Next year should be enormously important for Canadian marijuana stocks, as the country moves forward with legalization of recreational marijuana. But that milestone means little for biotechs focused on cannabinoid development. 

However, at least three of these biotechs could be set for solid gains over the next 12 months. Here's why GW Pharmaceuticals (GWPH), Insys Therapeutics (INSY), and Cara Therapeutics (CARA -4.20%) look like the best marijuana biotech stocks for 2018.

Marijuana buds on table next to beakers

Image source: Getty Images.

GW Pharmaceuticals

GW Pharmaceuticals CEO Justin Gover said at the Piper Jaffray Healthcare Conference earlier this month that 2018 will be "a breakout year" for the biotech. I think he's right. 

The company completed its New Drug Application (NDA) submission to the Food and Drug Administration for Epidiolex in treating Dravet syndrome and Lennox-Gastaut syndrome (LGS) in October. GW's chances of winning priority review status should be pretty good. If the status is granted, Epidiolex could be approved in the U.S. by mid-2018. The biotech is also pursuing European approval for the drug.

Expect a boost for GW Pharmaceuticals stock if Epidiolex wins FDA approval. However, my view is that expectations of approval are largely baked into the share price already, so the stock's jump probably won't be a huge one. On the other hand, a successful launch for Epidiolex would almost certainly push GW Pharmaceuticals stock significantly higher.

There are also several other potential catalysts for the stock in 2018. Results from the first part of a phase 2/3 study of Epidiolex in treating infantile spasms are expected in the first quarter. GW should also report data from a phase 2 study evaluating cannabidivarin (CBDV) in the treatment of partial-onset epilepsy in the first quarter. Results from a key late-stage study of Epidiolex in treating Tuberous Sclerosis Complex (TSC) are also expected in the first half of 2018. In addition, the company anticipates several decisions on U.S. patent applications in the first half of the year. 

Insys Therapeutics

2017 has been a rotten year for Insys Therapeutics. The stock is down more than 20% due to a combination of factors, including plunging sales for opioid painkiller Subsys and a U.S. Department of Justice (DOJ) investigation into the biotech's past marketing practices. But I suspect that Insys just might be the biggest comeback story of 2018

One reason for optimism is that the worst days for Subsys could be over. Insys CEO Saeed Motahari expects sales for the drug to stabilize in the fourth quarter. He also thinks Subsys could pick up some momentum next year with the drug's inclusion as the preferred TIRF (transmucosal immediate-release fentanyl) product on the formularies of two of the country's largest pharmacy benefits managers and one of the top health insurers.

Marijuana buds in test tube

Image source: Getty Images.

Insys could also get some help from its cannabinoid drug, Syndros. Although Syndros won FDA approval last year for treating anorexia associated with weight loss in AIDS patients and for treating nausea and vomiting associated with chemotherapy in cancer patients, it took a while for scheduling of the drug by the U.S. Drug Enforcement Administration. Insys launched the drug in August. The sales ramp-up is expected to be fairly slow, but should make a difference for the company next year. 

Motahari intends for Insys to file for one drug approval each year over the next five years. The biotech recently checked off a filing for 2017 with the FDA's acceptance of an NDA for buprenorphine. Insys stock could enjoy a bump if the sublingual spray for the management of moderate to severe acute pain receives FDA approval in July 2018.  

Cara Therapeutics

Cara Therapeutics qualifies as a marijuana biotech stock, but only in a loose definition of the term. The company's pipeline includes an experimental cannabinoid receptor agonist, CR-701, in pre-clinical testing for treating neuropathic pain. It's not this cannabinoid receptor agonist that makes Cara an interesting stock for next year, though.

2018 could be the best year ever for Cara, depending on how several clinical studies go. Its lead candidate is kappa opioid receptor agonist CR845. A late-stage study evaluating the intravenous version of CR845 in treating patients undergoing abdominal surgery should conclude early next year. Cara should also report results from two late-stage clinical trials of IV CR845 in treating moderate to severe pruritis (itching) in patients on dialysis sometime later in 2018. 

What makes Cara's potential so great is the unmet need for the indications that it's targeting with CR845. Although opioids are widely used to alleviate post-operative pain, the side effects of the drugs are concerning. Because CR845 doesn't easily enter the central nervous system, the potential for adverse effects is greatly reduced. Also, there are no drugs currently approved for pruritis associated with chronic kidney disease (CKD), even though the condition affects as many as 70% of patients on dialysis.

For 2018, the IV version of CR845 will be most important for Cara. The biotech does have an oral version of the drug, however, that's being tested in phase 1 and phase 2 studies for CKD-associated pruritis and chronic pain. Although Cara had disappointing results from a phase 2 study of oral CR845 in treating osteoarthritis pain, it's still possible that the drug could be a winner over the long run. 

Best bet?

I think all three of these marijuana biotech stocks could perform well in 2018. In my view, though, the best bet is GW Pharmaceuticals.

Consider that GW Pharmaceuticals stock jumped close to 20% in 2017 with few major catalysts to speak of. Next year will provide plenty of catalysts for GW. I fully expect Epidiolex to win FDA approval. I also think there's a good chance that the biotech receives good news from its pipeline. There are always risks, of course, but my prediction is that GW Pharmaceuticals will emerge as the best marijuana-focused biotech stock on the market in 2018.