Investing in Cannabis – A short look into the future of stocks and marijuana

By: Jeff Stern – Hofstra Law School – Law School Contributor

With the recent trend in medical marijuana legalization in America and even further spurred by the recreational legalization in Oregon, Alaska, Washington and Colorado[1], many investors are wondering how to enter the cannabis market.  Many believe this market to be a huge industry.  With the results being released in Colorado listing monthly sales over $100 million a month, they seem to be right[2].  The sole issue remains that marijuana is still federally illegal.  This creates a huge issue with investing in such a business.  Businesses cannot blossom without security, yet there can be no security without reliable banking and protections.  To date that has created a block in the progress of the industry at a national level, but others look to get into the industry through other means.  The stock market to date has many cannabis fueled businesses being publicly traded.  These stocks are being traded, yes, but the risky cannabis businesses get even riskier when you see that only one stock option is on a major market.  That stock is GW Pharmaceuticals and it is paving the way recently for others to hit a major market as well.

For the most part, the Securities Exchange Commission has warned investors about the potential fraud in the industry[3].  About the dangers of any business without a structured banking system or that is restricted in advertising.  Yet, they have given the okay to some American businesses to be publicly traded, such as California bases TerraTech[4].  This blessing is nothing compared to the innovative moves of British powerhouse GW Pharmaceuticals.  GW works with biological marijuana in the UK and has a license in Britain to grow marijuana legally.  They have used this power to not enter the markets as a penny stock like all the other cannabis stock on lessor markets, but to enter its $1.74 billion market capitalization in the main arena of the Nasdaq market.  This was no small feat and to be the only cannabis based stock on the market, GW is being scrutinized at every turn.  Looking at recent headlines for the company you would find a plethora of lawsuits pending.  This would include class actions lawsuits, accusations of material misrepresentations and fraud on the market.  Yet after months of decline in stock price and being flooded with negative accusations, GW released a huge positive report on epilepsy data[5] and started this week with a bang by more than doubling the stock price.  In doing so it has re-established itself as a major player in the market and may show why marijuana and the cannabis industry are here to stay.

Epidiolex could be the savior for GW.  Thus it may be a savior for the cannabis industry and its evolution in the stock market.  With months straight of decline, a stock that was regularly above $100 was now teetering below $40 before the news of a favorable phase 3 study[6] that raced the stock back quickly up to $85 a share.  The strong showing of supporters backing the company likely correlates to a large amount of on looking investors who are waiting eagerly to invest in the industry.  Nothing could be better than the ripple effect that GW had on other cannabis related stock this week.  A large wave of confidence was displayed in the industry as a whole in the soaring of other smaller cannabis stock options[7].  This is exactly what the industry needs on the markets.  The focal point will be on GW and the rise and fall of the huge pharmaceutical leader, but with its successes brings about hope for future companies to join them on a major market and further integrate cannabis onto the main stage.  As discussed earlier, until the federal illegal stigma withers and until it can be a fully operational industry, small victories such as the GW stock soar of this week is paramount in bringing about any current success in the industry.

For people today that wish to invest in cannabis, buying stock in a company may be the only recognizable option.  As people look on for other options or look to groups such as Privateer Holdings[8] to continue to pave the way, a stock purchase is one way to show belief in the strength of the industry.  According to the Marijuana index site[9] there are over a hundred stock options trading over 4 million shares of volume a day.  Though many are still penny stocks on foreign or small markets, the strong showing of support is there.  With the recent news about Epidiolex, the cannabis industry could get its first FDA approved drug in America[10].  This drug will contain no THC and produce no “high,” but is crucial in getting support for the industry.  If GW gets FDA approval and the drug is seen as legal, then this could pave the way for other companies and cannabis related businesses to seek such licenses to begin their own drug testing.  These are small steps, but in the long run, they lead to the inevitable question to be brought before the courts in the United States, should marijuana be legalized.  Now that question is not one to be discussed here, but FDA approval of Epidiolex and the approval in general for a marijuana company is a huge success.  In addition the FDA in reviewing Epidiolex will have to make a determination for the first time on a biological marijuana drug.  Only having approved Marinol, from a synthesized THC, this will be a question that will lead to many other companies wanting to use biological marijuana in their research.  With FDA approval also comes into question another major issue, health insurance coverage.  All in all, GW with Epidiolex may have just put into motion a chain of events that could lead to a much brighter future in the marijuana industry and secured a position for marijuana stocks on a major market.

To conclude, the recent news about Epidiolex and the successes of GW is exactly what the cannabis industry needed.  In a time when marijuana is a “hot” political topic and people are beginning to realize the potential of such an industry, positive news goes a long way.   People want to jump at this opportunity and invest now when they believe they are ahead of the game.  This news shows the future potential of cannabis and the stock market and how the two may propel each other into a much brighter and profitable new age.

[1] http://www.governing.com/gov-data/state-marijuana-laws-map-medical-recreational.html

[2] http://www.denverpost.com/news/ci_28947869/colorado-monthly-pot-sales-pass-100-million-mark

[3] http://finance.yahoo.com/news/invest-marijuana-legalization-140117091.html

[4] Id.

[5] http://finance.yahoo.com/news/gw-pharmaceuticals-skyrockets-favorable-epilepsy-203508902.html

[6] Id.

[7] http://www.thestreet.com/story/13495083/1/gwph-momentum-passed-around-to-other-pot-stocks.html?puc=yahoo&cm_ven=YAHOO

[8] http://www.privateerholdings.com/about

[9] http://marijuanaindex.com/

[10] http://www.marketwatch.com/story/five-things-to-know-about-what-could-be-americas-first-cannabis-derived-drug-2016-03-15?siteid=yhoof2

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