With only hours left until the election, investors are scrambling to determine which stocks could be impacted by the results. Key votes on marijuana legalization in nine states could be huge for marijuana and pharma stocks.
The election could boost marijuana stocks in the short term if marijuana initiatives pass in most or all of these nine states. In fact, I wrote an article about this potential trade a while back.
To my surprise, I have since learned that several pharma stocks are actively campaigning against these marijuana initiatives. Surprisingly, one of these pharma companies is actively working on marijuana-related drug research.
Why would companies actively working on marijuana-based pain drugs be donating to defeat legalization initiatives? Although it may seem counter-intuitive, the answer is an all-too familiar one: money.
These three pharma stocks could lose a lot of money if marijuana is legalized.
Pharma Stocks That Lose If Marijuana Wins: Insys Therapeutics (INSY)
To my surprise, one of the few Nasdaq-listed marijuana-related stocks, Insys Therapeutics Inc (NASDAQ:INSY), is the largest financial contributor to a group that is actively campaigning against the Arizona marijuana initiative.
Insys produces Subsys, one of the five most profitable prescription opioid pain killers in the world. In 2015, the prescription pain market was a massive $24 billion industry. Insys generated $58.5 million in income in 2015 with Subsys as its cash cow.
This year, Insys decided to use $500,000 of that money to fund Arizona’s anti-legalization movement. That amount is nearly 1% of its total annual income. Ironically, Insys is actively working on two cannabis-related drugs. However, Insys is actively rooting against marijuana legalization because it might eat into the company’s bottom line.
But you don’t have to take my word for it. In the company’s own words, legalized marijuana is no good for INSY and its bottom line:
“Legalization of marijuana or non-synthetic cannabinoids in the United States could significantly limit the commercial success of any dronabinol product candidate,” the company said in an SEC filing.
No wonder they are hoping marijuana initiatives get voted down.
Pharma Stocks That Lose If Marijuana Wins: Depomed (DEPO)
The numbers on U.S. opioid abuse are staggering — about 80% of the global opioid supply is consumed in the U.S.
Heroin is just part of the problem. There were 300 million pain prescriptions written in the U.S. in 2015. Many of these prescriptions were for opioids such as Depomed Inc‘s (NASDAQ:DEPO) Nucynta. It’s no secret that these prescriptions are often abused. Research has shown that prescription pain killers can be a gateway to heroin addiction.
Nucynta makes up roughly two-thirds of the total revenue DEPO generates. If medical and/or recreational marijuana has a strong showing on Election Day, there will be major new cannabis competition for Nucynta. That certainly won’t be good news for DEPO stock.
“This company is a posterchild of who could get hurt on the downside — a proxy for shorting the opioids space,” Sag Harbor Advisors portfolio manager Jim Sanford recently said of DEPO. If the marijuana legalization movement continues to gain momentum, DEPO stock could be a surprise loser.
Pharma Stocks That Lose If Marijuana Wins: Mylan (MYL)
The marijuana vote is only one of a number of issues Mylan NV (NASDAQ:MYL) is facing in coming months. MYL joins INSY and DEPO as one of the five largest opioid-makers in the U.S. The company manufactures generic versions of off-patent opioid drugs.
In addition to its opioid exposure, MYL has also taken heat this year for its pricing. Mylan produces the EpiPen, a portable epinephrine shot for people with severe allergies. Earlier this year, Democratic presidential nominee Hillary Clinton called out MYL for its 400% EpiPen price hike.
“Since there is no apparent justification in this case, I am calling on Mylan to immediately reduce the price of EpiPens,” Clinton said in August.
In addition to Clinton, the U.S. Department of Justice is also looking into MYL. MYL was one of a handful of companies subpoenaed in recent weeks by the DOJ. The government is performing an in-depth investigation into potential price collusion among generic drug makers.
Clearly, MYL stock has plenty of problems on its plate already. Any additional threats to its generic opioid business could be a major negative catalyst for the stock. If the marijuana gets legalized in a number of new states, MYL stock could take a major hit.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
