The green rush is nothing new to investors that have been following developments over the last few years. As legalization across the nation continues to grow and with mounting pressure on the federal government to move towards legalization, stigma towards cannabis is diminishing at an increasing rate. We continually hear about companies such as MedMen, Halo Labs, and other dispensaries, brands, and distributors. However, we hardly think of the scientists and companies paving the way for medicinal uses of cannabis and its extensive list of cannabinoids that have shown to have therapeutic effects in many areas.
The cannabinoid-based pharmaceutical research field is expected to reach $50 billion by 2029, making cannabis research a very attractive venture for biotech companies of all sizes. Below, I am going to cover three of my favorite companies that are dabbling in the cannabinoid space in one way or another.
Cara Therapeutics (NASDAQ:CARA)
CARA is currently undergoing preclinical research in cannabinoids for the treatment of neuropathic pain as the treatment aligns with its overall values and mission to manage acute and chronic pain. While likely a successful candidate outside of the cannabis concept (currently with two Phase III trials underway, and two more in Phase II and one in Phase I), its cannabinoid receptor agonist, CR701, focusing on CB1 and CB2 receptors could prove fruitful for the company.
(Source: CARA's website)
CB1 receptors are mainly localized in the brain whereas CB2 receptors are found mainly in peripheral tissues which have been shown to be involved in pain and inflammatory responses. CARA is developing CR701 to selectively modulate peripheral CB receptors without targeting CNS cannabinoid receptors.
CR701 has been evaluated in a rodent model of neuropathic pain that is comparable to human conditions while showing that administration of CR701 to animals with neuropathy resulted in significant reversal of both hyperalgesia and allodynia.
(Source: CARA's website)
The main objective of the drug is to become a replacement for opioids, which caused more than 33,000 deaths due to overdose in 2015. Announcing its initial move into the cannabis space in 2017, the company will not likely begin clinical trials in humans for another year or so. I think late 2020 we should see initiation of Phase I.
In Q1 2019, the company reported a net loss of $22 million, with total revenues of $4.4 million due to license and milestone fees related to agreement with Vifor Fresenius Medical Care Renal Pharma Ltd. With roughly $156 million in cash and cash equivalents on hand at the end of Q1, the company projects that it can continue operations through Q4 2020. However, I see an offering likely in early 2020, especially if there is positive news surrounding Phase III results and submission of an NDA. This will launch its marketing efforts and continue to support research, putting the company in a good position despite diluting shares.
GW Pharmaceuticals (NASDAQ:GWPH)
Considered the leader in cannabinoid research and development, GW Pharma produced the first ever FDA-approved cannabinoid drug Epidiolex, an oral solution that is approved to treat seizures associated with Lennox-Gastaut Syndrome or Dravet syndrome in patients 2 years or older.
With a patient population of roughly 70,000, LGS and Dravet syndrome are difficult to treat and offer very little viable treatment options.
Epidiolex has coverage in over 80% of all commercial lives, roughly 145 million with 60%, with 4 of the 5 largest US payors having initiated coverage of Epidiolex with a PA to indication. Since FDA approval, all 50 U.S. States have rescheduled the drug and Epidiolex now has a projected gross price in the first year of $32,500.
Upcoming, GW Pharma is awaiting EMA regulatory approval with the brand name Epidiolex with launches in France, Germany, Italy, Spain and the UK this year. The past year has seen rolling regulation changes throughout Europe on its stance on cannabis, which entices investors to believe that European approval is imminent.
(Source: GW Pharma Deck)
With a drug approved for two indications and two more in Phase II/III as well as three other drug candidates with a total of 8 indications together all in mid-stages of clinical trials, GW Pharma seems to have a very bright future and continue to be the leader of the cannabis research field. The early data all looks very promising. I believe a deep dive into the company and its pipeline is in order shortly.
The company finished 2018 with $591.5 million in cash and expects to push $400 million for operating expenses through 2019. The company will likely need an offering soon to raise capital in order to continue its pipeline research; however, 2019 will be filled with catalysts to mask any dilution. This should be a shining year for GW Pharmaceuticals. The company projects 11 catalysts throughout 2019, I think GW Pharmaceuticals has my pick for top contender in the research space.
(Source: GW Pharma Deck)
Perhaps the biggest hidden gem of the cannabinoid and cannabis research space, major pharmaceutical company AbbVie is indeed involved in the cannabis space. With its FDA-approved synthetic cannabis-based drug Marinol, which was developed to alleviate nausea and vomiting in chemotherapy patients while also helping AIDS patients maintain hunger, AbbVie has taken its place among the few companies with an actual product that is FDA-approved that is linked to cannabis.
Marinol is a proven drug, with a global market of $160 million in 2016 and is expected to grow dramatically based on increased drug availability, a change in public opinion toward medical cannabis, new methods of drug delivery and the results from new clinical trials, as reported by Zacks Small-Cap Research. However, there are competing companies that are attempting to take market share from AbbVie's longstanding drug which has been around for more than 25 years.
Outside of Marinol, the company also holds many patents involving cannabinoid compounds. A few of these patents include:
- Treatment of cannabinoid receptor-related diseases
- A therapy for reducing side effects when using cannabinoid receptor ligands
Quite possibly the safest bet in the cannabis sector, AbbVie is an already established pharmaceutical company with a robust pipeline that boasted an EPS of $2.14 for Q1 2019 and even offers a dividend that exceeds 5% yield. If you want to invest in the cannabis space but want to limit exposure to the "devil's lettuce," AbbVie might be the optimal choice.
Coming off a high of nearly $120 just over a year ago, the high yield and robust pipeline that AbbVie offers is very appealing.
- Cara Therapeutics has the highest room for growth. With a large pipeline outside cannabinoid-related drug candidates and preclinical research ongoing, the company will likely see a major boost from positive data from CR701.
- GW Pharmaceuticals has exploded off the approval of its flagship product Epidiolex and with a year filled with catalysts, 2019 will prove fruitful. I would watch this company closely as we enter Q2, likely to see big moves up.
- AbbVie is the unknown cannabis company that is staying under the radar. With a high yield, fair market value price, and promising pipeline with growing revenues, this company is the safest investment option for those who want to gain exposure to the cannabis industry. Although keep in mind, that exposure is very minimal.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.