Please ensure Javascript is enabled for purposes of website accessibility

This Marijuana Stock Is the Perfect Middleman for Pot Enthusiasts and Opponents

By Sean Williams - Feb 28, 2018 at 8:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This cannabinoid-based drug developer could be more pivotal than you realize in helping to shape U.S. cannabis policy in the years to come.

The legal weed industry is budding before our eyes, with U.S. sales slated to grow by 45% in 2018 -- likely a result of California opening its doors to recreational pot sales -- according to Marijuana Business Daily's report, "Marijuana Business Factbook 2017." Between 2016 and 2021, U.S. sales are forecast to quadruple to roughly $17 billion, which is a big reason why investors have driven marijuana stock valuations through the roof.

Sales growth has also been pushed higher thanks to a shift in the way the public views cannabis. Many national polls over the past year have demonstrated clear support in favor of legalization, with Gallup's nearly five-decade-old survey showing the strongest favorability (64% in favor of nationwide legalization).

A cannabis joint lying atop a cannabis leaf.

Image source: Getty Images.

Yet in the United States, marijuana remains firmly entrenched as a Schedule I substance, meaning it's entirely illegal, highly prone to abuse, and not recognized as having any medical benefits. Cannabis enthusiasts would argue that it does have the potential to provide medical benefits, while opponents of the drug urge caution due to unknown side effects of the drug. The debate over which side is correct has been ongoing for a long time. Interestingly enough, one marijuana stock provides evidence for both sides of the argument: GW Pharmaceuticals (GWPH).

Yes, cannabis could offer medical benefits

Until recently, GW Pharmaceuticals had been the undisputed largest pot stock by market cap, but it was surpassed by a small handful of Canadian cannabis growers that are preparing for the expected legalization recreational weed this coming summer. GW Pharmaceuticals is, however, still the undisputed king of all cannabinoid-based drug developers.

The company has an opportunity in 2018 to do something that no other drug developer in the U.S. has done before it: get the Food and Drug Administration (FDA) to approve a cannabinoid-derived drug. Though other cannabis-associated substances have been approved before, they've all been synthetic derivations, and not based on the actual cannabinoids found in the cannabis plant.

A doctor high-fiving a small girl sitting on her mother's lap.

Image source: Getty Images.

The experimental drug in question that's currently under review by the FDA is Epidiolex, a cannabidiol-based medicine designed to treat two rare forms of childhood-onset epilepsy – Dravet syndrome and Lennox-Gastaut syndrome. Cannabidiol is the non-psychoactive component of cannabis. In two separate late-stage studies for each indication, Epidiolex met its primary endpoint of statistical significance with regard to reducing seizure frequency from baseline. In fact, in Dravet syndrome it tripled the reduction in seizure frequency from baseline (39%) relative to the placebo (13%). 

With no medicines on the market to treat either of these rare epilepsy indications, Epidiolex could become the first, and in the process generate north of a half-billion in annual sales for GW Pharmaceuticals. It would also unequivocally demonstrate, with the FDA's approval, that cannabinoids do offer medical benefits.

No, cannabis isn't necessarily a game-changer or a fix-all drug

Unfortunately, GW Pharmaceuticals has also shown the scientific community that cannabis isn't a cure-all drug, even if it's demonstrated positive evidence in previous university-run studies in a variety of indications.

For example, back in 2015, the company reported that its oramucosal spray Sativex, a drug approved in more than a dozen countries outside the U.S. to treat spasticity associated with multiple sclerosis, failed to meet its primary endpoint in three U.S. phase 3 trials for the treatment of pain in patients with advanced cancer who experience inadequate analgesia while on opioid therapy. Though cannabis is often prescribed as a cancer-pain medication in a number of medically legal states, it failed with flying colors in GW Pharmaceuticals' pivotal trials. 

Cannabis leaves next to test tubes and other biotech lab equipment.

Image source: GW Pharmaceuticals.

Then, just this past week, the company announced disappointing preliminary clinical results from its phase 2a study involving GWP42006, a cannabidivarin-based experimental medicine for the treatment of inadequately controlled focal seizures. Both the GWP42006 group and placebo group demonstrated a roughly 40% reduction in focal seizures relative to baseline, meaning there was no statistical significance. However, it is worth noting that GW Pharmaceuticals' believes the placebo group response to be abnormally high, and it's currently reviewing its next steps. Further, the GWP42006 group had more treatment emergent adverse events (73%) than the placebo group (48%).

Long story short, even if cannabis is medicine, it's not necessarily a game-changer for patients -- at least until FDA-approved clinical trials says it is.

Don't forget about what happens if weed's scheduling is changed

Investors caught in the middle of this debate over legalization should also keep at the forefront of their minds that a rescheduling of cannabis may not necessarily be a win.

Pro-legalization enthusiasts have been pushing for pot to be removed from the scheduled list of drugs altogether, although that seems unlikely to happen without lawmakers receiving copious amounts of clinical data outlining the benefits and risks of cannabis use. A far likelier move would be for marijuana to be reclassified as a Schedule II drug. Under such a classification, cannabis would be deemed as having medical benefits, albeit the potential for abuse is still recognized as high.

A researcher in a lab coat making notes in the middle of a hemp field.

Image source: Getty Images.

Sounds decent so far, right? Well, here's the issue: as a Schedule II substance, the medical marijuana industry would come under the strict oversight of the FDA. As a result, the FDA would be in control of regulating marketing and packaging, and it could oversee the growth and distribution of cannabis to ensure that the content of tetrahydrocannabinol (THC), the psychoactive component of cannabis, remains consistent from crop to crop. Most importantly, it could require that clinical studies be run to verify claims that marijuana offers clinical benefits. This would be a costly, time-consuming affair that could reduce access to medical pot for years to come, even if it were technically legal as a Schedule II drug.

With red tape bogging down federal researchers and universities, GW Pharmaceuticals and its cannabinoid-based drug trials may be the key to industry expansion or rescheduling.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.