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The marijuana industry is booming. And despite the stoner stereotype associated with this budding industry, there are some very legitimate investment opportunities in legal marijuana.
I recently wrote about Surna (OTC: SRNA), a “weed stock” that doesn’t actually deal with any kind of marijuana or marijuana product. Instead, it is involved in energy conservation solutions for large-scale (legal) marijuana growth.
Today I’ll share with you a marijuana stock that is strictly focused on pharmaceuticals derived from marijuana.
This UK-based company is on the forefront of using marijuana in pharmaceuticals. It is a biotechnology company using derivatives from the marijuana plant. While this is technically a “marijuana stock,” I consider it to be more of a pharmaceutical stock than anything else. And its drugs are showing a lot of promise.
The company is GW Pharmaceuticals (Nasdaq: GWPH), and if you think you’re getting in on this one at the ground floor, you’re wrong.
The company had its initial public offering in May 2013 and the stock rose 360% during the remaining eight months of 2013. It rose another 40% in the first three months of 2014 and jumped another 80% between April and July of 2014, a total gain of more than 1,000% from IPO until July 2014.
Since then, however, the stock is down just over 35%. Is this an opportunity to buy?
Its area of focus is with cannabinoids, compounds derived from marijuana that have shown great potential treating a variety of major health issues.
The company’s flagship product, Sativex, is currently in its final round of trials before submission for FDA approval. It is being tested for use in treating cancer pain and also treating patients with multiple sclerosis.
Sativex has actually already been approved in more than a dozen countries but its FDA approval is seen as the major test it must pass to meet the expectations of both the medical and investment communities. As such, the success of Sativex’s recent trials appear to be clearing the way for FDA approval, the reason the stock has surged so much in the past year and a half.
Though Sativex is by far the company’s most successful product, GW Pharmaceuticals is certainly not a one-trick pony.
The graphic below shows that GW Pharmaceuticals’ product pipeline includes six additional drugs, with potential to treat schizophrenia, epilepsy and more.
Which brings us to today.
As I mentioned above, GW Pharmaceuticals’ stock soared after its mid-2013 IPO. But after topping out at just over $111 per share in July, the stock has declined more than 35% and is now trading around the $70 mark.
Even after this steep decline, the stock is quite expensive. It trades at a price-to-sales ratio of just under 25. By comparison, the price-to-sales ratio of Google (Nasdaq: GOOGL) is just above 5. Facebook’s (Nasdaq: FB) is around 18.5. I’d love to see it trade at cheaper levels before adding it to my portfolio.
GW Pharmaceuticals isn’t about – wink, wink – medicinal marijuana or even really about marijuana at all. An investment in GW Pharmaceuticals is an investment in a real pharmaceutical and biotechnology company with real drugs and real success.
Buying this “marijuana stock” is also an investment in the future of cannabinoids in biotechnology. Considering the promise that these compounds have shown and the head start that GW Pharmaceuticals has over major biotechnology companies, I think adding this stock to a speculative portfolio will pay off big over the long term.
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