One of the most compelling markets for investors is the burgeoning legal cannabis industry. With medical marijuana legal in 28 states and recreational pot legal in 8 more, it’s surely only matter of time before cannabis is permitted at the Federal Level.
But the Donald J. Trump administration may be pumping the brakes on this one. The US Federal government has doubled down on Cannabis’s Schedule 1 Status and has tossed out indications that it may crack down on black market sales.
The current black market for cannabis in the United States is worth more than $45 Billion. With legal pot revenue topping $1 Billion in Colorado alone, it should be easy to see that someone, someday is going to get incredibly rich on legal marijuana.
Sean Williams/Motley Fool
— Sean Williams (@TMFUltraLong) December 9, 2016
I’ve really enjoyed the Motley Fool’s analysis of the 21st century’s “Green Rush”. Recently, Sean Williams did a profile on GW Pharmaceuticals. GW has a drug (Sativex) based on synthesized cannabinoids (laboratory produced versions of natural chemicals within the buds of cannabis), effective at reducing spasticity in Multiple Sclerosis patients.
Though Sativex has not been FDA approved, their next drug Epidiolex (another cannabinoid drug, effective at reducing childhood epilepsy symptoms) is successfully undergoing clinical trials.
There are many young pharmaceutical companies testing drugs. What makes GW Pharmaceuticals unique is that its stock has shot up in value 1200% in just over 3 years. The question is: should investors jump on $GWPH?
GW Pharmaceuticals’ Past and Future Growth
Sean Williams is hesitant, and so am I.
Pharmaceutical companies are like investors. It takes diversification to win the long game. Currently, GW Pharmaceuticals has only one hit drug, and it’s not even legal in the United States. Though early clinical trial results of Epidiolex are promising, there is no guarantee that it will pass FDA scrutiny – a necessary step for any drug that is to be a hit worldwide.
Even though GW Pharmaceuticals has succeeded where so many cannabis-related companies have failed, this is no guarantee that it will continue its upward trajectory. Like so many aspects of cannabis industry investing, it’s a big gamble.
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Alternative Cannabis Stocks
Fortunately, GW isn’t the only game in town. Another cannabis-derived drugmaker I’m interested in is Cara Therapeutics.
$CARA has only one drug undergoing clinical trials, but its purpose hints at huge potential profit. “CR845” is a painkiller with its chemical roots in cannabinoids. Like opioid painkillers, it affects the brain’s opioid receptors. But because it doesn’t cross the blood-brain barrier, it doesn’t produce the euphoric effects of morphine or oxycontin, just the relief from pain.
In a world reeling from addiction to and abuse of opioid painkillers, we’re in need of a drug that takes a different course of action within the body. Cara Therapeutics may have a winner. Still a small company, and recently experiencing a tumble after missing Q4 earnings, Cara still has enough cash on hand to pay for drug trials through 2018.
We’ll really know whether or not $CARA is worth owning when the next drug trial results are published in June. In the meantime, risk-tolerant investors might want to snap up some of this stock, which is trading at a meager $15 compared to $GWPH’s $125.
Final Thoughts on Cannabis Stocks
Like Sean Williams and the other good folks at Motley Fool writing on this subject, I’m anxious to find a winner among cannabis stocks. Imagine living in the days just prior to the repeal of alcohol Prohibition. To realize that just decades later, beer and liquor companies would be international in their scope is to realize that savvy cannabis investors are going to get rich in the next few years.
Cannabis has the additional benefit of being medically interesting, giving it many more revenue possibilities than alcohol or other regular ol’ vices.
Cannabis companies simply don’t have the kind of business fundamentals necessary to be anything but a gamble. But that’s how it goes with high potential growth stocks. For $CARA and $GWPH investors, there is still a tremendous amount of risk. But it just might turn out that there is even more reward.
If you’re looking for a cannabis stock winner, which companies are you investing in?