Did the DEA Just Give These Marijuana Companies a Big Break?

By Markets Fool.com

Image source: GW Pharmaceuticals, plc.

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The Drug Enforcement Administrationhas officially decided to keep marijuana as a Schedule 1 drug, determining that there are no proven medical benefits that would allow them to shift it to a less stringently controlled Schedule 2 drug. The agency's decision to maintain status quo could be a boon to GW Pharmaceuticals (NASDAQ: GWPH) and Insys Therapeutics (NASDAQ: INSY), two drugmakers researching marijuana-based medicines.

Vexing decision

State governments have overwhelmingly been decriminalizing marijuana and 25 states have passed medical marijuana laws, yet despite the willingness of local government to embrace medical marijuana, the DEA remains unconvinced that marijuana offers medical benefits.

In its official announcement regarding its decision, acting DEA administratorChuck Rosenberg wrote that federal government health officials favored keeping marijuana as a Schedule 1 drug because marijuana offers "no accepted medical use in the United States." The Department of Health and Human Services decision put the DEA in a box. Without cover from HHS leaders, the DEA's ability to change marijuana's scheduling was hamstrung.

Cannabis is listed in the single convention of narcotic drugs, an international treaty, and because of that, cannabis has to be either a Schedule 1 or Schedule 2 drug. Schedule 1 and Schedule 2 drugs are both considered to have a "high potential for abuse", but Schedule 2 drugs have accepted medical uses and accepted safety.

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When officials in Washington and Rhode Island requested reclassifying marijuana's status back in 2011, they cited the following reasons:

  • Cannabis has accepted medical use in the United States.
  • Cannabis is safe for use under medical supervision.
  • Cannabis for medical purposes has a relatively low potential for abuse, especially in comparison with other Schedule 2 drugs.

However, the HHS wrote in its recommendation to the DEA that:

  • Marijuana has a high potential for abuse.
  • Marijuana has no accepted medical use in the United States.
  • Marijuana lacks an acceptable level of safety for use even under medical supervision.

The HHS's conclusion was based on a review of medical marijuana by the Food and Drug Administration, the regulatory watchdog that determines which medicines are effective and safe enough to be used in America.

The FDA's Center for Drug Evaluation and Research's reviewed available evidence and published clinical marijuana studies and determined that there's insufficient evidence "to determine that marijuana has an accepted medical use." The FDA added that "more research is needed into marijuana's effects, including potential medical uses for marijuana and its derivatives." The agency also offered guidance to researchers on how to design future trials so that results hold up to future scrutiny. Among its guidance is the recommendation to avoid dosing marijuana via smoking.

Delivering a win

If the FDA had compelled the HHS to recommend a rescheduling of cannabis to Schedule 2, then it would have opened up marijuana research to far more scientists.

Marijuana's Schedule 1 status makes it difficult to win approval of research studies, source adequate amounts of marijuana, and comply with stringent controls regarding the handling and storage of marijuana. Therefore, maintaining current scheduling will continue to impede efforts to study cannabis in its natural form as a safe and effective alternative to synthetic or purified cannabinioids being developed by deep-pocketed drugmakers, including GW Pharmaceuticals and Insys Therapeutics.

GW Pharmaceuticals is a multibillion-dollar company that's developing Epidiolex, a formulation of the cannabinoid CBD for use in rare epilepsy patients. The company reported positive clinical trial results in Dravet syndrome and Lennox-Gastaut syndrome patients earlier this year and it expects to file for FDA approval of Epidiolex early next year.

Insys Therapeutics just won FDA approval of a new liquid formulation of marinol, a THC-based drug used to treat anorexia in HIV patients and nausea and vomiting in cancer patients, and the company is working on CBD formulations for treating epilepsy, too.

Conceivably, if marijuana had been shifted to a Schedule 2 drug, then research into the use of marijuana strains like Charlotte's Web, which is high in CBD, could have potentially set up a battle for market share in epilepsy in the future. Since that change didn't happen, GW Pharmaceuticals and Insys Therapeutics may have an easier time establishing dominance in that indication with their medicines.

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Todd Campbell owns shares of Insys Therapeutics.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him onTwitter where he goes by the handle@ebcapital to see more articles like this.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.