Why Nasdaq-Traded Marijuana Stocks Remain Undervalued
The Street-By. Ellen Chang-7/15/16
Nasdaq-traded marijuana stocks are undervalued as investors remain skittish and the use of drugs produced by these biopharmaceutical companies have not been widely adopted.
Nasdaq-traded marijuana stocks are undervalued as investors remain skittish and as the use of drugs produced by major cannabis-focused biopharmaceutical companies have not been widely adopted.
The current options for mainstream investors in this budding sector are limited to a handful of companies listed on the Nasdaq, including GW Pharmaceuticals (GWPH) , a U.K.-based biotech company with a cannabis-based epilepsy drug; Insys Therapeutics (INSY) , a Phoenix company known for its cancer pain management drug but is developing a cannabis-based drug for the treatment of epilepsy; Cara Therapeutics (CARA) , a Shelton, Conn.-based clinical state biopharmaceutical company that develops and commercializes pain relief drugs and Zynerba Pharmaceuticals (ZYNE) , a Devon, Pa.-based company focused on developing and commercializing synthetic cannabinoid therapeutics.
While stocks like GW Pharmaceuticals and Insys Therapeutics have seen spikes in their valuations because of the positive indications from their cannabinoid-based medications for which they are seeking FDA approval, the majority of cannabinoid pharmaceutical companies remain undervalued, said Al Forman, a partner at Tuatara Capital, a private equity fund dedicated to the legal cannabis industry in New York.
The revenue in pharmaceutical sales revenue is directly correlated with how comfortable physicians are in prescribing certain medications as a remedy, once medical cannabis and cannabinoid-based medications become part of mainstream conversations, the valuations of these cannabinoid pharmaceutical companies will “start moving in line with other top performers in the biopharma industry,” Forman said.
As more states legalize the use of marijuana recreationally, companies such as Cara Therapeutics, Zynerba Pharmaceuticals, GW Pharmaceuticals and Insys Therapeutics will benefit, said Jason Spatafora, co-founder of Marijuanastocks.com and a well-known Miami-based stock and cannabis trader known as @WolfofWeedST on Twitter.
The legal marijuana markets generated $5.7 billion in revenue in 2015, an increase from $4.6 billion in 2014 in revenue and are estimated to reach $22 billion by 2020, according to The ArcView Group, a cannabis investment and research firm based in San Francisco.
More states are set to legalize adult or recreational use this fall. Four states have approved the use of them recreationally and 25 states passed the use of them for medical purposes. Currently, 86% of Americans live in a state that allows some level of legal marijuana use, The ArcView Group said.
“Most people don’t realize that the marijuana stock market is driven by events, making this election year and a possible ruling from the DEA on removing the Schedule I of cannabis in 2016 an important time in the cyclical nature of this sector,” Spatafora said. Cannabis remains a Schedule I drug like heroin; GHB, the so-called date rape drug; and Ecstasy which lack any medical purpose. Reclassifying marijuana as a Schedule II would enable scientists and doctors to study the medical benefits of cannabis, putting them on the same level and playing field of the millions drugs manufactured by major pharmaceutical companies.