To state that investors in GW Pharmaceuticals (NASDAQ:GWPH), a developer of pharmaceutical products that use cannabinoids from cannabis plants, have seen greener pastures in 2014 would be both metaphorically and literally correct as the company's shares have risen by a clean 113% so far this year. By comparison, the SPDR S&P Biotech ETF is up by a "paltry" 23% year to date.

GWPH Chart

GWPH data by YCharts.

What has caused GW Pharmaceuticals to shoot to the moon in 2014, you wonder? That's a question we'll answer today, along with looking at what the future might hold for this high-flying marijuana stock.

Why GW Pharmaceuticals has been unstoppable
I wish I could say there was one simple reason that would explain GW Pharmaceuticals' meteoric rise, but in fact it's been a compilation of factors.

Source: GW Pharmaceuticals. 

First and foremost, the improving perception of marijuana use within the U.S., the world's largest pharmaceutical market, has been a huge help to the company. GW Pharma has discovered roughly five-dozen cannabinoid compounds that it believes will help it exploit the natural cannabinoid receptor system within our bodies. Although 23 states and Washington, D.C., now allow marijuana to be used on a medical basis, the big change as of 2013 was that the majority of Americans favored legalization for the first time ever. The implication is that as the perception of marijuana continues to improve, additional state regulators may allow the drug to be used for medical purposes.

Second, a number of investors and most Wall Street analysts covering GW Pharmaceuticals expect the market value for medical marijuana companies to explode. According to The Huffington Post, the U.S. legal marijuana market is estimated to grow by 64% this year to $2.34 billion, which is considerably faster than the smartphone market is growing. During bull markets, as we're in right now, investors' appetite for risk and higher-growth stocks rises, which makes a medical marijuana stock like GW Pharma quite attractive to optimists.

Finally, GW Pharmaceuticals has a tangible product called Sativex that investors can point to as demonstrating the potential of the company's cannabinoid research. Sativex is an oromucosal mouth spray that has been approved in more than a dozen countries around the globe (though not in the U.S.) as a treatment for spasticity associated with multiple sclerosis. On top of Sativex, experimental epilepsy drug Epidiolex received orphan drug status in the U.S. from the Food and Drug Administration in February as a possible treatment for Lennox-Gastaut syndrome; it also demonstrated plenty of early promise as a treatment-resistant epilepsy drug in June. 

What happens when the unstoppable force meets the immovable object?
Although GW Pharma has been unstoppable this year, that doesn't mean the company will have clear sailing moving forward.

Patient taking Sativex. Source: GW Pharmaceuticals.

To begin with, the company must contend with a scrutinizing FDA in the United States. The U.S. government, despite changing public perception, continues to view marijuana as a schedule 1 drug, which is a fancy way of saying that it remains illegal at the federal level. This makes approving Sativex as a cancer pain medication in the U.S. (Sativex is in multiple phase 3 studies) potentially tricky. Even if it's approved, this situation could stymie Sativex's U.S. sales potential.

Another key challenge is that GW Pharmaceuticals is a predominantly clinical-stage company, and as such it's likely to lose money through at least 2017. GW Pharmaceuticals is sitting on a substantial cash pile of $273 million, but it's quite possible the company could burn through $180 million or more by 2017 as it spends on its developing pipeline of drugs. These losses could make it difficult for GW Pharma to advance beyond its current level.

Finally, Sativex sales in foreign countries haven't been anything to write home about. As of the third quarter, GW Pharmaceuticals delivered just $12.4 million in total revenue, primarily comprised of Sativex sales, compared to $12 million in the year-ago period. As Sativex is GW's only approved medication, the expectation from skeptics is that year-over-year sales growth for its relatively new drug should be considerably more robust than has been the case.

Source: Flickr user PabloEvans.

Where GW Pharmaceuticals heads next
The big question to be answered isn't whether cannabinoids have therapeutic benefits, because more than a dozen countries have said via Sativex approval that they believe those benefits exist. The question is whether the U.S., the world's largest pharmaceutical market, has room for a company focused on marijuana-based drugs. That's a question that I believe can't yet be answered with any certainty.

In the meantime, we can say with some degree of certainty that Sativex's momentum as a treatment for MS-based spasticity has largely stalled. This means GM's losses will probably not abate anytime soon. It's difficult to get behind a company whose sole product isn't selling well and whose future is very much up in the air. While select Wall Street analysts might like the company, I'd suggest that its best days could be in the rear-view mirror.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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