A cloud of uncertainty hangs over many marijuana stocks. No one knows exactly what new attorney general Jeff Sessions will or won't do with regard to enforcing federal laws prohibiting the sale and use of marijuana. It's no wonder that several leading marijuana stocks have lost ground.
However, there are some marijuana stocks that investors can still buy that shouldn't be affected much or at all by the decisions that could be made about U.S. marijuana laws. Here's why GW Pharmaceuticals (NASDAQ: GWPH), Canopy Growth (NASDAQOTH: TWMJF), and Axim Biotechnologies (NASDAQOTH: AXIM) can be bought without too much fear.
GW Pharmaceuticals: Aiming for approval
GW Pharmaceuticals remains the largest marijuana stock by market cap, excluding companies that make most of their money on non-marijuana products. Its stock is up nearly 50% over the past 12 months, although most of that growth came in the second half of 2016, rather than this year.
Probably no one at GW is very concerned about what happens with the enforcement of federal marijuana laws. The biotech's executives are likely anxious, though, about another decision to be made in Washington, D.C. in the not-too-distant future. GW Pharmaceuticals expects to submit for U.S. regulatory approval for Epidiolex within the next few months. The U.S. Food and Drug Administration (FDA) should make an approval decision for the cannabinoid drug in the first half of 2018.
While anything can happen in the regulatory process, at this point Epidiolex appears to have a solid chance of winning approval. Two late-stage clinical studies evaluating the drug for treating Lennox-Gastaut syndrome (LGS) and another targeting Dravet syndrome produced positive results that showed Epidiolex was safe and effective.
Canopy Growth: Change coming to Canada
The second word in Canopy Growth's corporate name aptly describes the stock's performance since 2016. Over the last 12 months, Canopy Growth's share price has more than quadrupled.
As the largest marijuana grower in Canada, Canopy Growth is poised to reap the rewards from anticipated legalization of recreational marijuana throughout the country. Canadian prime minister Justin Trudeau made marijuana legalization part of his campaign. He now intends to fulfill his pledge. If everything goes as planned, Canada will allow legal recreational use of marijuana by adults age 18 or over by July 2018.
Canopy Growth currently grows and sells marijuana for medical use in Canada. The company has been growing in another way also -- through acquisitions. In 2016, Canopy bought Quebec-based medical cannabis supplier Vert Medical, marijuana grower Groupe H.E.M.P.CA, and German-based pharmaceutical importer and distributor MedCann GmbH.
Axim Biotechnologies: No gumming up the works
Unlike GW Pharmaceuticals, Axim Biotechnologies already markets marijuana-based products. Unlike Canopy Growth, Axim's primary market is the U.S. But the company shouldn't be heavily impacted by what Jeff Sessions decides to do about enforcement of federal marijuana laws.
The reason is that Axim's current primary product, CanChew hemp cannabidiol (CBD) chewing gum, is legal to sell and use under federal law in the U.S. Although marijuana is classified as a Schedule I drug with tight restrictions, hemp-based products like CanChew don't contain the psychotropic chemical found in marijuana, tetrahydrocannabinol (THC).
While Axim currently markets CanChew as a neutraceutical, the company is exploring use of CBD chewing gum as a prescription drug. Axim has several clinical studies either underway or planned that target several indications, including pain and spasticity associated with multiple sclerosis and irritable bowel syndrome.
A little fear is a good thing
Although investors shouldn't have to be worried about the potential impact of enforcement of U.S. marijuana laws on GW Pharmaceuticals, Canopy Growth, or Axim Biotechnologies, there are still reasons to be somewhat fearful of buying these stocks. Each company faces different risks.
For GW Pharmaceuticals, the major risk is that Epidiolex won't be approved. There's also the risk that even if it's approved, the drug won't generate the revenue that many expect. Positive assumptions about Epidiolex's success are currently baked into GW's share price.
The biggest risk for investors who buy Canopy Growth stock is its sky-high valuation. Legalization of recreational marijuana in Canada would no doubt enable Canopy Growth to dramatically increase its revenue and earnings. However, astronomical levels of growth are needed to justify the stock's price.
Axim comes with both regulatory approval and valuation risks. If the company's optimism about medical use of CanChew doesn't pan out, its share price will fall. Axim stock trades at an exorbitant level based on current sales. Any bump in the road could cause shares to tumble.
Evaluating risks is a smart thing to do in buying any stock. With these three stocks, even though they don't face some of the risks associated with most marijuana stocks, a little fear is a good thing.
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