Please ensure Javascript is enabled for purposes of website accessibility

1 Cannabis Stock Beating the Market This Year

By Prosper Junior Bakiny – Jun 10, 2020 at 6:19AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GW Pharma has been performing well recently, but is this cannabis stock a buy?

Many investors have serious reservations about dipping their toes in the cannabis industry. After all, pot companies have generally delivered mediocre financial results over the past few quarters, and many have seen their shares drop significantly. The ongoing COVID-19 pandemic didn't help the situation either, but amid this chaos, some cannabis companies are gaining momentum.

One such company is GW Pharmaceuticals (GWPH). Here's why this cannabis stock is worth buying today.

GW stock

Image Source: YCharts

Epidiolex is a major success

GW Pharma markets the only cannabis-derived drug approved by the U.S. Food and Drug Administration (FDA). The drug is called Epidiolex and treats seizures associated with Lennox-Gastaut Syndrome (LGS) or Dravet Syndrome, both of which are rare forms of epilepsy.

GW Pharma has seen its revenue rise significantly since Epidiolex was first approved in 2018. During the first quarter, the company's revenue of $120.6 million soared by more than 200% year over year. Furthermore, GW Pharma's net loss per share shrank to $0.02, compared to the net loss per share of $0.14 recorded during the first quarter of 2019.

Are there better days ahead for GW Pharma? I believe so, and here's why. First, the company is still in the process of launching its crown jewel in Europe. After launching Epidiolex in the U.K. and Germany earlier this year, the company said other countries such as France, Spain, and Italy are next in line. 

Cannabis leaves on top of a hundred dollar bill.

Image source: Getty Images.

Second, Epidiolex could earn a new indication soon. GW Pharma is looking to gain approval for Epidiolex as a treatment for seizures associated with a rare tumor called tuberous sclerosis complex (TSC). According to the company, between 40,000 and 50,000 people have TSC in the U.S., and worldwide, that number is between 1 million and 2 million. GW Pharma submitted applications for Epidiolex as a potential treatment for seizures associated with TSC to regulatory authorities in both the U.S. and Europe earlier this year.

Third, GW Pharma is running a phase 3 clinical trial for another product called Nabiximols as a treatment for muscle pain and spasm caused by multiple sclerosis (MS). GW Pharma estimates that the market opportunity for this indication in the U.S. is greater than $400 million. With these additional opportunities, GW Pharma's revenue and earnings -- along with its stock price -- could increase significantly in the near future. 

One challenge to consider

It is worth noting that GW Pharma could soon encounter some competition. Zogenix (ZGNX) is a biotech that developed a product called Fintepla, which is a potential treatment for seizures associated with Dravet Syndrome. The company has already submitted a New Drug Application (NDA) for Fintepla in the U.S. and Europe, and Zogenix should receive an answer from the FDA in late June. If approved, Fintepla will eat up some of Epidiolex's market share.

Fintepla is also being investigated as a treatment for seizures associated with LGS. In a phase 3 clinical trial, Fintepla successfully reduced the number of monthly seizures in patients with LGS, but it did so by only 26.5%, compared to a 7.8% reduction in the number of monthly seizures for patients taking a placebo. These positive results weren't quite positive enough, which means Fintepla may not pose a particularly strong challenge to Epidiolex as a treatment for seizures associated with LGS, even if it is approved. 

Should you buy GW?

Epidiolex will continue to be a major growth driver for GW Pharma moving forward. I also think Nabiximols, which is already marketed outside of the U.S., has a good chance of earning FDA approval, which would provide another boost to the company. The challenge from Zogenix is certainly worth keeping in mind, and so is the fact that GW Pharma is still not consistently profitable. But even with these caveats, I think GW Pharma is worth serious consideration, although I wouldn't go as far as to say that it is a strong buy. Still, investors interested in cannabis stocks can hardly do better than GW Pharma.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc
GWPH
Zogenix, Inc. Stock Quote
Zogenix, Inc.
ZGNX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.