If you had given up on marijuana stocks, let me tell you why you should reconsider this year. The COVID-19 pandemic is wreaking havoc on most other sectors -- but it might actually be helping the cannabis sector recover. Cambridge, U.K.-based GW Pharmaceuticals' (NASDAQ:GWPH) stock suffered with its peers in the past year's sell-off, but the recent surge in pot sales drove impressive first-quarter results. 

Revenue soared in Q1

GW Pharmaceuticals is the maker of Epidiolex, a prescription drug containing cannabidiol, or CBD, for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome. The company's revenue was up threefold in the first quarter of fiscal 2020, to $120.6 million from $39.2 million in the year-ago period; this was also up from $109.1 million in the fourth quarter of fiscal 2019. The results were thanks to rising Epidiolex global sales, which came in at $116.1 million for the quarter. U.S. sales alone were $106.1 million, demonstrating the brand's large customer base. 

medical cannabis


U.S. cannabis companies including Green Thumb Industries (OTC:GTBIF)Curaleaf Holdings (OTC:CURLF), and Cresco Labs (OTC:CRLBF) also saw revenue rise threefold in their recent quarters. Green Thumb's and Curaleaf's first-quarter revenue rose 268% and 174%, respectively, year-over-year, while Cresco Labs saw a 215% rise.

It's just not the revenue numbers that are attractive -- GW also has a strong balance sheet. It ended the first quarter with cash and cash equivalents of $500.9 million. 

Capturing the market with Epidiolex

Epidiolex sales could further increase in 2020 as GW aims to improve access to the drug for patients in the U.S. and Europe. The recent descheduling of Epidiolex in the U.S. by the Drug Enforcement Administration (DEA) will help increase patient base. The CBD in Epidiolex is derived from marijuana, not hemp, which means it's still federally illegal in the U.S. -- hemp is now legal, but marijuana is not. The descheduling of Epidiolex moves it from Schedule I drug status (among the most dangerous) to Schedule V (the least restrictive) under the federal Controlled Substances Act (CSA), making it easier for patients to access it in the U.S. 

GW said new patient prescriptions were consistent in the quarter, as was the retention of previous patients -- illustrating the strength of the brand amid COVID-19.

As the ongoing increase in medical cannabis demand in the U.S. and globally demonstrates, more and more people are beginning to understand the benefits of medical marijuana over conventional medicines. As management said on the earnings call, "Looking ahead, GW is well placed to emerge strongly from the COVID-19 crisis with significant growth prospects for Epidiolex in the U.S. and Europe, important pipeline clinical trials ready to execute, a strong balance sheet, and an unparalleled leading position in cannabinoid science."

As I see it, the demand for medical cannabis won't be taking a hit anytime soon -- in fact, if estimates are right, it could see a further surge. Data from market research company IMARC Group suggests the global medical cannabis market could touch $44.4 billion by 2024, from $13.4 billion in 2018. 

Focus on research and development

GW Pharmaceuticals' research and development (R&D) expenses in Q1 mostly went toward its ongoing development program for Epidiolex, the advancement of clinical trials for nabiximols (a cannabinoid mouth spray), and its other pipeline programs. R&D was up $15.5 million from the prior year to $45.9 million. 

The ongoing work on Epidiolex in the U.S.  and the development of commercial operations in Europe also boosted GW Pharmaceuticals' selling, general, and administrative (SG&A) expenses to $71.2 million from $55.1 million in Q1 2019. Despite the rise in expenses, the company managed to lower its net losses sharply -- to $8 million in the quarter from $50.1 million a year ago.

Management hopes that their R&D and SG&A expenses for 2020 will come in below guidance of $530 million to $560 million, with capital expenditures ranging from $30 million to $40 million. However, management also noted that it's hard to determine the exact effect of the coronavirus pandemic on the business, given the uncertainty.

Attempt to sustain and thrive

Amid the pandemic, the most concerning thing for companies in an evolving industry like cannabis is to make sure they hold enough cash to survive the crisis and keep the business running. The ones with a strong balance sheet might be able to not just outlast the chaos but thrive once the pandemic retreats. Indeed, in May, shares of GW Pharmaceuticals and Green Thumb were up 33% and 50%, respectively, compared with the SPDR S&P 500 ETF's (NYSEMKT:SPY) gain of 7.6%.

Looking at GW Pharmaceuticals' strong revenue growth, its expansion plans, and its solid balance sheet gives me confidence in this cannabis stock for 2020. 

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.