Marijuana stocks may have officially run into a brick wall. According to White House spokesperson Sean Spicer, the administration is gearing up for “greater enforcement” of federal marijuana laws.
“There’s still a federal law that we need to abide by when it comes to recreational marijuana and other drugs of that nature,” Spicer said.
Marijuana investors have been dreading these words from the Donald Trump administration ever since the election. All of the momentum the marijuana legalization movement has gained in recent years is contingent on the federal government looking the other way on enforcement. It is now clear Trump will be doing no such thing.
A federal crackdown on recreational and/or medical marijuana is horrible news for American growers and sellers. However, the crackdown could have a neutral or even positive impact on some marijuana stocks. Investors could use any headline-related dip in these marijuana stocks as a long-term buying opportunity.
Marijuana Stocks to Buy on the Dip: GW Pharmaceuticals (GWPH)
GW Pharmaceuticals Plc-ADR (NASDAQ:GWPH) is a biopharmaceutical company developing a marijuana-derived drug called Epidiolex for treatment of rare brain disorder Dravet syndrome.
Many marijuana growers or retailers skirt the U.S. federal marijuana ban to do business. At the same time, drug companies like GWPH are pursuing perfectly legal paths to the U.S. market. Sure Epidiolex and several of GWPH’s other drug candidates are cannabis-based. But the company is developing its drugs for the U.S. market the same way any other pharmaceutical company would.
So far, that development has been going exceptionally well. Phase III data for Epidiolex has been very positive so far. The drug reportedly reduced seizures by 39% compared to a 13% reduction for the control group.
Analysts estimate Epidiolex will bring in $1.1 billion in revenue annually by 2021.
The company isn’t the least bit concerned about the crackdown.
“Once a Schedule 1 drug that is based on cannabinoids is approved by the FDA, then there’s an automatic process for rescheduling of that approved medicine, not for marijuana or cannabis in general, but just for the compound that was approved by the FDA,” GWPH spokesperson Stephen Shultz clarified after Spicer’s comments.
Marijuana Stocks to Buy on the Dip: Zynerba Pharmaceuticals (ZYNE)
Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) is in the same boat as GWPH stock at this point. The company doesn’t care about a federal crackdown on marijuana legalization. ZYNE isn’t in the marijuana business. It’s in the biopharmaceutical business. It just so happens that its two leading drug candidates, ZYN001 and ZYN002, are both synthetic cannabinoid products.
The company is currently in Phase II testing of ZYN002 for treatment of refractory epilepsy and osteoarthritis. It’s also in Phase I testing of ZYN002 for treatment of Fragile X syndrome. Currently ZYN001 is still in preclinical testing for multiple indications as well.
Shares plummeted more than 16% back in January when the company announced a 2.8 million share offering priced at $18. However, the offering raised enough cash to get ZYNE through at least two more years of testing at its current cash burn rate. Shares have since rebounded completely.
At this point, the Zynerba story relies entirely on clinical trial data, not on federal marijuana laws. Marijuana investors should look at ZYNE as a higher risk/higher reward version of GWPH at this point.
Marijuana Stocks to Buy on the Dip: Insys Therapeutics (INSY)
When it comes to high risk/high reward, it doesn’t get much bigger than Insys Therapeutics Inc (NASDAQ:INSY). Despite the fact that INSY stock plummeted more than 6% following Spicer’s comments, the stock potentially has more to gain from a federal crackdown than any other marijuana stock out there.
First off, as I have argued before, Insys is not a marijuana stock. Yes, INSY has a synthetic THC product in its pipeline, and THC is the psychoactive compound found in marijuana. But the company’s primary product and cash cow is opioid painkiller Subsys.
A federal marijuana crackdown will not impact INSY’s THC product. In fact, eliminating easy access to marijuana in the U.S. market could be great news for INSY. Medical marijuana and even recreational marijuana is often used as a painkiller. In fact, marijuana can be a safer, cheaper alternative to potentially addictive opioids for treating pain. Perhaps that threat is why INSY stock donated half a million dollars to the anti-legalization movement in Arizona ahead of the election.
The biggest risk to INSY stock isn’t Donald Trump, but it may very well be the federal government. Back in December, the Department of Justice arrested six former Insys executives and charged them with bribery and racketeering. But investors who are confident that the company’s current management team has nothing to hide should consider the federal crackdown good news for INSY.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.