You don't see Aurora Cannabis (ACB -2.96%) and GW Pharmaceuticals (GWPH) lumped together very often. The two companies have very different business models, with Aurora producing cannabis for medical and recreational markets while GW focuses on developing and marketing cannabis-based prescription drugs.
Both Aurora Cannabis and GW Pharmaceuticals are marijuana stocks that have attracted significant attention from investors. They're also both off to a fantastic start in 2019, with Aurora up over 90% and GW soaring more than 70%. But which of these stocks is the better pick now?
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The case for Aurora Cannabis
Aurora Cannabis' immediate growth opportunity is right at home in Canada. The country's recreational marijuana market opened for business in October 2018. Aurora has quickly become one of the top leaders in that market, capturing a 20% market share in the last quarter.
Capacity is critical for success in Canada. Aurora looks very good in that department. The company stated in its Q2 update that it expects to have an annualized production run rate of more than 150,000 kilograms of cannabis by the end of this month. Aurora should be on track to boost that level to well over 500,000 kilograms in the not-too-distant future.
While the company's sales are already skyrocketing, Aurora should enjoy another big boost later this year as the next phase of Canada's recreational marijuana market opens. Canadian officials expect to soon finalize regulations for cannabis beverages, edibles, and concentrates. Aurora expects its profit margins to increase when it can offer these types of products.
International medical marijuana markets are even more important for Aurora's long-term growth prospects. Aurora is already the top Canadian marijuana exporter to Germany. The company also has a presence in more than 20 other countries spanning five continents.
Estimates vary for just how big the global marijuana market will be. However, it's not unrealistic to expect a market size of at least $100 billion within the next 10 to 15 years. Aurora Cannabis would only need to capture a small slice of such a large market opportunity for its share price to continue to zoom higher.
Check out the latest earnings call transcript for GW Pharmaceuticals.
The case for GW Pharmaceuticals
GW Pharmaceuticals' growth prospects hinge primarily on one product. Last year, Epidiolex became the first plant-based cannabis drug to win approval from the U.S. Food and Drug Administration (FDA). The cannabidiol (CBD) drug was approved for treating two rare forms of epilepsy, Dravet syndrome and Lennox-Gastaut syndrome (LGS).
Some predicted that Epidiolex could reach more than $1 billion in annual sales, with one analyst even projecting peak sales of well over $2 billion. It's too early to know if these estimates will be achieved. However, there's no question that the initial commercial launch for Epidiolex has gone very well.
GW reported Q4 sales for Epidiolex that were well above what most analysts expected. The company appears to have done a great job of reaching out to healthcare providers and payers. As of earlier this year, GW's sales team had interacted with roughly 70% of targeted physicians. Epidiolex is already covered for more than 80% of Americans with private health insurance, 99% of state fee-for-service Medicaid members, and around 90% of Managed Medicaid members.
The future for GW Pharmaceuticals and Epidiolex could be even brighter. The company hopes to win European approval for Epidiolex this year. GW also expects to announce results in the second quarter from a pivotal clinical study evaluating the drug in treating tuberous sclerosis complex (TSC), a genetic disorder where noncancerous tumors grow in parts of the body.
GW Pharmaceuticals' pipeline also includes other candidates that could drive more growth in the future. Sativex is already approved in multiple countries for treating multiple sclerosis spasticity. GW is conducting a phase 3 study in the U.S. in hopes of winning FDA approval for the drug. The company also has several other early-stage cannabinoid drugs in development that target diseases including epilepsy, autism spectrum disorders, glioblastoma, and schizophrenia.
Better marijuana stock
Both Aurora Cannabis and GW Pharmaceuticals appear to have great growth opportunities. However, tremendous growth is already baked into the share prices for both. In my view, the decision on which is the better marijuana stock comes down to which stock has more growth prospects that aren't already reflected in the share price.
GW's market cap of $5.2 billion might be way too low if Epidiolex can achieve annual sales of $2 billion or more. However, the stock doesn't have nearly as much room to run if its top drug peaks at half that amount.
Aurora Cannabis' market cap currently stands at around $8.4 billion. That's a lofty valuation based on historical sales, but history doesn't mean much with the company's sales accelerating as quickly as they are. I think that the long-term global marijuana opportunity presents a tremendous pathway for Aurora Cannabis to grow. Thus, Aurora is the better marijuana stock than GW Pharmaceuticals right now, in my opinion.
But better isn't the same thing as best. I like Aurora over GW, but I'm concerned about the company continuing to dilute the value of existing shares by issuing new stock through bought deal financing transactions. Because of this risk, I think that investors should look at other stocks rather than buy either Aurora Cannabis or GW Pharmaceuticals. The good news is that there are even better marijuana stocks for investors to consider.
