Is GW Pharmaceuticals Stock A Buy?

The 2018 Farm Bill legalized the commercial production of hemp-based CBD in the United States. However, earlier that same year, British pharmaceutical company GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) gained approval from the U.S. Food and Drug Administration (FDA) to sell Epidiolex, a CBD-based treatment for childhood epilepsy.

Prior to that, the company partnered with Bayer to distribute Sativex (another cannabis-based drug) in the U.K.

These moves put the company in a unique position in that it’s a traditional pharmaceutical company removed from the medical marijuana industry using cannabis as the base of its medicine.

That means that unlike traditional cannabis companies, you don’t have to invest through the Toronto Stock Exchange (TSX). But the question remains – is GW Pharmaceuticals stock a Buy?

Stock prices are turbulent, and the company is technically involved in two highly regulated industries. Let’s dive in to determine how its handling its position and steering toward progress.

GW Pharmaceuticals | Cannabis | Medical Treatment 

GW Pharma was founded in 1998 when its cofounders obtained a U.K. cannabis cultivation license allowing it to grow the cannabis plant for medical research purposes.

The company soon formed partnerships and created the botanical drug nabiximols, which is sold as the brand name Sativex. T

he treatment is an extracted mix of two cannabis strains and contains the active ingredients of delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). It was approved in 2010 as an oral spray to treat symptoms associated with multiple sclerosis with approximately 5g of cannabinoids in each dose.

Although gaining popularity around the world, nabiximols is not legally prescribed in the U.S. and has not yet undergone FDA clinical trials.

In 2015, however, the company expanded into the U.S. by getting the first-ever cannabis-based drug approved by the FDA. Epidiolex is taken orally as a liquid drink and is approved for the treatment of two specific rare forms of childhood epilepsy:

• Lennox-Gastaut syndrome and Dravet syndrome. Its approval is a landmark in the U.S. cannabis and pharmaceutical industries that occurred in the leadup to hemp legalization.

Because of its positioning, GW Pharmaceuticals is at the forefront of a growing movement. Federal cannabis legalization initiatives are being debated in both Congress and the Supreme Court, as medical and recreational dispensaries were largely declared essential businesses during the COVID-19 pandemic.

It’s already legal in Canada, and Mexico is well on its way. But is GWPH the right investment for your portfolio?  

Is GW Pharmaceuticals Stock a Buy?

GWPH stock has been a roller coaster ride for the past decade, giving plenty of opportunities to buy and sell. It took a hard hit from the novel coronavirus pandemic and lockdowns, as fewer people are enrolling for medical trials.

This led to an $8 million loss in the second quarter of 2020 on revenues of $120.6 million. Epidiolex is a main driver of that revenue with net sales of $116.1 million, and $106.1 million of that came from the U.S.

The pandemic will slow the company’s global expansion goals, as each country has its own unique drug approval processes and cannabinoid laws.

However, cannabis legalization is continuing to spread across North America and the world. As of September 2020, medical marijuana is legal in 33 states and recreational use is legal in 11 states, according to Weedmaps.

Of course, legalization isn’t necessary for FDA approval, as the company already proved with its Epidiolex approval months prior to the Farm Bill passage.

And some companies like the Kevin O’Leary backed MindMed are even pushing for approval of medications based on psilocybin, a popular mushroom-derived psychedelic.

In fact, let’s talk about GW Pharma’s competition.

GW Pharmaceuticals Vs The World

Identifying a single competitor to GW Pharmaceuticals is difficult, because even though it’s the only approved medication, it’s fighting a war on all sides to sell it.

While Epidiolex requires a prescription, its active ingredient CBD does not. In fact, the CBD industry is expected to grow to $23.7 billion by the end of 2023.

Unlike THC, which can only be obtained through state-licensed dispensaries where approved, CBD is found across the country in grocery, retail, and convenience stores nationwide, as well as online. The problem for the competition is quality.

CBD sold in medical marijuana dispensaries is derived from the cannabis plant and often includes a full spectrum of cannabinoids, including THC.

This is produced and distributed in a medical setting with carefully state-managed quality control measures. GW Pharma mimics this exact approach, but it’s done through traditional medical channels.

Dosage and quality is shaky at best on the general CBD market though. Performing a search of “CBD” on Amazon provides a range of dosages ranging from 5,000 MG to over 27,000,000 MG all within the same $15-30 price range.

This disparity could weaken both the public and regulatory view of CBD and put the entire industry under fire.

GW Pharmaceuticals is likely to be unscathed from the drama, however, as it’s the only company thus far that followed the lengthy FDA clinical approval process. It’s also constantly pushing cannabis-based medicines through the pipeline in other countries.

Is GW Pharmaceuticals Stock a Buy? The Bottom Line

GW Pharmaceuticals both is and isn’t a traditional medical marijuana company. While it does hold a cultivation license in the U.K., it does not participate in any of the state-run cannabis programs.

Instead, it follows the traditional regulatory approval processes to prove its cannabis-based drugs’ efficacy through three-stage clinical trials. It already has drugs approved in a variety of countries in North America, Europe, and Asia, and it’s continuing to grow alongside the THC and CBD markets.

The main driver of its revenues is a prescription epilepsy drug using CBD as its active ingredient. Still, it stands alone against a flood of recreational CBD and THC companies that operate in completely different markets.

This early lead gives the company a lane to pioneer research into the over 110 cannabinoids found in the cannabis plant. It’s not walking an easy path and is still pushing toward profitability, but GWPH is a stock to watch in the coming decade.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.