3 Marijuana Stocks Ready to Soar in 2017

By Keith Speights Markets Fool.com

Marijuana stocks enjoyed a terrific year in 2016. Barring increased enforcement of federal laws prohibiting the sale of marijuana, many of these stocks should continue to do well this year. Put GW Pharmaceuticals (NASDAQ: GWPH), Insys Therapeutics (NASDAQ: INSY), and Scotts Miracle-Gro (NYSE: SMG) near the top of the list of marijuana stocks ready to soar in 2017. Here's why.

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Image source: Getty Images.

GW Pharmaceuticals: Coming to America?

GW Pharmaceuticals claims to be "the world leader in cannabinoid science." Whether or not the company deserves that mantle, GW is certainly one of the top developers of cannabinoid drugs. GW's Sativex is marketed in 16 countries for treating multiple sclerosis spasticity and has won regulatory approval in a dozen other countries. However, Sativex isn't approved in the U.S.

It's quite possible, though, that GW Pharmaceuticals will crack the U.S. market before long -- but with another drug. The company expects to submit Epidiolex for approval by the U.S. Food and Drug Administration (FDA) in the first half of 2017 for the treatment of two rare forms of epilepsy, Dravet syndrome and Lennox-Gastaut syndrome.

GW reported positive results last year from three late-stage clinical studies of Epidiolex. The drug, whichis a liquid formulation of pure plant-derivedcannabidiol, was found to significantly reduce seizure frequency compared to placebo, and it was generally well-tolerated by patients.

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GW Pharmaceuticals' stock shot up more than 60% in 2016. I think its shares will continue to climb this year in anticipation of the FDA submissions for Epidiolex and ultimate approval in 2018.

Insys Therapeutics: A bounce on the schedule?

Unlike GW Pharmaceuticals, Insys Therapeutics had a rotten year in 2016. Insys' stock dropped more than 65% last year thanks to plunging sales of Subsys, the company's sublingual fentanyl spray for breakthrough cancer pain.

If Insys' fortunes were entirely dependent on Subsys, I wouldn't hold much hope that 2017 will be better than last year. However, Insys won regulatory approval for another drug last July: its first cannabinoid product, Syndros.

Syndros gained approval from the FDA for treatinganorexia associated with weight loss in patients with AIDS, as well as nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional treatments. Because the drug contains a marijuana-based ingredient, it must be scheduled as a controlled substance by theU.S.Drug Enforcement Administration (DEA).

I suspect that Insys will see a big bounce when the DEA completes the scheduling for Syndros. The company projects peak sales of $200 million or more for the drug.I suspect that could be on the low end of Syndros' potential. Considering that Insys probably will make less than $250 million in total revenue for 2016, good news from the DEA should translate to nice gains for the stock this year.

Scotts Miracle-Gro: The marijuana stock that isn't a marijuana stock

You won't find any products sold by Scotts Miracle-Gro that contain even a trace of marijuana. So why is the stock included on a list of marijuana stocks? Because many marijuana growers depend heavily on the company's products.

Scotts has been scooping up leading hydroponics companies over the past few years. In 2014, the company gained control of AeroGrow International.In 2015, it boughtGeneral Hydroponics and Vermicrop. Last year, Scotts acquiredAmerican Agritech and Gavita, which markets indoor lighting systems for greenhouses and hydroponic gardening.These moves have helped make Scotts Miracle-Gro a go-to provider for marijuana growers.

While Scotts doesn't talk much about its dominant position in the marijuana market, it's clear the company knows exactly what it's doing. Scotts' latest 10-K annual report filing to the U.S. Securities and Exchange Commission states that the company's hydroponic gardening products "may be purchased for use in industries or segments that are subject to inconsistent and rapidly changing laws and regulations with evolving consumer perceptions." That's a pretty good description of the U.S. marijuana industry.

Scotts Miracle-Gro's share price jumped nearly 50% in 2016. Can it go even higher? I think so. The stock trades at 20 times forward earnings, which is a bit pricey. However, the relaxation of marijuana laws in more states in the November elections has opened up a much bigger market for Scotts for 2017 and beyond.

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Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.