Most people don't think about biotechs when the idea of investing in marijuana stocks comes up. However, several biotechs have cannabinoid drugs in their pipelines and therefore are often included in listings of pot stocks. 

One such biotech is GW Pharmaceuticals (GWPH), which already has one cannabinoid product on the market in some countries and another one potentially on the way to approval in the U.S. Another biotech, Cara Therapeutics (CARA -3.61%), has a pre-clinical candidate cannabinoid-receptor agonist, CR701, which puts it ever-so-loosely in the marijuana stock category.

Both GW Pharmaceuticals and Cara Therapeutics have significant potential catalysts on the way. Which of these two biotech stocks is the better choice for investors right now?

Marijuana leaves in two capsules

Image source: Getty Images.

The case for GW Pharmaceuticals

Why buy GW Pharmaceuticals stock? The best arguments for doing so all relate to the potential for its cannabidiol (CBD) product Epidiolex, which targets treatment of two rare forms of epilepsy -- Dravet syndrome and Lennox-Gastaut syndrome (LGS).

The U.S. Food and Drug Administration (FDA) should announce its approval decision for Epidiolex no later than June 27, 2018. No FDA approval is a slam dunk, but the odds appear to be pretty good for GW's drug. The company's results from multiple phase 3 studies were positive enough that an FDA advisory committee voted overwhelmingly to recommend that Epidiolex win approval.

Probably the biggest question for Epidiolex is how successful it will be commercially. Investors should be aware that some are skeptical about the drug's potential in the marketplace. On the other hand, others are pretty bullish. Market research firm EvaluatePharma, for example, projects that Epidiolex could be one of the top 10 new drugs launched this year with the potential for annual sales close to $1 billion.

GW Pharmaceuticals hopes not only to win FDA approval for Dravet syndrome and LGS, but also to secure additional approved indications in the future. The company is evaluating Epidiolex in a phase 3 study for treating tuberous sclerosis, a genetic disease in which benign tumors grow in various parts of the body. GW also is conducting a phase 2 study of the drug targeting the treatment of infantile spasms, a condition in which seizures occur in very young children.

In addition to Epidiolex, GW Pharmaceuticals' pipeline includes four other cannabinoids. Sativex already is approved in several countries for treating multiple sclerosis (MS) spasticity. GW has a late-stage clinical trial underway in hopes of winning U.S. approval for the drug. The biotech is also evaluating three other candidates in phase 2 studies for treating epilepsy, glioblastoma (an aggressive form of brain cancer), and schizophrenia. 

The case for Cara Therapeutics

Let's first get one thing out of the way: Cara Therapeutics' sole pre-clinical cannabinoid-receptor agonist is a non-factor in the investing thesis for the stock. But Cara holds the potential to be a big winner. At least one Wall Street analyst thinks that the biotech stock could generate huge gains within the next year. 

The reason behind this optimism boils down to one product -- CR845, also referred to by its brand name Korsuva. CR845 is a kappa opioid receptor agonist that doesn't have the addictive qualities and bad side effects common to most opioid drugs.

Cara's primary focus for CR845 is the treatment of intense itching known as pruritis. The biotech is evaluating CR845 in a phase 3 study targeting treatment of patients with chronic kidney disease-associated pruritis (CKD-aP) who are on hemodialysis. Cara also is testing an oral version of CR845 for treating patients with CKD-aP patients who are both on and not on hemodialysis.

The commercial potential for CR845 in the CKD-aP indication is significant enough that it attracted interest from a major player in the kidney dialysis market. Vifor Fresenius Medical Care Renal Pharma, a joint venture between Vifor Pharma Group and Fresenius Medical Care, recently forged a deal with Cara to market CR845 in countries other than the U.S., Japan, and South Korea.

But CR845 also could be effective at treating pain. Cara has a phase 3 study in progress evaluating an intravenous version of the drug in treating post-operative pain. In addition, the company is conducting a phase 2 study of an oral version of CR845 in treating chronic pain.

Better buy

I'm very optimistic about GW Pharmaceuticals' chances of winning approval for Epidiolex. And I'm fairly optimistic about the drug's commercial potential. As a result, my view is that GW Pharmaceuticals stock still has room to move higher. The problem is that FDA approval and commercial success are largely baked into the stock price already.

Cara, on the other hand, could skyrocket if the biotech reports positive phase 3 results for CR845. There's a significant risk that those results could be disappointing, so the stock is definitely a speculative play only for investors who aren't faint of heart. It's a lot riskier than GW Pharmaceuticals, in my view, but there also is potential for much greater returns with Cara than there is for GW.

I'm going to step out on a limb and pick Cara Therapeutics over GW Pharmaceuticals. It might not be as much of a marijuana stock as GW is, but I like Cara's risk-reward profile.