VIDEO: How to Pick The Best Marijuana Biotech Stocks
Welcome to my latest Weekly Weed Report. Below are edited excerpts; my video contains additional details.
You can reap market-thumping gains by picking the right marijuana pharmaceutical stock. Back in 2016, I recommended GW Pharmaceuticals, a UK-based developer of cannabis-oriented medical treatments. Fast forward to 2021, when drug giant Jazz Pharmaceuticals (NSDQ: JAZZ) bought the company.
From the time I recommended the company on February 2, 2016, to its final trading day on May 4, 2021, the per-share price of GW Pharmaceuticals (trading under the ticker GWPH) went from $49.19 to $218.96, for a gain of more than 345%. During the same time frame, the SPDR S&P 500 ETF Trust (SPY) gained about 114%.
Marijuana biotechs are in the vanguard of pharmaceutical research. When evaluating any biotech stock, I look for these five catalysts that will soon spark rocket-like gains:
- Demonstrable earnings growth;
- Manageable debt;
- Plenty of cash on hand;
- Value-added products in the pipeline; and
- Anticipation of a major legal or regulatory event.
These stock-picking criteria make sense for any type of stock, but they’re especially crucial for marijuana biotechs. Many pot companies are losing money; it’s the rare breed that produces healthy operating results, sports a solid balance sheet, and is developing a product that has the potential for mass market appeal.
Number five on my list looms large right now, as an increasing number of states consider legalization.
A major potential catalyst awaits in Congress, which is considering legislation to legalize marijuana on the federal level.
Pending in the U.S. Senate is the Cannabis Administration and Opportunity Act (CAOA), which would federally deschedule cannabis, expunge prior convictions, allow people to petition for resentencing, maintain the authority of states to set their own marijuana policies, and remove collateral consequences like immigration-related penalties for people who’ve been criminalized over the plant. The bill also would impose a federal tax on marijuana products.
Senate Majority Leader Chuck Schumer (D-NY), a co-sponsor of CAOA, has made passage of the bill a top priority. The bill’s fate this year in the 50-50 Senate is uncertain, but if Democrats retain control of the chamber after the November midterm elections, it stands an excellent chance of passing both the House and Senate and making it to President Biden’s desk.
Biden is likely to sign the bill, and if that happens…the marijuana industry will explode on the upside.
One of the biggest pitfalls for marijuana biotech investors is that they often make big bets on tiny companies that rely heavily on credit lines or angel investors to fund their day-to-day operations. In such cases, it’s not uncommon for companies to quickly burn through their capital, which can sideline even promising technologies unless there’s a willing acquirer. So, cash is king in the biotech industry.
When evaluating development-stage marijuana companies, it’s also important for investors to narrow their focus to innovative technologies that have the best chance of successfully navigating the regulatory process.
As such, I look for cannabis biotechs whose treatments address diseases other drugmakers have ignored, or whose drugs will ease the treatment regimen or reduce dangerous side effects. Historically, biotech companies that channeled their energies in these directions have had a much easier time getting their products approved by regulators.
Finally, I also favor companies that have at least one non-marijuana product that’s already on the market, preferably in the U.S. or elsewhere in the developed world. This allows the company to generate sales, while it works on its marijuana-related pipeline.
The path to approval for a new drug is a long and arduous process. Even if a product has been demonstrated as safe and effective in trials, regulators often want additional data or analysis on short notice, particularly if similar products or other treatments are already on the market.
The approval process of the U.S. Food and Drug Administration (FDA) is costly and time-consuming. It takes on average 12 years and over $350 million to get a new drug from the laboratory onto the pharmacy shelf.
The process is especially difficult for marijuana biotechs, because marijuana is banned on the federal level and sufficient quantities of the natural plant aren’t always readily available.
To date, the FDA has only approved three cannabis-related drug products. Indeed, the marijuana industry achieved a major milestone in 2018, when the FDA approved GW Pharmaceutical’s epilepsy drug Epidiolex, the first ever based on a cannabidiol. The drug is designed to treat two rare and severe forms of epilepsy.
If a company has already shepherded at least one product through the approval process, then that suggests it has both the expertise and the resources to achieve that same feat again.
Fact is, it’s only a matter of time before marijuana is legalized on the federal level. This seismic event would unleash a tsunami of marijuana profits.
To get ahead of the curve, I urge you to read my new book: The Wide World of Weed and Psychedelics. The product of years of painstaking research, my book is now available for sale. Click here to order your copy.
John Persinos is the editor-in-chief of Marijuana Investing Daily. You can reach him at: email@example.com.