Marijuana stocks have taken the investing universe by storm recently, with many promising companies in the field seeing their share prices shoot higher. Yet that hasn't been the case for every player in the industry. Both Medical Marijuana Inc. (MJNA) and Insys Therapeutics (INSY) have seen significant declines in their stocks over the past year, and unlike some other cannabis-centered companies, they haven't seen big rebounds to start 2019 either.
It's important to be discriminating when it comes to investing in marijuana stocks. With that in mind, let's take a look at both Medical Marijuana and Insys Therapeutics to get a better sense of where they are right now and what their respective prospects look like going forward.
Stock performance and valuation
Both Medical Marijuana and Insys Therapeutics have performed horribly over the past year. Medical Marijuana is down almost 30% since January 2018, while Insys is down an even steeper 64% over the same period.
Neither Medical Marijuana nor Insys is profitable, so using traditional earnings-based valuation metrics won't work in comparing the two companies. When you look at revenue as a basis for measuring valuation, you can get some insight, as Medical Marijuana trades at more than five times sales compared to a multiple of less than three for Insys. Insys seems to have a clearer track to produce larger share-price gains if its business recovers.
It's been crucial for budding companies in the cannabis space to find established partners to help them grow their businesses. Thus far, neither of these companies has made a major partnership, but some have become more optimistic about possible future tie-ups. For Medical Marijuana and its hemp oil business, finding a partnership to promote further expansion would be particularly useful, especially given what's likely to be rising competition in the wake of the passage of the latest Farm Bill legislation that made hemp production legal in the U.S. market.
Meanwhile, Insys has been looking for a buyer to take one of its business units off its hands. The company not only has marijuana-based medications but also sells Subsys, an opioid-based drug that's used as a powerful painkiller. Rather than dealing with the fallout from the opioid epidemic in the U.S. and elsewhere, Insys has sought to divest Subsys and the rest of its opioid assets. So far, those efforts haven't identified a would-be buyer, but Insys says it has had a number of companies sign disclosure agreements in order to look more closely at its books. That could lead to a future sale, letting Insys become a purer play on marijuana.
Growth prospects and risks
Both Medical Marijuana and Insys Therapeutics have done their best to capture opportunities for growth. For Medical Marijuana, the passage of the Farm Bill in late 2018 greatly clarified the legal status of the hemp products that the company specializes in making. Before the latest legislation, it wasn't entirely clear whether marketing cannabis-derived oils containing cannabidiol was strictly legal, and that had weighed on investor sentiment. Now that Congress has clarified that those products will be legal, Medical Marijuana has a big chance to boost its sales of such products. With sales having climbed by nearly 150% during the first three quarters of 2018 compared to the same period in 2017, Medical Marijuana is doing a good job of bulking up its revenue, but it has a long way to go before it'll have a sizable role in the industry.
For Insys, a lot depends on what happens with Subsys. Allegations surrounding the off-label use of Subsys for more general conditions than the cancer-related pain for which the drug was approved landed Insys in trouble with regulators, and revenue has dropped significantly since the allegations surfaced. In addition, Insys needs to come up with a broader pipeline of cannabis-related treatments, because its Syndros treatment for chemotherapy and AIDS patients has failed to generate significant sales despite its promise.
At this point, neither Insys nor Medical Marijuana looks like a terribly good play on the cannabis industry. Insys' deeper discount and prospects for further business give it a tiny edge over Medical Marijuana, but both stocks face challenges that could prove insurmountable in the long run.
Check out the latest Insys Therapeutics earnings call transcripts.