Updated: Oct 16, 2019
With bitcoin's stratospheric rise continuing to dominate the headlines amidst ongoing government debate over the transactional legality of cryptocurrencies, a substance of an entirely different nature–and whose legality has been debated for decades–is quietly sending shock waves right across global markets.
Indeed, marijuana reached somewhat of an inflection point in 2017, as more governments initiated broad-based moves to legalise the infamous commodity for recreational consumption, medical applications, or both. This paradigm shift is reflected in the growing popular support for decriminalisation with, for example, 64% of Americans approving the legalisation of marijuana for recreational use according to a 2017 gallup poll–hardly a surprising fact given that the marijuana industry is on target to employ over a quarter of a million people by 2020. Even Canada intends to legalise recreational marijuana by the summer of 2018.
Medical marijuana matters
Despite popular support for its recreational consumption and sale continuing to rise, it is the legalisation of marijuana for medical uses that has been more widespread, and largely fuelled by promising medical evidence of its effectiveness for treating autism, diabetes, and multiple forms of sclerosis.
Moreover, it appears that this is a truly global trend. For instance, in a shining example of grassroots activism, Peru became the latest Latin American nation to approve a bill for medical marijuana in November 2017, when a group of mothers garnered the support of president Kuczynski for legalisation after police raided their makeshift laboratory where they had produced cannabis oil for their sick children. Peru now joins other regional countries including Uruguay, Mexico, Colombia, Chile, and Argentina who have legalised the drug for medicinal and scientific purposes. In Europe, too, the picture is changing, with Greece legalising medical marijuana in July 2017.
Irrespective of whether one takes the view that this new-found attitude toward marijuana genuinely represents the progressive zeitgeist of the times, or is merely an attempt by governments to exploit another avenue for revenue collection, the legalisation momentum has resulted in medical marijuana start-ups acting as lightning rods for international venture capital. Countries that are hot beds for marijuana cultivation such as Israel, are even "front-running"the market by ramping up cultivation in anticipation of further decriminalisation and favourable changes to export laws.
The prospect of a coming business boom for medical marijuana is certainly borne out by the numbers. A new report from Grand View Research estimates that the global medical marijuana market will reach a value of $55.8 billion by 2025, with US retail sales alone reaching a maximum of $6.8 million by 2021 according to Marijuana Business Daily. And with the current high level of M&A activity in the marijuana space still trending up, it's clear that significant opportunities exist in the marijuana space.
High rewards with right strategy
For investors aiming to capitalise on this rapidly expanding industry, gambling on unproven medical marijuana start-ups may not prove the best strategy, as once the reality of cannabis medicines and other products sets in"post craze," they may be left holding the bag; particularly as even the more established entities have underperformed relative to wider stock market. For example, Corbus Pharmaceuticals Holdings, Inc. (CRBP), a Phase 3 clinical stage pharmaceutical company specialising in medical cannabis products, has remained range-bound, with valuations seemingly ebbing and flowing according to the promise of the clinical trials of its marijuana-based drugs (see anabasum).
Therefore, taking the time to check company structure and management, and closely monitor clinical trials to gauge the viability of end-products of medical marijuana companies is essential if one hopes to avoid the ones merely trading on an idea, or worse still, the "pump and dumpers." For example, a company like INSYS Therapeutics, Inc. (INSY), in addition to a well diversified portfolio of non-marijuana related products can provide medical marijuana exposure, through its development of spray technology to deliver pharmaceutical cannabinoids.
Another strategy centers around gaining exposure via larger pharmaceutical companies that have the advantage of already having an FDA-approved marijuana product on the market, in addition to a large number of non-marijuana products, as with AbbVie Inc.'s (ABBV) Marinol, which helps alleviate nausea or vomiting for chemotherapy patients.
For the more risk averse, exchange traded funds are (ETFs) are a popular option to reduce exposure to individual company risk. Earlier this year, the marijuana space got its very own, the Horizons Medical Marijuana Life Sciences ETF (HMMJ), which seeks to replicate the performance of the North American Marijuana Index by providing exposure to a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry. Consisting largely of Canadian medical cannabis companies, this ETF has seen an impressive run, up 80% since September, though this performance is partially the market's reaction to the Canadian parliament's decision to review the bill to legalise marijuana.
Dedicated marijuana CROs could win big
Anyone paying attention to the pharmaceutical market recently would have witnessed how the role of contract research organisations (CROs) has gradually expanded from merely being outsourcing destinations for drugs companies' clinical trials and therapeutic research, to now encompass virtually aspect of end-to-end clinical development, including post-market outcomes.
Because relatively few marijuana-derived pharmaceuticals are currently on the market, the rush towards finding new medical applications for cannabinoids will prompt an increase in clinical trial submissions over the next 5-10 years. Further, a growing expectation of CROs to specialise in a particular area means there is a big opportunity to tap the medical marijuana mania by (re)positioning to cater to marijuana clinical research. Here, demand for dedicated marijuana CROs such as EndoCRO in Israel–now an offshore cannabis haven of sorts–will likely increase, particularly if US medical cannabis liberalisation does not keep pace with the rising demand for clinical research.
The information contained within is for educational and informational purposes only. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. McKay Research/James McKay is neither being compensated for this article, nor has any positions in the stocks/funds mentioned. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.