Should You Buy This Marijuana Stock?

Is this company looking at high times, or will its plans go up in smoke?

May 20, 2014 at 6:30PM

Shares of GW Pharmaceuticals (NASDAQ:GWPH) have risen nearly 700% since it was listed on the NASDAQ last May, making it one of the top-performing companies over the last 12 months. Should you buy GW Pharmaceuticals, or will this biopharmaceutical marijuana play go up in smoke?

Business lines
GW Pharmaceuticals is in the cannabinoid prescription product business, with its flagship product Sativex treating muscle spasticity in MS patients. It is currently approved for sale in 25 countries.

The company has license agreements with Otsuka Pharmaceutical, which has commercialization rights to Sativex in the U.S., and Novartis (NYSE:NVS), which has commercialization rights to Sativex in Australia, New Zealand, and parts of Asia and the Middle East.

GW Pharmaceuticals is working to get FDA approval for Sativex in the U.S. for muscle spasticity in MS patients and is also working to get FDA approval for the drug to treat pain in cancer patients. The company is also working on developing Epidiolex for the treatment of childhood epilepsy.

Business strategy
GW Pharmaceuticals seems to be pinning its hopes for success on receiving FDA approval for its products in order to tap the lucrative U.S. market. It is currently planning for Phase 3 trials to commence in 2014 for Sativex in the U.S. for spasticity in MS patients. Phase 3 trials for Sativex to treat pain in cancer patients are currently under way, with results expected in the second half of 2014.

These trials are being funded by Otsuka with the intent of submitting an application for New Drug Approval with the FDA upon successful Phase 3 results. GW Pharmaceutics estimates there are 320,000 MS patients in the U.S. affected by spasticity and that there are 420,000 advanced cancer patients in the U.S. suffering from inadequate pain relief from optimized chronic opioid therapy. The FDA has also granted GW Pharmaceutics Orphan Drug Designation for Epidiolex to treat Dravet and Lennox-Gastaut syndromes. 

Sounds promising, but...
GW Pharmaceuticals' success hinges on being able to successfully commercialize Sativex and its other products, which relies on receiving regulatory approvals from the FDA and other governments worldwide (which are far from guaranteed.) Even with government approvals, Sativex faces an uphill battle regarding physician willingness to prescribe and patient willingness to use.

GW Pharmaceuticals admits that it has to rely on government health care systems and insurance companies to reimburse patients, as otherwise most patients won't be able to afford their products. More disturbing than these risks is the fact that Sativex's sales have actually declined over the past three years, despite the drug receiving approval in new countries.

Things don't look any better for the most recent quarter, either. GW Pharmaceutics reported second quarter revenue of $12.6 million last week, and the company suffered a quarterly operating loss of $11.8 million. With a market cap of close to $1 billion, this lack of revenue should be a concern to investors.

GW Pharmaceuticals completed a follow-on offering back in January, which raised roughly $94 million, resulting in cash and cash equivalents of $159 million as of March 31. The company is funded for the time being, but mounting research costs coupled with low revenue mean that the company may be forced to further dilute shareholders with another follow-on offering at some point down the road.

Foolish bottom line
The success or failure of GW Pharmaceuticals seems to hinge on both receiving FDA approval for its products and being able to successfully commercialize them. With sales of Sativex struggling and with FDA approval far from certain, it seems the current market cap of just over $1 billion is unjustified at this time.

Potential investors should pay careful attention to the results of the phase 3 clinical trials for Sativex in the U.S. Any negative results or any indication from the FDA that these products won't receive approval would further erode positive feeling about the stock.

Don't let your portfolio go up in smoke. You can invest like Warren Buffett instead!
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

Charles Sherwood has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers