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Medical Marijuana Investors: The Floodgates Are Open

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I’ll start by paraphrasing something I heard a physician say in a televised interview during the early days of some US states allowing medicinal use.

When asked if marijuana could have medicinal value, he responded, “For patients who have terminal conditions like cancer or AIDS, if marijuana eases their suffering, it would basically be barbaric to deny it to them.”

“Do I believe that some of the compounds present in marijuana plants could someday be the basis of clinically tested, FDA-approved pharmaceutical products in the future? Absolutely. Most drug compounds are derivations of plant compounds and there’s no reason to believe that the marijuana plant might not also be valuable in that respect.”

“Would I advise a patient to light a plant on fire and inhale the combustants in unknown dosage in an attempt to cure an illness? Absolutely not, because that’s simply not the way that the medical community administers any medicine. We demand much more precision than that.”

Those words were prescient, because although some of the early “medicinal” use was a thinly veiled attempt to make recreational use less illegal, marijuana has become the basis for drug compounds that promise to improve the health outcomes of patients and produce profits for the companies who produce them.

THC vs CBD

There is a crucial distinction to be made between Tetrahydrocannabinol (THC) and Cannabidiol (CBD), the two primary active compounds in marijuana. (There are as many as 100 more cannabinoid compounds also sometimes present in the plant, based on the strain.)

THC is psychoactive and makes users feel high. CBD is not psychoactive and has no significant effect on mood or perception.

While some medical users also seek benefits from THC, it’s CBD that has shown the most promise in the development of drugs.

There are whole families who have moved to states where Marijuana is legal in order to procure medicines that help their children. Specifically in the case of children who have certain forms of epilepsy that cause dozens of painful seizures daily, some strains of marijuana offer nearly immediate relief. These people quit their jobs, sold the house, pulled up the stakes and moved to Colorado to get drugs made from Cannabidiol – also known as “CBD”, a non-intoxicating compound in marijuana – because they have been able to reduce or eliminate the seizures, even when other medicines and surgery could not.

Surely you can imagine that political beliefs about marijuana legalization get thrown right out of the window when someone is forced to helplessly watch their child or grandchild endure a painful seizure and relief is potentially within reach.

Continueed . . .


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This is exactly the type of apolitical momentum that might make legitimate medical marijuana medicines more accessible, even independent of the laws about recreational use. In fact, the most recent US Farm Bill, signed in December, fully legalizes the production of hemp – a variant of the cannabis plant that has significant industrial and textile uses and contains extremely small amounts of the THC but can be harvested for CDB to make non-psychoactive drugs for both the pharmaceutical industry and the over-the-counter health and wellness industry. (More on this later...)

The Drug Schedule

Under the Controlled Substances Act, all substances with the potential for addiction or abuse are placed into one of five “schedules” according to a combination of its potential legitimate uses and relative danger. Schedule 1 drugs have been deemed to have a high potential for abuse or dependency and no recognized medical applications. Marijuana is included in Schedule 1, along with LSD and heroin. In comparison, cocaine and opioids are Schedule 2 substances - not necessarily because anyone thinks they’re less dangerous than marijuana, but because they do have recognized medical value.

Alcohol and tobacco were both intentionally left off of the controlled substances schedule - despite their potential for abuse/harm and lack of medical value - presumably because of the political influence of established industries.

It’s widely believed (and supported by recordings of oval office conversations that became part of the Watergate scandal) that president Nixon lobbied for making marijuana a Schedule 1 drug with the explicit intention of harming groups that were not supportive of his politics and policies. In 1970 when the Controlled Substances Act was signed into law, anti-war protestors and minority groups were among the most common users of marijuana and Nixon took the opportunity to make their drug of choice as illegal as possible.

Recently, one of the biggest ongoing criticisms of marijuana prohibition is that minorities have been incarcerated for possession or use at a disproportionate rate based on demographics and use patterns. In a sense, the Nixon policy has remained stubbornly ingrained in present day law-enforcement.

CBD, the Farm Bill, the FDA and 7-11

The most recent Farm Bill, signed in late 2018, broadly legalized the production and sale of hemp, which is defined as containing less than 0.3% THC but can be rich in CBD. It also de-schedules CBD, paving the way for large-scale research and development.

