Why Queensland Bauxite’s 114% Jump Had Nothing to Do with Bauxite

Queensland Bauxite Ltd [ASX:QBL] is a small, unknown explorer in North Queensland. But this morning, the stock jumped 114%, to a high of 3 cents.

You and thousands of other investors might hear QBL’s name more often in the future. But their potential popularity will likely have nothing to do with bauxite (an aluminium ore).

Instead, QBL could experience a short, sharp share price spike for a completely different commodity.

What happened to the QBL share price?

Medicinal cannabis cultivation was recently given the green light by the Australian government. It means cannabis for medical use is now legal. Doctors can prescribe the plant to patients suffering from chronic pain, cancer, seizures or Crohn’s disease.

Opportunistic companies have quickly jumped at the chance to grab market share in an industry worth potentially hundreds of millions of dollars.

QBL is one of these companies.

This morning, QBL announced that their investment in Medicinal Cannabis Ltd (MCL) was progressing. MCL is furthering its plans to research and supply hemp seeds to the industry.

Technical Director of QBL Andrew Kavasilas said:

It’s my understanding that MCL is the only company with current exposure to the ASX that has achieved such licences and approvals in Australia. The timing is perfect for our company to take advantage of the Australian government’s new medical Cannabis regime.

What now for Queensland Bauxite?

When a company worth $18 million — and making no money — sees its share price run up more than 100%, you can bet most investors are speculating on the future. They might not even be thinking a year into the future. Instead they are jumping in now and hoping more announcements will encourage other investors to do the same.

Once the share price has climbed high enough, they’ll cash out and find the next microcap to bet on.

There’s nothing wrong with speculation. But if you are going to speculate on a company like QBL, be mindful of the risks. You could potentially lose your entire investment. There is still no definitive answer for how large and profitable the Australian medicinal cannabis market will be. The industry is still evolving. But, if you can stomach the risk, you could potentially make serious returns on a company like QBL. Not just 100% or 200%. Hordes of speculators surrounding the medicinal cannabis market could bid up stocks like QBL, boosting the stocks more than 1,000%.

Of course, I don’t know if the stock will rise by this much, or whether it will become bankrupt within a year. But you could make serious returns with a bit of luck and nerves of steel.

Small-cap stocks are a riskier investment. There is no running away from it. But they can potentially grow earnings 10-fold in a short space of time.

To find out more opportunities to invest in the small-cap space, click here.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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