Chances are that if investors took a good look around, they'd struggle to find an industry growing as fast as the legal weed industry, which is what makes marijuana stocks such an attractive lure.
According to the "Marijuana Business Factbook 2017," a recently released report from Marijuana Business Daily, legal pot sales are expected to grow by 45% in 2018 from a range of $5.1 billion to $6.1 billion in 2017, and they're projected to triple as a whole in the U.S. between 2017 and 2021 to more than $17 billion. This rapid legal sales growth, combined with a major shift in the public's opinion toward cannabis, has some investors confident that marijuana stocks could be the greatest thing since sliced bread.
This budding marijuana stock skyrocketed last week
Of course, this has also led to some degree of emotional investing when it comes to marijuana stocks, which has a tendency of boosting volatility. Last week, one marijuana stock made waves by scorching higher by 12%, making it the only pot stock to have moved by a double-digit percentage in that time period. The company? None other than Insys Therapeutics (NASDAQ:INSY).
The lone press release that appears to have influenced Insys' move last week affirmed that the Food and Drug Administration (FDA) had approved the final product label for Syndros, an oral dronabinol solution designed to treat chemotherapy-induced nausea and vomiting (CINV), as well as anorexia associated with AIDS. Syndros was approved by the FDA last summer, but it had to wait until the Drug Enforcement Agency (DEA) scheduled the drug, which occurred earlier this year (it was classed as schedule II).
According to the press release, which came out Wednesday, May 24, the FDA approval of its label was the last step needed prior to Syndros' launch, which is now expected in August 2017. Said CEO Saeed Motahari:
"The finalization of the approved product label for Syndros by the FDA marks a milestone for Insys and the last regulatory step required prior to the product's launch. ... We maintain our commitment to bringing novel therapeutic solutions to patients in need and are excited to launch Syndros in August."
Though Wall Street estimates vary widely, Syndros is expected to generate peak annual sales of as much as $300 million to $400 million.
Here's why Insys can't wait to launch Syndros
But there's another big reason why Insys is eager to launch Syndros: It's still dealing with fallout from Subsys, its only other FDA-approved drug, which is designed to treat breakthrough cancer pain.
Allegations and lawsuits suggest that up to 80% of Subsys prescriptions were being written for off-label indications. These suits, along with the bad PR, have hammered sales of Subsys, which generated approximately $330 million in sales in 2015. This year, Wall Street is forecasting that sales of Subsys could be half of what they were in 2015. In the process, Insys and its shareholders have witnessed healthy quarterly profits turn into modest quarterly losses.
The launch of Syndros may very well help take the spotlight off of Subsys, which could still take a couple of quarters for Insys to sort out. More importantly, Syndros should push Insys back to profitability, and it'll generate much-needed cash flow to continue expanding its pipeline. If Insys can indeed return to healthy profitability, it could be quite inexpensive at its current level.
Something marijuana stock investors should keep in mind
However, marijuana stock investors who may have considered adding Insys Therapeutics to their portfolios on the expected launch of Syndros in a few months' time should also take into consideration just how competitive the CINV market can be. There are dopamine agonists, NK-1 inhibitors, serotonin agonists, anti-anxiety drugs, and stomach-acid blockers already on pharmacy shelves and being used to treat CINV. These established medicines could be difficult for Syndros to unseat, and the drug's peak annual sales range forecast by Wall Street may be utopian.
Let's not also forget the disadvantages that marijuana-based drug developers regularly face. For instance, Insys will have had to wait more than a year prior to launching Syndros because of the need for scheduling from the DEA and label approval from the FDA. This wait may have allowed existing CINV medicines to further entrench themselves.
On a broader basis, marijuana companies face a mountain of disadvantages caused by the federal government's schedule I categorization. These disadvantages, which have the potential to extend to drug developers, can include an inability to secure basic banking services, as well as unfair tax treatment relative to normal businesses. U.S. tax code Section 280E disallows weed-based businesses from taking corporate tax deductions, thus forcing them to pay tax on their gross profits instead of net profits.
In short, even though marijuana stocks like Insys continue to dazzle with big gains, the macroeconomic outlook for the industry could easily go up in smoke. While Insys could arguably be among the most intriguing marijuana stocks given the fact that it has two FDA-approved products (one of which is cannabinoid-based), much of the industry is probably worth avoiding for the time being.