Could Legalized Pot Give Big Pharma a Much-Needed Boost?

by Barry Cohen | May 31, 2011 9:27 am

If the U.S. government ever legalizes marijuana, sales of the drug would probably make the $11 billion Pfizer (NYSE: PFE[1]) raked in on Lipitor worldwide last year look like chump change.

Consider that medical marijuana sales in the U.S. already will reach $1.7 billion this year, with nearly $250 million coming from Colorado, according to a report released in March.  Further, the report predicts that medical marijuana sales will reach $8.9 billion if 20 more states allow its sale for medical use.  Medical marijuana markets currently exist in Colorado and six other states and will open this year in five more.

But that’s just the tip of the iceberg. If people could use marijuana without the fear of getting busted, some industry observers say the market would likely be in the $10 billion-to-$40 billion range-and could even top $100 billion annually.

Given the dollars at stake, it’s easy to see why your best known purveyor of pills, Big Pharma, wants in on the action. And recent developments indicate that sometime in the not-too-distant future they may be competing with your friendly neighborhood pot dealer.

Just last week, the Drug Enforcement Administration said 55 unnamed companies have been granted licenses to grow cannabis in the United States.  Observers say the pharmaceutical companies need the pot farms to cultivate weed so they can produce a generic version of the THC pill Marinol, which is currently marketed by  Watson Pharmaceuticals, Inc. (NYSE: WPI[3] ), and at least one other cannabis-based pill for a wide variety of new uses.

It’s thought that pharmaceutical researchers are using THC, cannabis’ main psychoactive ingredient, as well as the number-two cannabinoid, CBD, in studies to treat obsessive compulsive disorder, schizophrenia, fibromyalgia, PTSD, and even irritable bowel syndrome.  That’s because pot modulates a newly discovered yet primal-cell signaling pathway called “the endocannabinoid system,” with special effects in the brain and the gut.

But to grow pot and put organic THC and CBD in pills, the DEA to would need to move organic THC down from Schedule I, where it is now, to the far less restrictive Schedule III, where synthetic THC Marinol currently resides. That’s exactly what drug companies have requested.  And by all indications, their wish is likely to be granted.

These developments have sparked outrage among advocates for legalizing marijuana. They wonder why big companies will be able to grow pot, put it in a pill and call it medicine while those who grow it at home or in a city-permitted pot farm face felony charges and jail. Good point. But welcome to the world of big business, where large companies have high-powered lobbyists pleading their cases in Congress every day.

So which companies are among the fortunate 55 starting up their own pot farms?  Probably

Watson. Another likely candidate is Valeant Pharmceutical International (NYSE: VRX[5] ), which has a THC prescription drug marketed under the name Cesamet. You can probably add the list such Big Pharma names as Pfizer, Merck (NYSE: MRK[6]), GlaxoSmithKline (NYSE: GSK[7]), and Bristol Myers-Squibb (NYSE: BMY[8]). Novartis (NYSE: NVS[9]) is probably in there, too, considering the company once tested a cannabinoid agonist to treat chronic pain.

Rather than speculate on which companies will emerge as the leaders in the marijuana industry, investors just might want to wait for the Pharmaceutical Pot ETF. It can’t be far off.

As of this writing, Barry Cohen did not own a position in any of the stocks named here.

Endnotes:
  1. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE
  2. 4 Top Biotech Stocks Waging the War on Cancer: http://investorplace.com/40281/biotech-stocks-to-buy-dndn-isis-teva-ogxi-ceph-gild-ssrx/
  3. WPI: http://studio-5.financialcontent.com/investplace/quote?Symbol=WPI
  4. 7 Reasons Housing is Headed for a Double-Dip: http://investorplace.com/42852/housing-market-home-prices-double-dip/
  5. VRX: http://studio-5.financialcontent.com/investplace/quote?Symbol=VRX
  6. MRK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MRK
  7. GSK: http://studio-5.financialcontent.com/investplace/quote?Symbol=GSK
  8. BMY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BMY
  9. NVS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVS

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