Two years ago (almost to the day), yours truly here penned a commentary explaining how while the ongoing legalization of marijuana was certainly creating quite a buzz, marijuana stocks were still a lousy investment.
It wasn’t well-received idea … particularly from those first-time investors and fans of marijuana who love the premise. They didn’t appreciate the fact that running a legitimate, profitable company isn’t a given.
In the meantime, all four of the marijuana stocks I specifically mentioned are down more than 90%.
Almost needless to say, investor interest in marijuana-mania has completely evaporated, with too many people learning that a well-loved hobby doesn’t necessarily make for a good business.
The irony? Now that nobody’s looking, recreational and medicinal marijuana as an industry has actually grown some teeth. It may be time to selectively — selectively — start looking at some of these names.
State of the Marijuana Industry
Just as a refresher for anyone who didn’t bookmark by article from early February of 2014 (which is, realistically, all of you), this is the nugget of the article that agitated traders who had fallen in love with the idea of marijuana as a legitimate business:
“Bottom line? Hemp, marijuana, pot — call it whatever you want — it has a future, but it doesn’t have enough of a present to dive in blindly like some already have. Two years from now, some of these stocks will still be around, and some won’t. Some new marijuana names will be on the scene. Some will be well-run and investment-worthy businesses, and some won’t, just like any other industry. But I’m willing to bet that all of these stocks will be trading at lower prices at some point in the foreseeable future, ’cause hype never lasts.”
Sure enough, the hype didn’t last. Neither did those lofty stock prices.
In retrospect, no veteran investor can be too surprised; it’s a story we’ve seen play out time and time again. Solar panels, rare earth minerals, LED lighting, Chinese stocks and even the dot-com craze of the late ’90s were all great opportunities that saw related stocks rise and fall again before the product was actually ready for prime time … so to speak. The legalized marijuana trade has been no different.
Yes, that’s right. Though the current buzz surrounding marijuana (no pun intended) is nowhere near what it was two years ago, there’s never been more working in favor of marijuana stocks then there is right now.
For perspective, 23 states have legalized the use of marijuana for medical reasons, while four states, as well as Washington, D.C., have given recreational marijuana the green light. That’s at least a few more states on both fronts than we could count two years ago.
And we’re not talking about chump change either. ArcView Market Research estimates the legal marijuana market could be worth $6.7 billion this year, and at its current pace of legalization could be worth $25 billion by the year 2027.
Clearly somebody is going to be collecting that money. The question is, who?
Which Marijuana Stocks Are For Real?
This is the point where most investors would expect to see a newly lengthening list of marijuana stocks that are finally in a position to start logging growth. If that’s your expectation, you’re going to be disappointed.
The fact is, for most marijuana stocks, the primary business model is still talking up the stock; very few publicly traded marijuana stocks have risen above the realm of penny stocks (and deservedly so), and even fewer have proven they even have a shot at viability at any point in the future.
Indeed, only one name looks like a true “investment” at this time. The next two best ones are still on the bubble.
From best to worst …
GW Pharmaceuticals PLC (GWPH)
Biopharmaceutical company GW Pharmaceuticals PLC-ADR (GWPH) is one of the pioneers in the arena of prescription-level, cannabis-based therapies. Its Sativex is a cannabinoid drug aimed at spasticity due to multiple sclerosis patients. The drug is also being developed as a therapy for pain, and cancer-related pain in particular.
It’s not approved in the U.S., but it has been approved in a few other countries.
Meanwhile, Epidiolex is a cannabinoid drug being developed as an anti-convulsant for epileptics. It’s not yet approved anywhere, but the FDA has granted it an orphan drug designation, loosely pointing to the need.
As for the other two marijuana stocks worthy of a look, bear in mind they’re in a distant second and third position relative to GWPH stock. On the flipside, they’re still well ahead of most other names in the business.
Insys Therapeutics Inc (INSY)
Insys Therapeutics Inc (INSY) isn’t a pure-play marijuana stock, but it does have one cannabinoid-based drug in its pipeline … oral dronabinol, which is a close cousin of nausea/anorexia therapy Marinol. Marinol generates more than $100 million in annual revenue, but an easier-to-use formulation of the treatment could prove bullish for INSY stock.
Terra Tech Corp (TRTC)
Confession time: I could have just as easily left Terra Tech off of this list of marijuana stocks to consider. It’s a penny stock, as well as an OTC-listed name, and as such is inherently riskier than most other equities.
But, at least to acknowledge the fact that there’s at least some money to be made somewhere along the supply/distribution chain, I wanted to throw in TRTC stock as a token.
Regardless of its use, whether it be for recreational or medicinal purposes, someone’s got to grow marijuana. Terra Tech is that company. Over the past 12 months, it has generated $9.3 million worth of cannabis sales, which may be the biggest supply from any publicly traded company. It’s an interesting play — albeit still incredibly risky — if only because it’s on the more stable wholesale side of the business, as opposed to the riskier retail side of the business.
Even so, extreme caution is advised.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.