The marijuana industry, and marijuana stocks for that matter, have been expanding by leaps and bounds over the past two decades. What was once a completely taboo industry has become a thriving source of legal growth, at least in some states.
According to a Gallup poll from the mid-1990s, just 25% of respondents were in favor of seeing recreational weed legalized nationally. Mind you, this was during the height of the War on Drugs campaign in America. As of 2016, an all-time high of 60% of respondents wanted to see cannabis legalized for adult use across the country, per Gallup. An even larger figure, 93%, wants medical cannabis legalized nationally, according to a recent Quinnipiac University poll.
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This shift in opinion is what's allowed the marijuana industry and pot stocks to expand as rapidly and consistently as they have. Today, 28 states have legalized cannabis for medical use, while eight states have voted to allow the legal sale of adult-use weed.
An encouraging marijuana study you probably missed last week
However, it's no secret that the U.S. federal government, especially the newer Trump administration, is leery of the still illicit substance. The possibility of a recreational-marijuana approval with Trump as president and ardent pot opponent Jeff Sessions as attorney general isn't zero, but it's darn near close to it.
The real opportunities at the federal level for the time being is for pot proponents to try to advance medical cannabis' cause or to continue to try easing medical research restrictions on the drug. One good way to do this is through university-based clinical studies. These introductory studies provide a foundation that can encourage more rigorous clinical research.
Last week, as published in the journal Nature Medicine, researchers from the University of Bonn and Hebrew University found that tetrahydrocannabinol (THC), the psychoactive component of cannabis, given regularly to older mice helped their brains perform better by restoring cognitive function.
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Specifically, researchers examined mice that were 2 months, 12 months, and 18 months in age. They were then monitored as they navigated a water maze. As you might expect, the younger mice navigated the maze more quickly and efficiently than the older mice before being administered any THC. But when researchers began administering regular doses of THC to the mice, the older mice improved to the point where they were finishing the maze with a similar efficiency as the younger mice with no THC.
In other words, while THC is often perceived to hinder cognitive capacity in younger brains, it may have the ability to rejuvenate cognitive function in older brains. The broader implication here is that a steady dose of THC may offer relief from those suffering from brain-related diseases, such as Parkinson's or Alzheimer's disease.
As is always important to note with university studies of this nature, nothing presented is concrete. Behavior seen in mice may not be remotely similar to humans, nor do we know the full adverse effects of regular THC dosing. This study merely gives researchers a jumping-off point to consider exploring the idea further on human subjects (which, according to The Guardian, may start later this year).
Cannabis-based drugs are beginning to make headlines
What studies like this do is really fan the flame of what might be possible with cannabis-based medicines. While many of the ongoing studies are considered informal in nature -- i.e., they're not being overseen by an accredited regulatory body like the U.S. Food and Drug Administration (FDA) -- some developing pot-based drugs have really turned heads.
Image source: GW Pharmaceuticals.
A good example is U.K.-based GW Pharmaceuticals (GWPH +0.00%), which has developed what might arguably be the most successful cannabinoid-based drug, Epidiolex. This is still an experimental drug, but it flew through phase 3 trials with flying colors for two rare types of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut syndrome. Epidiolex wound up providing a statistically significant reduction in seizure frequency relative to the placebo. Even with possible FDA leeriness toward cannabis and cannabinoid-based drugs, I'd opine that it'll have a hard time turning away Epidiolex given the strength of its late-stage data. Assuming possible label expansions in its future, Epidiolex is a drug that could eventually make a run at $1 billion in peak annual sales.
An FDA-approved therapeutic (which has yet to reach pharmacy shelves) that'll soon be making a difference is Insys Therapeutics' (INSY +0.00%) Syndros, a treatment for chemotherapy-induced nausea and vomiting (CINV) and anorexia associated with AIDS. Syndros, an oral dronabinol solution that's the pharmaceutical equivalent of THC, was approved last summer, but it had been held up by the need for Drug Enforcement Agency scheduling. With that now out of the way, Insys is looking forward to launching its new drug in the second half of 2017. Though peak sales estimates vary because of the highly competitive nature of the CINV market, Syndros could have peak annual sales potential of $300 million, or a bit more.
Two major hurdles still to consider
But no matter how exciting cannabinoid-based therapies might appear, there are two substantial drawbacks that should cause investors to think twice about marijuana stocks -- especially those that develop cannabinoid-based drugs.
Image source: Getty Images.
To begin with, the valuations of marijuana stocks are mostly in the stratosphere. For example, GW Pharmaceuticals isn't expected to be profitable on a recurring basis until 2020, and it likely won't approach its peak annual sales expectations for a good five to seven years. Yet the company is already valued near three times its peak sales, which is where some buyouts have occurred within the biotech industry. In simpler terms, GW Pharmaceuticals' valuation is looking way into the future, and there's no guarantee its product portfolio or pipeline is going to support that valuation.
The other issue is (surprise!) political concerns. Even though the Trump administration has remained neutral on medical cannabis, it doesn't look as if some of the inherent disadvantages the industry is dealing with will be going away anytime soon. In particular, it probably means that much needed FDA-guided clinical trials and ease of access to medical cannabis research isn't going to happen during Trump's tenure as president.
Though legal cannabis sales are growing like a weed, marijuana stocks are best left out of your portfolio for the time being.
