- "Medical marijuana" is no longer an acceptable term to describe most companies in the industry.
- There are biomedical companies with a cannabis platform worth examining for long-term investing distinguishable from others never employing scientific method.
- Investors must employ fundamental and technical analysis to wisely invest in marijuana companies. Today, it seems people are throwing money at companies just because they're in the marijuana business.
The legal possession and use of cannabis is sneaking in the backdoor of society under the rubric "medical marijuana." What's medical about it? There are companies deserving of being in the biomedical sector using cannabis as a drug-producing platform. Most do not deserve being classed as in the medical marijuana business.
There is anecdotal evidence marijuana reduces nausea and stress to cancer patients. Marijuana also works as a muscle relaxant/pain reliever in place of powerful pharmaceuticals sans long-term effects, including deterioration of organs, muscle mass, and bone density. The time has come to redefine the largely political term "medical marijuana," and identify what is truly medical and hyperbole. This will improve risk transparency for investors interested in the cannabis industry.
Sixteen U.S. states and the country of Uruguay legalized the possession and sale of marijuana. Washington, Colorado, and California decriminalized it for recreational non-medical use, but the Federal government does not condone its use. Some allow limited cultivation for personal use under state license. Other states and countries like Israel and Canada allow varying amounts in private possession and for medical use.
Prestigious news and information sites like The Wall Street Journal and Seeking Alpha give gravitas to the term "medical marijuana," when the industry is really sub-divided. It is time to end the bait and switch lingo of legal marijuana and medical marijuana.
"Medical" is defined by science and the practice of medicine. Marijuana can offer relaxation and therapeutic results, but without rigorous adherence to scientific method, much marijuana use may be medicinal but hardly medical. Biomedical companies building drugs on a cannabis base control the growing fields, insure the uniform combinations of ingredients in the drug, dosage control, and delivery mechanisms. They test the interactions with other drugs taken by patients, run clinical trials, and target specific health and medical conditions of patients. Legal medicinal marijuana firms are herbal dispensaries.
Take, for example, Puget Technologies, Inc. (OTCQB:PUGE). Puget promotes its nasal spray, transdermal patch, and infused beverage delivery systems. Puget subsidiary, Cannabis Biotech, "identifies and develops innovative cannabis-based solutions for patient-centered medical needs through scientific technologies involving standardization, production, extraction, and delivery of cannabinoid medical products" for health and wellness. It may operate with integrity, as it claims, but are its products subject to accepted scientific method and government approval?
It claims on its website to be conducting "cutting edge research to develop innovative cannabinoid products and therapies for the treatment of diseases and their symptoms including HIV, cancer, glaucoma, and neurological disorders." Where are the findings, the peer review articles, filings with government agencies to be found?
Puget sells for about 50 cents per share, with a market cap of $22.1m. There is almost no financial data available, not even revenue per share, income, sales, profit/loss, etc. This is one neo-cap company about which an investor must be very cautious.
Two medical marijuana companies engaging in scientific research are Nuvilex, Inc. (OTCQB:NVLX) and GW Pharmaceuticals Plc (NASDAQ:GWPH). NVLX is a micro-cap penny stock. The share price currently hovers at 35 cents. It has sold as low as 2 cents. NVLX has 638m shares outstanding, and a market cap of $223m. NVLX does, through laboratory and clinical researchers in the US and Western Europe, cell and gene therapy into pancreatic, brain, breast, and prostate cancers, using proprietary technology. It examines "the anticancer effectiveness of cannabinoids against cancers while minimizing or outright eliminating the debilitating side effects usually associated with cancer treatments." It is categorically classified as a Drug Manufacturer. According their filing form 8-K, on February 14, 2014, Nuvilex entered into a $27,000,000 purchase agreement ("Purchase Agreement") and a registration rights agreement ("Registration Rights Agreement") with Lincoln Park Capital Fund, LLC, pursuant to which Nuvilex has the right to sell to Lincoln Park up to $27,000,000 in shares of its common stock subject to certain limitations.
GWPH, founded in 1998, focuses on novel therapies. Its primary targets are childhood epilepsy, multiple sclerosis, and cancer pain relief. GWPH controls its growing fields, protecting against variations in plant strains and strengths, and contamination from external effects like pesticides. Its cannabis doesn't grow in the same cornfield along with the corn, paraphrasing one investor. Safety and efficacy are its watchwords. It tests for interactions between its drugs and others patients take.
Stephen Schultz, VP of Investor Relations (U.S.), told me recently in an interview that what separates medicines based on cannabinoids from herbal treatments through public dispensaries is the total control of the pipeline, including growing fields, ingredients, dosage, and delivery systems; clinical trials and rigorous supervision by peer review and government agency personnel are ongoing.
In February 2014, GW's Epidiolex for certain childhood epilepsy illness received USFDA approval as an Orphan Drug. GW has seven years' exclusive marketing rights now.
GWPH stock price ranges for the past 52 weeks from $8.46 to $86.45 per share, currently at about $59. Its market cap is $864.61m, and annual sales in the last 12 months are nearly $30m. There are 14.8m shares outstanding. Funds holding the stock include Undrly Pru (M&G) Recovery (3.97%), Fidelity OTC Portfolio (2.93%), and Wells Fargo Advantage Discovery (1.12%). On January 14, 2014, the company announced it raised more than $10m from American Depository Shares before expenses. Strong buy recommendations remain consistent for the past year. GW outspends its total revenue income ($27.3m, 2013) on operating expenses of $36.5m. The bright spot is so little goes for SG&A ($3.8m) and the rest on R&D ($32.7m).
With few exceptions, risk transparency is not yet a hallmark of the publicly traded companies in the marijuana industry. Filings are slim-to-none. Four of the five companies I sent emails failed to respond. I simply asked them the nature of their businesses, their management qualifications, and their future plans.
One investor wrote me through Seeking Alpha questioning the reliability of numbers from a company. The company does not report where its products are sold, there are only artist renderings of the products, and the owner is a chiropractor engaged in numerous other investments that do not publicly report.
In the marijuana business, many have come and gone. Others change their names. Most dispensaries are privately owned, leaving anxious small investors in penny stocks trying to figure out the business of these companies. Fundamental analysis, technical analysis, and risk transparency are crucial to safely investing in the nascent marijuana industry. Remember what Thomas Edison said, "Everything comes to him who hustles while he waits." Keep doing due diligence before investing. The marijuana industry is not going away anytime soon. Like Shel Silverstein warned us, "take the bad stuff out, and leave the good stuff in."
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.