The legal marijuana industry has been a monster in terms of growth, and marijuana stock investors have taken notice. In fact, a majority of pot stocks have doubled or tripled in value over the trailing 12 months.
It's not hard to see why investors are so excited about marijuana stocks. According to a recently released report from Marijuana Business Daily, titled "Marijuana Business Factbook 2017," sales of legal weed in the United States are expected to grow to between $5.1 billion and $6.1 billion this year, and another roughly 45% in 2018, before potentially topping $17 billion by 2021. Between 2016 and 2021, we're talking about approximately 300% legal sales growth. Between new states legalizing the drug, organic growth within legal states, and the opportunity to persuade black-market customers to move to legal channels, the perceived opportunity for marijuana stocks is enormous.
The public also seems to strongly be behind the progressive movement toward legalization. An April 2017 poll from CBS News found that 61% of respondents want pot legal across the country, which represents an all-time high. Similarly, an April 2017 survey from Quinnipiac University found an overwhelming amount of support for the idea of legalizing medical cannabis, with 94% in favor and only 5% opposed.
Nevertheless, marijuana remains a Schedule I drug at the federal level, meaning it's wholly illegal and without medical benefits in the eyes of the federal government. This bifurcation between state-level expansion and federal heel-digging definitely has the effect of creating some serious volatility among marijuana stocks.
These pot stocks grew like a weed last week
However, for investors this past week, the volatility was all of the good kind. In total, four marijuana stocks jumped higher by at least 10%. Let's take a brief look at some of these moves.
Cara Therapeutics (+12.8%)
Following the loss of more than half of its market value in a two-week timeframe, Cara Therapeutics (CARA -3.74%) found its stride this week and moved higher by 13%. Two catalysts appear to be at work here.
First, on Wednesday, July 12, Cara announced encouraging data for its phase 1 trials of oral CR845, its kappa opioid receptor agonist, as a treatment for pain and pruritus (itching) in patients with chronic kidney disease who are undergoing hemodialysis. All four doses of the drug (0.25 mg, 0.5 mg, 1 mg, and 2.5 mg) were well tolerated when administered daily, or after hemodialysis three times weekly.
What's more, and to take an excerpt directly from the company's press release, "Top-line pharmacokinetic analysis indicated that plasma levels of CR845 attained after oral administration of doses up to 2.5 mg were comparable to or exceeded those attained with clinically efficacious intravenous (I.V.) doses of CR845 for the treatment of moderate-to-severe CKD-associated pruritus (CKD-aP) in hemodialysis patients." In other words, there's a lot of early hype about oral CR845 as being a safe and effective pruritus treatment, which is far more preferable than an intravenous treatment in terms of quality of care for the patient.
Second, I believe calmer heads prevailed after Cara's disappointing phase 2 trial results involving oral CR845 as a treatment for patients with osteoarthritis (OA) of the hip or knee. The two lower doses failed to achieve statistical significance. The highest dose narrowly achieved statistical significance in lowering the mean joint pain score for those with OA of the hip, but it did not achieve statistical significance when looked at for both OA of the hip or knee. This Fool's suspicion is the company will focus on a study geared at OA of the hip, which could still be a success, and perhaps test a higher dose than 5 mg.
Canadian-based medical-cannabis producer and retailer Aphria (NASDAQOTH: APHQF) had an exceptionally strong week, with its share price vaulting higher by more than 13%, after the company announced its fourth-quarter and full-year results for fiscal 2017. Although the company reported a fourth-quarter net loss because of $5.5 million in strategic investments tied to capacity expansion, nearly every other facet of its report suggests exceptionally strong growth.
For example, Aphria wound up reporting 962% year-over-year growth in its EBITDA, a 670-basis-point improvement in full-year gross margin to 77.6%, and its sales rose year over year by 142%. Recently, Health Canada, which oversees the health of Canada's citizens, announced that the number of eligible medical-cannabis patients has been growing by about 10% a month, leading to plenty of demand for Aphria. Not to mention, Aphria is also one of the very few companies authorized to export medical cannabis to medical marijuana-legal countries, like Germany. Demand has not been an issue for Aphria, as its Q4 report shows.
Perhaps the star of its full-year report was its 25% decrease in all-in cash costs from 2016 to $1.31 a gram ($1.67 Canadian). Rising demand rising and falling costs are a great one-two punch. Now if we could just bring down the company's astronomical P/E, and know for certain what the future holds for recreational marijuana in Canada, it might be worth a serious look.
Aurora Cannabis (+16.1%)
The big winner for the week among marijuana stocks, with a 16% gain, was Aurora Cannabis (ACB -3.23%), another Canadian medical-cannabis producer, and one of Aphria's largest competitors. Aurora is in the process of developing the Aurora Sky project, which will be an 800,000-square-foot facility that the company claims will be the most advanced from an automation standpoint in the world. It's scheduled for completion next year.
What got Aurora Cannabis' shareholders so worked up? For starters it was announced early in the week that the company's stock listing in Toronto would "graduate" from the TSX Venture Exchange to the Toronto Stock Exchange. This move is a result of the significant increase in value in Aurora Cannabis' market cap over the past year, and it could encourage institutional investors to dip their toes into the water, which has investors excited.
However, what might arguably be the more exciting development was the July 12 press release noting that Aurora Cannabis' wholly owned subsidiary Pedanios GmbH had successfully passed the first stage of the tender application process to become a licensed medical-cannabis producer in Germany. Germany's medical-cannabis market is very wet behind the ears, and there's not much in the way of domestic grow farms, meaning Aurora could be among the first to snatch up domestic share in the country.
Zynerba Pharmaceuticals (+10%)
Finally, squeaking in with a 10% gain for the week was clinical-stage cannabis company Zynerba Pharmaceuticals (ZYNE -4.23%). Unlike the prior three marijuana stocks that had clearly defined press releases that moved their share prices, Zynerba's move appears to be almost entirely based on analyst commentary.
In an interview with a Forbes contributor this past week, Marketocracy's Todd Hagopian, who specializes in biotech companies, suggested that he would be taking profits on Arena Pharmaceuticals following its large spike higher last week, and he implied that Zynerba would be an intriguing new stock to consider buying. Hagopian pointed to the release of phase 2 data from the STAR 1 study of ZYN002 in adults with epilepsy, and phase 2 STOP trial involving ZYN002 for patients with osteoarthritis, either this month or in August as catalysts. The expectation of this data release may have itself been fueling Zynerba's run higher, too.
Smart investors should stick to the sidelines until we have this phase 2 data in hand.