Support of marijuana legalization is at an all-time high. States across the country have legalized marijuana, either for medical use, recreational use, or both. You might think that every marijuana stock would benefit from these trends. But that's not the case.

One company with a cannabinoid product actually opposes marijuana legalization. Insys Therapeutics (NASDAQ:INSY) doesn't want more states to legalize weed and has urged the U.S. Drug Enforcement Agency (DEA) in the past to not lower the bar for some marijuana laws. Here's how marijuana legalization could hurt Insys' fortunes -- and perhaps those of other biotechs with cannabinoid products, especially GW Pharmaceuticals (NASDAQ:GWPH).

A person holds up a sign that reads "legalize" at a pro-marijuana rally.

Image source: Getty Images.

Why Insys wants to just say no

Insys donated $500,000 in 2016 to Arizonans for Responsible Drug Policy, a group opposing legalization of recreational marijuana in Arizona. The company's investment paid off: Arizona voters rejected the proposition for legalizing recreational marijuana. However, the state's voters narrowly approved the legal use of medical marijuana in 2010.

Why did Insys Therapeutics fight against expanded marijuana legalization in its home state? The company's official line was that the proposition on the ballot last year failed "to protect the safety of Arizona's citizens, and particularly its children." However, Insys also said that the company "firmly believes in the potential clinical benefits of cannabinoids."

Basically, Insys' position is that cannabinoids are good, but greater access to marijuana is bad. This view becomes clearer when you consider that Insys hopes to make a lot of money off its cannabinoid dronabinol product, Syndros. At the time of the vote in Arizona last year, the U.S. Food and Drug Administration (FDA) has approved Syndros, but the DEA had not yet scheduled it.

The active ingredient in Syndros is tetrahydrocannabinol, or THC -- the primary psychoactive chemical in marijuana. If more people have access to marijuana, they could choose to use the "off-the-shelf" product instead of Insys' FDA-approved drug. Insys' donation to the anti-legalization group in Arizona is an example of what any drugmaker does when a generic alternative becomes a possibility: It tries to keep the rival off the market. 

What about others?

Insys was the only pharmaceutical company known to provide financial assistance last year to defeat ballot measures supporting marijuana legalization. However, it's not the only drugmaker that could be hurt from widespread adoption laws that allow individuals to legally use marijuana.

GW Pharmaceuticals might not be too far behind Insys in getting a cannabinoid product to the market. The biotech has reported positive results from several late-stage clinical studies of Epidiolex in treating Dravet's syndrom and Lennox-Gastaut syndrome, both of which are rare forms of epilepsy. GW expects to submit Epidiolex for FDA approval soon.

Marijuana buds lie in front of a blue prescription bottle and a bottle cap that reads "medical cannabis."

Image source: Getty Images.

The active ingredient in Epidiolex is cannabidiol (CBD), a chemical found in marijuana. Its possible that GW Pharmaceuticals could see lower sales for its drug than expected, assuming the FDA grants approval, if patients opt to use medical marijuana instead of Epidiolex.

This same scenario could play out for any biotech developing cannabinoid products. The potential exists for legal marijuana to serve as a much cheaper alternative for patients instead of approved drugs. 

Should investors worry?

All companies should take competitive threats seriously. For Insys Therapeutics and GW Pharmaceuticals, marijuana legalization is a potential threat. But should investors really be worried? 

Syndros is a liquid formulation of dronabinol, which means it can be titrated as needed. As a result, it should be more effective than using marijuana in other forms. That should help Insys.

Epidiolex contains concentrated CBD. While it's possible that payers could reimburse for medical-marijuana products containing CBD that haven't been FDA-approved, that seems highly unlikely. As long as patients will pay less out of pocket for Epidiolex than other unapproved CBD products, GW Pharmaceuticals shouldn't forfeit a large amount of revenue.

Still, Insys wouldn't have spent half a million dollars in one state fighting marijuana legalization if the risk wasn't real. It remains to be seen just how big of a factor competition from legal marijuana will be for Syndros -- and potentially for Epidiolex.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.