What happened

Shares of Zynerba Pharmaceuticals (NASDAQ:ZYNE) fell nearly 22% last month, according to data provided by S&P Global Market Intelligence. There wasn't any news specific to Zynerba, but many businesses in the cannabis vertical experienced weakness. That said, the pharmaceutical company has still seen its stock rise 287% since the beginning of the year.

Investors are excited about Zynerba's cannabidiol (CBD) gel for treating seizures and behavioral symptoms associated with neuropsychiatric disorders such as autism. It expects to report clinical data for four studies in the next 12 months. Will it deliver?

A finger tracing a declining stock chart on a touchscreen.

Image source: Getty Images.

So what

It's difficult to tell if Zynerba has potential because of the merits of its CBD gel approach to medicine, or if the stock is soaring simply because of its association with the cannabis craze. The next 12 months will prove crucial.

The business reported Q2 2019 results in early August showing an operating loss of $21 million in the first half of the year. While it ended June with $89 million in cash, the balance sheet was propped up thanks to raising $27 million through at-the-market (ATM) share offerings. That dilution could hurt shareholders and may have played a role in last month's decline. 

Now what

The company's current market cap of just $242 million suggests investors aren't taking its opportunities too seriously. That could change if the three phase 2 trials deliver promising data in the next year, and especially if its lone phase 3 trial delivers on the hype. Until then, all investors can do is wait.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.