Marijuana has been making headlines for some time now as more and more states vote to legalize it. While there is still some debate on its legalization throughout the country, there’s no denying the potential of this market given the medicinal properties marijuana offers.

Considering the way the cannabinoids work, it makes sense that the main application for medical marijuana would be for neurological disorders — something GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) was quick to latch on to.

GWPH’s main focus is pediatric epilepsy (although it does hope to use its proprietary cannabinoid product platform for a broad range of diseases down the road), a neurological disorder marked by recurrent seizures.

GW Pharma’s Play on Marijuana

A lot of the company’s near-term success relies on Epidiolex — a drug that treats Dravet syndrome, which causes epileptic seizures in the first year of life due to Lennox-Gastaut syndrome (LGS); tuberous sclerosis complex (TSC), a genetic disorder that causes tumors to form in various organs; and infantile spasms (IS).

Back in March, GW Pharmaceuticals received orphan status for Epidiolex from the European Medicines Agency (EMA) for the treatment of LGS, which will speed up the review process in Europe and make GWPH exempt from competition for similar drugs over a multi-year period.

Unfortunately, GWPH stock has felt the heat as reports have come out stating that medical cannabis could potentially take away billions of sales from the pharmaceutical industry for the different conditions it can treat, including epilepsy. This in turn renewed fears that simple marijuana, which is not expensive, can be just as an effective treatment as a pricey pharma drug.

As a result, the shares have been all over the map — trading as low as $95.65 in late June all the way up to $117.81 in late July.

In the past couple of weeks, GWPH has settled around the $100 area, and shown good signs of stabilization, but I think it could easily get back above $117 once it’s on the right track again.

3 Keys to Success for GWPH Stock

There are three keys to the company’s future success:

First, management needs to complete the New Drug Application (NDA) for Epidiolex. This was initially supposed to be wrapped up by the end of June, but has been pushed back to October and the delay hasn’t helped the shares.

However, the company is completing the application on a rolling basis, and has already provided a good deal of data to the FDA. The timeline for the approval of Epidiolex should not change, and management still expects to begin marketing it next year.

In addition, they are staying proactive and preparing for the eventual launch of the drug by establishing the foundation for strong managed care and payer relationships, support for and outreach to the major epilepsy patient advocacy groups and finally, continued high visibility at major U.S. medical congresses. They also anticipate hiring about 60 sales professionals to target approximately 4,000-5,000 U.S. physicians.

Second, we’ll need positive comments from management around the approval. I expect that past research showing the effectiveness and safety of the drug will encourage neurologists to prescribe the treatment, which will help boost the stock.

And third, once Epidiolex is brought to market, it needs to prove that it can make $1 billion in sales. If it can, the rest of the company’s portfolio will begin to look better to investors.

GW Pharmaceuticals holds a lot of near- and long-term potential. Unfortunately, the stock tends to trade on emotion rather than cold hard facts, which causes sharp swings in the share price.

But if management can complete the NDA, receive final approval from the FDA and turn Epidiolex into a $1 billion drug, the sky’s the limit for GWPH stock.