The landscape for marijuana use has changed drastically over the past decade, with almost 60% of Americans now favoring legalization. Four states and the District of Columbia have already approved recreational use, while another 21 states have legalized the drug for medical purposes.
As with any rapidly growing industry, investors would be smart to ask — is now the time to invest?
The short answer is it’s complicated.
Marijuana growers and distributors have a few major issues limiting their growth. Most notably, marijuana is still federally banned, which means states that have legalized the drug have also implemented regulations preventing companies from expanding outside their home states.
And because the policies for the drug differ depending on where you are in the country, there are no industry standards regarding potency or labeling, which has already gotten a few distributors in trouble with their unsuspectingly powerful edible treats.
Given the inherent risk of businesses based on recreational use, it may be a better idea to err on the medical side if you’re looking to invest. This is where companies like GW Pharmaceuticals PLC-ADR (GWPH) stand out.
GWPH Stock a Better Option
GWPH has been studying the use of marijuana cannabinoids as medicine since the 1990s, but up until recently, most of the company’s research has fallen flat.
Back in March, however, the company finally reached a breakthrough: during the first of four Phase III epilepsy trials, researchers found that patients who took cannabinoid-based drug Epidiolex achieved a 39% drop in convulsive seizures.
Compared to the 13% drop in patients who took a placebo, the data was a huge step in the right direction and sent shares soaring almost 19%.
Although the stock has cooled off since the rally, GWPH also has additional Epidiolex research in the pipeline, which includes two Phase III trials in Dravet syndrome and two Phase lll trials in Lennox-Gastaut syndrome.
All four trials should be completed by early 2017, which could fuel similar surges in share prices if the data is positive.
While companies like GWPH have a lot of potential, the long, bureaucratic process of legalization is an enormous drag on the growth of the marijuana industry, both medically and recreationally. Plus, I’d bet that the biggest pharmaceutical companies aren’t going stand idly by as medical marijuana becomes more pervasive, as it could someday replace many painkillers, sleep aids, antidepressants and other drugs with notorious side effects and addictive qualities.
In other words, competition will be tough.
There are a lot of obstacles for GWPH to overcome, but as the forerunner of marijuana research in the biotech sector, I think this company will profit nicely as the drug’s medical properties become clearer.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.