Marijuana legalization is spreading throughout the United States, triggering a gold rush — or “green rush” — among investors seeking ways to profit from a growing cash crop.
California, Nevada, Massachusetts, Maine, Florida, North Dakota, Arkansas and Montana this month approved measures to allow the medical or recreational use of marijuana. The drug remains illegal under federal law, presenting a risk that investors need to consider before buying stocks in the burgeoning industry.
Investor skittishness means than some marijuana-related stocks have been undervalued in comparison with their money-making potential. But that also makes them possible acquisition targets.
GW Pharmaceuticals (GWPH), Insys Therapeutics (INSY), and Cara Therapeutics (CARA) are researching therapeutic effects of cannabis-derived substances. Meanwhile, over-the-counter stocks that have roared higher this year include Aphria (APHQF), Aurora Cannabis (ACBFF), General Cannabis (CANN), Cannabis Sativa (CBDS), and THC Biomed (THCBF).
Once a company’s product is in FDA clinical trial, the company is not allowed to sell the product while in the testing phase. After they receive FDA approval, corporations are usually looking to acquire the guys with the most customer data in the marketplace so they can get their product out the door quickly and make back some of the R&D money. Whether any of the companies above will actually secure FDA approval is not known at this time, but GWPH is currently in the FDA’s “Fast-Track” program.
Federal restrictions on marijuana don’t stand in the way of Golden Grail Technology (GOGY), a publicly traded company that sells food supplements derived from a key part of the cannabis plant that doesn’t get people high.
Cannabidiol, commonly known by the initials CBD, has been legal in all 50 United States for the past seven years with no federal restrictions, paving the way for its expanded use as a health and wellness product. Golden Grail sells a pharmaceutical-grade version of the substance, and the medical benefits have been the subject of a growing library of scientific study.
“CBD is the more medicinal part of the plant and is considered an amazing superfood,” says Bill Fisher, head of Golden Grail subsidiary Accurate Venture Inc. “We are by far one of the largest market share holders in the industry and we are gathering up most of what’s opening up.”
Golden Grail has annual revenue of around $2 million and is seeking to expand its distribution next year with the rollout of retail vending machines carrying its Miracle brand of CBD goodies. The strong advantage that Golden Grail has over its competitors is its database of 2 million customers who have ordered products through direct-to-consumer channels. That’s a lot of data that’s ripe for picking by any one of the big-pharma companies.
Because Golden Grail’s products do not contain THC, the chemical in marijuana that causes the psychoactive effects, the company is not restricted from marketing its products to consumers across the entire country. That said, the U.S. Food and Drug Administration has cracked down on other suppliers of CBD goods for mislabeling their products and selling them on the Internet.
Several companies are researching the medical benefits of marijuana as a therapy for chronic pain or muscular seizures. They are seeking U.S. Food and Drug Administration approval to be prescribed by medical professionals.
GW Pharmaceuticals is a U.K.-based biotech company with an established history of researching and marketing cannabis-based drugs. The company already markets Sativex, a cannabis-derived treatment to alleviate the symptoms of muscular dystrophy, which is available in parts of Europe and Canada. GW Pharmaceuticals, whose stock has gained more than 1,200 percent since 2013, is in the late stages of researching a cannabis-based epilepsy treatment.
Insys Therapeutics is a Phoenix-based company that sells a cancer pain management drug while developing a cannabis-based drug for the treatment of epilepsy. The stock has gained more than 300 percent in the past five years, although it peaked in 2015.
Cara Therapeutics is a Shelton, Connecticut, Biopharmaceutical Company that develops and commercializes pain-relief drugs. The company may benefit patients seeking pain treatments that don’t have the same kind of addictive properties and overdose risk as opioid-based prescriptions. The stock has declined about 25 percent over the past 12 months.
Zynerba Pharmaceuticals is a Devon, Pennsylvania, company focused on developing and commercializing synthetic cannabinoid skin-patch treatments for pain and epilepsy. The company says it has enough cash to fund research and operations until 2018.
Joining the Green Rush
The market for marijuana products is set to explode from about $2.7 billion in 2018 to $8 billion two years later, according to Arcview Market Research. That kind of growth is reminiscent of opportunities in the technology, biotech, or social media industries.
The budding sector also presents risks as laws continue to change in response to the most significant social experiment since Prohibition. Wise investors will consider setting aside some risk capital to profit from the opportunities that will arise with America’s newest cash crop.
The views expressed herein are the authors and do not necessarily reflect the opinions of KushCA. As with all investing, there are risks involved. Always consult with a financial advisor.