“I’m not backing down… I’m doubling down.”
With that statement, CNN’s Chief Medical Correspondent Sanjay Gupta reversed his long held position on medical marijuana, effectively arguing in favor of full federal legalization. He’s in good company.
Scientists and biopharma experts have been extolling the virtues of medical cannabis to treat or alleviate the symptoms of hundreds of diseases for decades. And according to Gallup, 51% of Americans now favor legalizing medical marijuana -- compared to only 34 percent who supported the legalization a decade ago.
That shift is illustrated by the number of states in which medical marijuana is now legal – 23 plus Washington D.C., with more than 1/3 of those being enacted in just the last three years. Florida almost became the 24th state, falling just 2 points short of the needed 60% in a statewide referendum last month. Experts anticipate it will pass next time it makes it to the ballot.
Sales of cannabis-based treatments in public medical cannabis programs are expected to continue to climb as more states pave the way for its usage. As the number of supporters for its legalization increases, so too does the number of investors who are intrigued or are actively looking to invest in either crude herbal or pharmaceutical cannabis.
According to a recent survey conducted by Investing.com, Mentor Capital Inc., and Evolve!, Inc. , 73 percent of investors are bullish about the financial prospects of medical marijuana or cannabis-derived pharmaceutical companies.
“It makes perfect sense,” says Matt Karnes, Founder and Managing Partner, Greenwave Advisors, one of the leading analysts in the space. “The fact that nearly 75% have an interest supports the notion that this industry is ‘real’ -- these are very smart people.”
Karnes projects that sales in public medical cannabis programs are expected to leap 64% to $2.34 billion in 2014 from $1.44 billion in 2013, and that’s just the tip of the iceberg. He anticipates that once legalized, medical marijuana will be a $13 billion industry by 2020.
Get Well, Don’t Get High
For serious investors, the marijuana industry isn’t about getting a buzz. Sure, recreational marijuana may be grabbing headlines now, but once the FDA-approves cannabis-based biopharmaceuticals, that’s where the financial return will be realized. “We believe that as the [biopharmaceutical] industry shows promise internationally (where legal), it is likely that a similar pattern will be play out domestically,” said Karnes.
Among the key biopharmaceutical players developing cannabis-derived medicines:
London-based GW Pharmaceuticals (LONDON:GWP) is the early leader in the clubhouse, having seen their stock increase more than 70% year-to-date and a market cap of $1.46 billion. The company is best known for its multiple sclerosis treatment product Sativex, the first natural cannabis plant derivative to gain full market approval in any country. Sativex is today approved in 27 countries. It is also in Phase III clinical development for the treatment of cancer pain, the lead indication for the US market.
Chicago biopharmaceutical company AbbVie's (NYSE:ABBV) synthetic cannabis-based medication Marinol is FDA-approved to help reduce nausea in cancer patients undergoing chemotherapy. It is also prescribed to AIDS patients to help with loss of appetite. AbbVie generated $18.8 billion in revenue in 2013, and their stock is at a five-year high.
Last month, Insys Therapeutics (NASDAQ:INSY) received an orphan drug designation (ODD) for its cannabinoid candidate to treat pediatric schizophrenia, the company’s fifth pharmaceutical cannabis ODD. Orphan designation qualifies INSYS for various development incentives, including tax credits for qualified clinical testing. After a lackluster start in early 2014, INSYS has rebounded, seeing stock up more than 50% since July.
An early-stage biopharmaceutical pure play in cannabis-derived therapeutics is NEMUS Bioscience, (OTC: NMUS). The U.S.-based company has an exclusive partnership with the University of Mississippi, the only federally approved marijuana grower in the country.That partnership grants NEMUS access to patents generated from more than four decades of research and could launch NEMUS straight to the pole position, provided the company can successfully navigate the complex regulatory framework for the cultivation and handling of cannabis in the US. “If there is an FDA approved cannabis product, by definition, it would be legal and therefore investment would be more appealing and I would be more much more likely to invest as the regulatory risk would be mitigated,” added Karnes.
The absence of FDA approval may be the biggest impediment to the biopharmaceutical cannabis industry from being discussed in the same breath as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) in stock trading circles. It also makes for the most interesting investment catalyst.
As Karnes points out, FDA approval is only a matter of time.
Disclosure: The author does not have any stock positions in companies mentioned. The author has conducted a survey with NEMUS Bioscience, Inc. (a client of his company Evolve!), Investing.com, and Mentor Capital which was mentioned in the article.