and use of recreational cannabis for all adults. Medical marijuana has been legal in Canada since 2001.

Canada has left it to the provinces and municipalities to determine parameters, such as where cannabis can be bought and consumed.

In the U.S., marijuana remains illegal on the federal level. However, individual states can adopt their own legal standards for marijuana thanks to Congress, which prohibits drug enforcement agents from pursuing marijuana growers and users in states where pot is legal. In the U.S. to date, 30 states and the District of Columbia have legalized marijuana to some degree.

Policy and political trends are clearly aligning in Medical Marijuana’s favor.

Will Medical Marijuana Go Down In 2019 (Should You Sell)?

Now the bear case against Medical Marijuana. And it’s strong.

Medical Marijuana’s operating margin (trailing 12-months) stands at -8.81 and earnings before interest, taxes, depreciation and amortization (EBITDA) is a dismal -$4.41 million.

And at the end of the day, we’re talking about a penny stock that trades on the pink sheets. That’s dangerous territory, especially in the marijuana industry, which is susceptible to exaggerated claims, financial irregularities, and pump-and-dump schemes.

Medical Marijuana’s share price currently hovers at about $0.10, which makes a secondary offering highly unlikely. To raise money to fund further research, this thinly capitalized company will have to find different means to raise capital that might add debt to the balance sheet. The company only has $3.3 million of cash on hand but $9.3 million in total debt (most recent quarter).

Also, the stock’s price history, as outlined above, is not encouraging.

Overall Medical Marijuana Forecast And Prediction For 2019

To be sure, medical marijuana is a booming industry and Medical Marijuana is a compelling company. However, risk-averse investors should stay away. The marijuana industry is pervaded by dubious penny stocks with shaky balance sheets. Many marijuana companies are burning through their limited cash and they’re destined to go belly up. The industry is frothy and ripe for a shake-out.

Undoubtedly, the movement for marijuana law reform has gained such momentum that it would be hard to stop. Sooner or later, pot is likely to be 100% legal in the U.S. for medical and recreational use. Early investors in the right start-ups will make fortunes.

But as of now, Medical Marijuana remains too small and risky. You’d be wiser to invest in bigger, more established players in the cannabis-for-medical-purposes sphere.

Medical Marijuana is worth keeping an eye on but until it starts posting consistent profits, the red flags are too great to ignore. Despite high hopes, this stock could prove a buzz-kill.

John Persinos is the managing editor of Investing Daily.