Growth in the legal marijuana industry has been phenomenal over the past couple of years, and it's rightfully beginning to catch the attention of marijuana stock investors.

According to cannabis research firm ArcView, North American legal weed sales (this includes recreational and medicinal) grew by a blazing 34% to $6.9 billion in 2016. Yet, this could be just the tip of the iceberg. ArcView also notes that $46.4 billion in North American cannabis sales were conducted under-the-table last year, leaving a healthy channel for the legal industry to lure in new customers. With the public's opinion on pot shifting toward favorability, and select state governments itching to add a new channel of tax revenue, legal marijuana could have years of double-digit growth in its future.

Hemp plants growing in a field at sunset.

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Then again, there are an almost overwhelming number of marijuana stocks for investors to choose from. With emotions running high, investors may be buying into weed stocks for all the wrong reasons, or worse yet, without understand the risks involved with owning pot stocks.

With this in mind, we're going to take the time to analyze one marijuana stock each week until we've dissected all of the major players (i.e., those sporting a $200 million market cap, or larger). Here are the companies we've discussed so far;

Today, we're going to take a closer look at Cara Therapeutics (NASDAQ:CARA).

What Cara Therapeutics does

Cara Therapeutics is a drug developer that shares a key similarity with Insys Therapeutics: its drug development pipeline isn't entirely devoted to cannabinoid or endocannabinoid-mimetic drugs. In fact, Cara Therapeutics, which is entirely clinical-stage at this point, is almost exclusively focused on developing CR845, a kappa opioid receptor agonist (KORA) that has nothing to do with cannabis. We'll get into Cara's more direct cannabis ties in a moment.

Cara is angling its two experimental products in development, CR845 and CR701, at either acute or chronic pain, or pruritus, which is a really just fancy word for severe itching.

Two biotech lab techs examining a test tube and taking notes.

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Promise and opportunities

For the time being, Cara's future lies with the development of its KORA-based drug, CR845, which is being dosed in IV and oral form in various ongoing studies. KORAs generally have a poor ability to transcend the blood-brain barrier, unlike opioid therapies, meaning they're an ideal candidate to treat pain (and pruritus) without the traditional central nervous system side effects seen with opioids that can include nausea, sedation, depression, and addiction.

CR845 is being advanced in four clinical studies: two IV formulations that include post-operative pain and pruritis associated with chronic kidney disease (CKD) and two oral formulations for chronic pain and general pruritus.

In late March, Cara reported promising results from Part A of its phase 2/3 study of IV CR845 in CKD-associated pruritus, with the experimental therapy meeting both its primary and secondary endpoints. In terms of the primary endpoint, which measured a change from baseline in mean worst itching scores on a 0-10 numeric rating scale after eight weeks, CR845 led to a 68% greater reduction from baseline than those patients receiving the placebo. The secondary endpoint focused on quality of life measures and showed a 100% greater reduction from baseline in average total Skindex-10 scores at week eight relative to the placebo.  

Though this study clearly has investors and Wall Street excited, pruritus is a backseat indication for CR845. The elephant in the room is chronic pain and the potential to displace opioids as a primary pain treatment in the post-operative and chronic pain setting. According to the American Society of Addiction Medicine, there were 20,101 overdose deaths tied to prescription opioids in 2015 alone.

What could arguably be described as Cara's most important ongoing study is the phase 3 CLIN3001 trial for post-operative pain. An interim readout including 65% of the up to 450 patients should be out sometime in the next month.

An individual choosing between cannabis and opioids to treat pain.

Image source; Getty Images.

Cara's ties to cannabis relate to its preclinical research involving CR701, a cannabinoid receptor agonist that's designed to treat chronic pain. Considering that there were no documented overdose-related deaths from marijuana in 2016, compared to over 20,000 prescription opioid overdose deaths in 2015, there's a clear push to consider CB agonists as a possible solution to chronic pain. In rodent models, CR701 reversed "hyperalgesia (sensitization of nerve ending to panful stimuli) and allodynia (painful perception of innocuous stimuli) comparable to human conditions." 

Risks and concerns

However, as you'll find with any stock, there are risks. Here are few concerns with Cara Therapeutics.

Though the company does have four indications it's examining CR845 in, and thus far the data in each and every indication has been promising, CR845 is its only clinical-stage drug to this point. This means most of its hope is riding on a single drug, which generally isn't optimal. If CR845 falters in any of its four ongoing studies, it could throw gray clouds and doubt over the remaining trials, which wouldn't be good for shareholders.

Another concern is that clinical-stage drug developers frequently need to seek fresh capital to keep their research going. With the exception of out-licensing their therapies or forming collaborations, clinical-stage drug developers have no means to generate recurring revenue. In the first quarter of 2017, Cara's research and development expenses exploded higher to $20.8 million from $8.5 million in the year-ago quarter. The good news is the company completed a stock offering worth $86.5 million in net proceeds in April. However, the bad news is this funding may only extend its cash runway through the end of 2018 before it needs to dilute investors once again and seek more capital.

There's also not a lot known about what Cara Therapeutics plans to do with CR701, its CB agonist. Cara has certainly benefited from its loose association with "marijuana stocks," and CR701 demonstrated promise in trials, but it's all but fallen off the radar in recent quarters. Even if CR701 heads into clinical development, we're probably talking about a drug that's four years at the earliest away from contributing anything to Cara's top- and bottom-line.

Dice being rolled on top of a digital tablet that read either buy or sell.

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Should you buy Cara Therapeutics?

Now for the most important question: Should you buy Cara Therapeutics?

On one hand, there's been very clear promise from CR845 up to this point in treating pruritus, and there's plenty of hope that Cara's KORA drug will translate into positive results in late-stage post-operative pain. Further, there's plenty of reason for the company to move CR701 into clinical studies given the opioid epidemic in America.

On the other hand, Cara could be more than five years away from having any chance at recurring profits, and there are few guarantees of success with this pipeline being dependent on just a single clinical-stage therapy at the moment. Additionally, while CR701 has shown promise as a CB agonist in rodent models, it could be years before it has any chance of hitting pharmacy shelves, and the market for chronic pain medicines may have shifted dramatically by that time.

My opinion? Stick to the sidelines, but keep Cara Therapeutics on your radar. Though it's loosely associated as a marijuana stock, it's CR845 that'll be the company's growth driver in the intermediate term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.