Pardon the pun, but few industries have had investors "seeing green" like the legal marijuana industry in recent years. A vast majority of pot stocks -- especially Canadian-based ones -- have doubled or tripled in value over the trailing year, or rocketed higher by perhaps more than 1,000% on a trailing-two-year basis.

What's driving these incredible gains? It's really been a combination of rapid sales growth and a persistent shift in the way the public view marijuana. Cannabis research firm ArcView believes the North American marijuana industry can grow by 28% through 2021. Meanwhile, at least five major national polls in the U.S. since April 2017 have shown overwhelming support for legalizing cannabis. As a result, direct and indirect players have benefited.

A cannabis leaf laid atop a hundred dollar bill, with Ben Franklin's eyes exposed.

Image source: Getty Images.

This small-cap pot stock, up over 2,900% in two years, is really turning heads

One such name that's caught fire is Radient Technologies (OTC:RDDTF), which has skyrocketed by more than 2,900% over the trailing-two-year period on the Canadian stock exchange. There are quite a few reasons pot stock investors are excited about Radient Technologies, including its tie-ins with Aurora Cannabis (NYSE:ACB), which we'll get to in a few moments. But topping the list of catalysts is Radient's unique technology known as Microwave Assisted Processing, or M.A.P.

The purpose of M.A.P. technology is extraction. What would the cannabis industry want with extraction, you ask? Simple: cannabis oils and extracts are a considerably higher-priced and higher-margin product relative to dried cannabis, which has become a somewhat commoditized product. All things being equal, cannabis companies that focus on oils and extracts should generate higher margins and profits than growers that primarily stick to dried cannabis. But keep in mind that the M.A.P. technology Radient brings to the table can be used by the food and beverage, natural health, personal care, and biofuel industries, too. It's not simply restricted to cannabis extracts, although that's where all of the buzz is at the moment.

M.A.P. technology offers what Radient Technologies suggests are clear advantages over conventional extraction techniques. With convention extraction, a targeted compound is heated over several hours, with the compound of interest dissolving into the solvent. Then, following filtration, drying, and other processing, the target ingredient is isolated. It's a costly and time-consuming process.

Comparatively, M.A.P. allows for microwaves to be selectively deposited into a biomass to target specific elements for extraction. Using M.A.P. should increase the purity of recovered extracts, reduce the recovery time to mere minutes, and in the process, save time and money with less in waste. 

A vial of cannabis oil next to a cannabis leaf.

Image source: Getty Images.

Radient Technologies has believers in its M.A.P. technology

How exciting is this new technology? Aurora Cannabis, the second-largest publicly traded pot stock in the world, is currently an investor in Radient Technologies. It also finalized a five-year Master Services Agreement (MSA) with Radient during their most recently completed quarter, covering extraction services in Canada, Australia, and the European Union. Aurora has the option of extending this MSA an additional five years, for a grand total of 10 years. 

How might this be useful? Just last week, Aurora Cannabis completed its acquisition of CanniMed Therapeutics – the priciest marijuana buyout in history. Among the strategies laid out by Aurora for its CanniMed integration is accelerating the construction of a cannabis oils processing facility that CanniMed had already planned to build. Capable of up to 720,000 liters of annual oil production, Radient will be leaned on to speed up and maximize the extraction potential of this facility. 

In late February, Radient also announced an MSA with privately held Bonfiy, located in Manitoba. According to the press release, Radient claims extraction efficiencies of up to 98%, as well as throughputs of over 1,500 kilograms of biomass a day. Presumably, as the company's cash balance and revenue base grows, it'll be able to expand its reach and scale its operations to handle even more in the way of cannabis extracts. 

This valuation is worrisome

Then again, while M.A.P. technology sounds fantastic on paper, and it's garnered a handful of MSAs to date, Radient Technologies' $283 million valuation (on the U.S. over-the-counter exchange) and a more than 2,900% trailing-two-year share price increase is absurdly high after considering its financial statements.

A risk dial turned to its maximum setting.

Image source: Getty Images.

As a relatively small company, Radient has had to turn to dilutive financing options in order to raise capital and strengthen its balance sheet. In the company's recently reported third-quarter results, it noted that more than 1.75 million common shares were issued for stock options that were exercised, along with more than 39.3 million shares related to warrants being exercised. Though these issuances wound up raising almost $10.6 million, it ballooned the company's outstanding share count. Based on its Canadian listing, the number of outstanding shares through the first nine months has ballooned from 69.4 million to 177.3 million, year over year.

The issue with dilution is twofold. First, it reduces the scarcity of existing shares. But it also makes it more difficult for companies to turn meaningful profits, since there are more outstanding shares used in calculating earnings per share. In this instance, the higher share count is really masking the company's net loss. Despite losing "just" CA$0.06 per share through nine months of the current fiscal year, a 50% increase from the prior-year through three quarters, its net loss has nearly quadrupled to $8.6 million (CA$11.28 million). This increase in share count is playing tricks on unsuspecting investors.

Meanwhile, Radient Technologies has only generated about $258,000 in sales through three quarters, and it has an accumulated deficit since inception of more than $45.2 million! Its filings with SEDAR (i.e., the Securities and Exchange Commission of Canada) find the company to be a going concern. While it has the capital to fund its operations now, continued losses might change that. 

Long story short, this is an instance where I really do like the technology, but I can't stand the valuation. Until we see some serious top-line growth and a reduction in net loss, there's no amount of MSAs that would allow me to consciously suggest investors consider put their money to work in Radient Technologies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.