Growblox Sciences Inc (OTCMKTS:GBLX) Runs on Paid Pumps and Cannabis Hype

Growblox Sciences Inc (OTCMKTS:GBLX) f/k/a Signature Exploration and Production Corp is just one of the many OTC listed companies that tried to make it in the oil and gas industry and failed. In March, they decided that it’s time for a new business plan and they turned to the exploding marijuana sector. In some ways, this was an extremely risky move.

Petrotech Oil & Gas Inc (OTCMKTS:PTOG), for example, went through a similar transformation recently, but although everyone seemed excited about the new business, the SEC weren’t particularly happy about it. On March 14, Petrotech received a temporary suspension order which resulted in some extreme losses for the shareholders. Two and a half months ago the stock was traded at over $0.07 per share, but right now, it’s hovering around $0.007.

Nevertheless, GBLX decided to go with the marijuana business. Some assets were purchased with restricted stock, the name was changed, a new ticker symbol was acquired, and a person called Craig Ellins was put at the helm.

The filings and press releases say that Mr. Ellins has a lot of experience with start-up companies, but there are some questions around how successful his previous ventures have been. He was once in charge of an AMEX-listed company called Digitalfx International and as you can see from this link, there was some controversy around its stock performance. In 2009, Digitalfx was delisted from AMEX and it’s now traded on the Pink tier under the name Comf5 International Inc (OTCMKTS:CMFV). CMFV is sitting deep in the double zero levels and is delinquent in its filings.

Mr. Ellins also appears to be at the helm of Cognitiv Inc (OTCMKTS:COGV) – a $0.04 penny stock that has $3 thousand in the bank and a quarterly net loss of around $164 thousand.

Mr. Ellins’ previous ventures certainly raise some questions around GBLX‘s future success, but that doesn’t seem to bother the promoters who say that the company could be the first medical cannabis leader. A website called MJStockReport appears to be sending out emails about GBLX and their disclaimer says that they have received $150 thousand for doing so.

Friday’s performance suggests that the pump is working. GBLX gained an impressive 47% and finished the week with a price of $2.54 per share and a dollar volume of around $1.23 million. But will the forward-looking statements from the emails result in a more prolonged run?

On the one hand, the press releases sound positive. Shortly after the end of Friday’s session GBLX said that the first indoor growing chambers have rolled off the production line. Investors seem genuinely excited about the company and its technology and some are even writing articles about GBLX on Seeking Alpha (which probably served as a catalyst for Friday’s impressive jump).

Unfortunately, it’s not all good news for the stock. On March 21, the company sold 200,000 investment units to an unnamed investor at $0.50 a piece. Each unit consists of one common share and two warrants exercisable at an undisclosed rate. A couple of days later, they converted $114 thousand worth of debt into 438 thousand shares ($0.25 per share) and on May 5, GBLX turned a further $459 thousand worth of notes into 1.7 million shares (conversion rate comes in at $0.26 per share).

As you can see, the discounts in the conversion features mean that equity is issued at levels much lower than the current share price. If the discounted stock hits the open market, GBLX could be in for a crash which is something you should probably keep in mind while making your investment decision. Reading through the Convertible Notes section of the latest 10-Q might also be a good call.