This is great news for companies hoping to develop, test and sell CBD-based pharmaceuticals in the US, but it also creates a confusing situation in which products can now be sold virtually anywhere that contain CBD, promising all sorts of health and wellness benefits.

This is an important distinction. The investment opportunities are likely to be in true pharmaceutical research in which companies perform rigorous testing in controlled trials and report the results to the FDA for approval as a prescription drug, not in outfits that sell CBD products of uncertain strength and purity over the counter at convenience stores and make dubious claims about weight-loss, wrinkle reduction, etc.

It’s not impossible that some of these purveyors will be able to turn a profit – gullibility is a powerful force and snake oil salesmen do profit sometimes – but it’s not where we are going to focus our investment research efforts.

The FDA has been issuing warning letters to companies who make health claims about over-the-counter CBD products and will soon conduct public hearings about how the agency plans to regulate these products going forward.

While progress toward full legalization of marijuana in the US will have significant impact on companies who grow and sell it for recreational purposes, the floodgates are already open for the development of legitimate marijuana-based medicine.

Drug Pipeline?

Currently, one US listed company had an FDA approved drug with CBD as the main active ingredient – GW Pharmaceuticals (GWPH). GW’s Epilepsy drug Epidiolex received the lowest possible Schedule 5 classification from the DEA and GW has several other cannabinoid-based drugs in the R&D pipeline, including compounds for Multiple Sclerosis and Autism.

Incidentally, though insurers will probably pay less, the retail price for a year of treatment with Epidiolex is $32.5K, so there’s also big money in CBD treatments with proven results.

GW’s first quarterly report - which included two months of sales of Epidiolex - showed results which were quite promising. 4,500 patients were enrolled and 500 physicians dispensed prescriptions, leading to sales of $4.7M.

Then it got even better.

In the next report, which included the first 3 full months of 2019, sales of Epidiolex had increased 700% to $33.5M, with 1,900 physicians treating 7,600 patients.

The company also explained that 90% of Americans are now covered by health plans that will pay for Epidiolex. GW’s phase 3 trials for use in another seizure disorder – Tubular Sclerosis Complex – have been promising and fast-track “Investigational New Drug” (IND) phase 3 trials as a treatment for Rett’s syndrome will begin in Q2.

Even more research from GW and many other companies is underway and health scientists are optimistic that cannabis will provide the basis of medicines for all sorts of diseases. At Zacks, our focus going forward will be on monitoring that progress - from the idea stage all the way to the pharmacy - with the goal of recognizing the blockbuster drugs of tomorrow and investing early in that cycle.

Best Way to Target Profits

Legalized marijuana – both medicinal and recreational – is skyrocketing from $9 billion in 2017 to an expected $32 billion within the next 2 years. Yet only a few growers, pharmaceuticals, financial firms, and suppliers – both established and start-ups – are the true innovators and offer exceptional profit potential.

If you’re willing to devote the constant attention and painstaking analysis to find these often little-known stocks, you could profit greatly in the coming weeks and years. But the easier way to approach this ever-changing space is to let us do it for you.

You’re invited to take part in the portfolio service I’m directing, Zacks Marijuana Innovators.

Our approach will be aggressive but responsible and vigilant. We’ll pursue double and triple-digit gains, alerting you what and when to buy and when to sell. I’ll also brief you on market developments and on news that directly affects your investments.

New Stock Monday Morning

I plan to post a big-upside trade at 11:05 am ET Monday. This little-known U.S.-based company recently acquired a manufacturer that provides an ingenious solution to regulatory issues that have been tempering the growth of a lot of marijuana producers. Demand could send profits skyrocketing.

Important Note: Our portfolio launched in late February and was quickly closed to public entry to limit the number of investors jumping on the stocks. Now it has re-opened, but only briefly.

It closes again midnight Sunday, June 2.

Don’t miss the chance to see our stocks and be first in line for the newest trade.

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Good Investing,

David Borun

David Borun is Zacks’ Cannabis Stock Strategist. He applies 20 years of trading experience and several months of concentrated industry study to the direction of our unique portfolio service, Zacks Marijuana Innovators.