Want a Pure-Play Marijuana Stock? Your Choices Are Few

A decision by the Drug Enforcement Administration to keep marijuana a Schedule I drug is a setback for the pro-marijuana movement, yet industry watchers maintain that state-by-state decriminalization will lead to dramatic revenue growth for marijuana companies. Unfortunately, investors hoping to profit from the marijuana industry's growth have few investment options to choose from.

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell discuss two companies that are developing marijuana-based medicine.

A full transcript follows the video.

This podcast was recorded on Aug. 17, 2016.

Kristine Harjes: The marijuana industry sounds like it would be really lucrative for investors. There's research out there that estimates 30% annual growth in the cannabis industry for the rest of the decade. Legal marijuana sales hit an estimated $5.4 billion in 2015. This trend looks poised to continue with 58% of respondents to a Gallup Poll supporting nationwide legalization. So, I totally understand why you have investors out there salivating at the prospects of getting in on this industry.

Todd Campbell: Right, this would be like us talking about alcohol during the Prohibition. What will happen if they repealed Prohibition? And, of course, we ended up with huge companies, Coors and Budweiser and the like, that were investment-worthy, if you will.

Harjes: Exactly. And we do currently have a couple of companies that are operating legally and are in this industry. But, of course, it is also very much a speculative industry at this point.

Campbell: It's a Wild West. I wouldn't recommend that any investor goes out for all marijuana stock, per say. There are two drugmakers that are doing FDA-quality research and conducting programs, and those are: GW Pharma (GWPH) is one of them, and Insys Therapeutics (INSY) is the other. Those are two companies that investors can consider. They have pros and cons to them. But those are, at least, two real companies with real potential chances to get FDA product approved that are based on marijuana, and be able to generate revenue and profitability someday down the road.

Harjes: And Insys, I'll point out, is not primarily focused on marijuana. GW Pharmaceuticals is pretty much your only bet if you want a pure-play marijuana stock that's not trading on the pink sheets for pennies.

Campbell: Right. They're doing research into the use of CBD, which is a chemical compound found within the marijuana plant. CBD has been demonstrated in early -- and now in some late stage trials -- to be very helpful in the use of controlling epilepsy, epileptic seizures in epilepsy patients. There could be a filing for FDA approval for this drug as early as 2017. We'll have to continue to keep an eye on them. But you're right, they are the only pure-play company of substance that I think investors ought to consider. But, of course, there's other risks there. They're not profitable yet, they're spending money on this research and they have nothing to show for it yet.

Harjes: Of course. Interestingly, I think this DEA ruling could actually benefit GW Pharmaceuticals. When you think about a Epidiolex, it is made from this liquid form of something that you extract from marijuana. It's not just, "Here, take the marijuana leaves and smoke them." It's completely other side of the ballpark from that. So, if the DEA had announced that all of the sudden, everybody can start studying marijuana in its natural form, in a smoked form, something like that, then you could potentially get these studies coming out saying that marijuana, in its natural state, is just as good as Epidiolex. And that would destroy its pricing power. So this is actually kind of good news.

Campbell: Buy from Charlotte's Web Dispensary, rather than having to get prescribed Epidiolex from your doctor.