5 Drug-Developing Marijuana Stocks You Need to Know

By Sean Williams Markets Fool.com

Marijuana stocks, and the marijuana industry, for that matter, are on fire. The reason most marijuana stocks have doubled, tripled, or perhaps gone up by even more over the past year has to do with the changing tide in the public's opinion toward cannabis.

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According to national pollster Gallup, 60% of Americans as of 2016 support the idea of legalizing pot across the country, which is more than double the approval rate from two decades prior. A similar poll from Quinnipiac University showed 59% support for a nationwide legalization and only 36% opposition to such a move.

Image source: Getty Images.

With a majority of the public supportive of the marijuana industry, businesses and investment dollars have followed. In 2016, North American legal weed sales hit $6.9 billion, a 34% increase from the previous year, according to cannabis research firm ArcView. Looking ahead, growth is expected to continue topping the 20%-plus mark per year for the foreseeable future. Investors would have a difficult time finding consistent growth of that caliber over the next five or 10 years, which is what makes marijuana stocks so attractive.

Marijuana stocks are facing a number of challenges

However, marijuana stocks are also facing an uphill battle. The federal government appears pretty set in its stance that cannabis is going to remain a schedule 1 substance for a while, which means a number of inherent disadvantages (no corporate tax deductions and minimal access to basic banking services) are expected to remain in place.

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Furthermore, the Trump administration announced in February that it plans to depart from the Obama administration's relaxed federal enforcement policy when it comes to recreational marijuana. While the extent to which the Trump administration may enforce federal law is unknown, it's a clear worry for marijuana stocks involved in the recreational sale of weed.

This is why medical marijuana remains the safest investment route -- if you're forced to choose one.

Image source: Getty Images.

Five drug-developing marijuana stocks you need to know

Still, even among medical marijuana stocks and companies, there's a bifurcation. There are companies that sell cannabis buds, pills, and oils, which lawmakers have questioned the efficacy and safety of, and then there are those drug developers using cannabinoids from the cannabis plant to interact with the natural cannabinoid-receptor system found in our bodies to exact positive biological change. Given that lawmakers are skeptical of marijuana's benefits and would like more clinical trials to be run, and that these drug developers are running preclinical and clinical studies on their cannabinoid-based drugs, they could, in theory, be in the best shape of all marijuana stocks.

With this in mind, let's have a look at five drug-developing marijuana stocks that you need to know.

Image source: GW Pharmaceuticals.

1. GW Pharmaceuticals

The premier name among cannabis-based drug developers, and the largest marijuana stock by market cap, is GW Pharmaceuticals (NASDAQ: GWPH).

The company's $3 billion market cap is no coincidence. Despite the fact that it's currently losing money, which isn't uncommon for clinical-stage drug developers, GW has a very promising experimental drug known as Epidiolex that delivered in a number of phase 3 trials for two rare forms of childhood-onset epilepsy. In two trials for both Dravet syndrome and Lennox-Gastaut syndrome, Epidiolex wound up providing a statistically significant reduction in seizure frequency compared to the placebo. If approved by the Food and Drug Administration, and given the potential for label expansion, Epidiolex could hit north of $1 billion in annual sales.

With other ongoing studies clinical studies covering autism spectrum disorders, glioma, schizophrenia, and neo-natal hypoxic-ischemic encephalopathy, GW Pharmaceuticals is by far the most advanced marijuana stock.

Image source: Getty Images.

2. Corbus Pharmaceuticals

There's a pretty sizable valuation drop-off behind GW Pharmaceuticals. For example, Corbus Pharmaceuticals (NASDAQ: CRBP) is a small-cap drug developer with just one therapy in its pipeline (albeit aimed at your different indications). There's more risk when developing just a single therapy, which is another reason Corbus' market cap is just $400 million.

Corbus' hopes rest with anabasum, "a first-in-class, synthetic oral endocannabinoid-mimetic drug that preferentially binds to the CB2 receptor expressed on activated immune cells and fibroblasts." In layman's terms, this is a drug that mimics cannabinoid-based drugs and has shown promise in reducing inflammation.

Thus far, Corbus has reported positive mid-stage results in systemic sclerosis and cystic fibrosis. In the cystic fibrosis study, anabasum demonstrated a dose-dependent reduction in the number of pulmonary exacerbations requiring intravenous antibiotics when compared to the placebo. Admittedly, the failure rate of phase 3 therapeutics is still high, but Corbus appears on the right path with anabasum so far.

Image source: Getty Images.

3. Cara Therapeutics

Cara Therapeutics (NASDAQ: CARA) is a company that, like another name on this list, isn't wholly dependent on cannabinoid-based drugs. In effect, it's part marijuana stock, and part traditional drug developer.

Unquestionably, the most developed compound in Cara's pipeline is CR845, a kappa opioid receptor agonist (KORA) designed to treat pain and pruritus(itching). KORAs are generally poor at penetrating the blood-brain barrier, so the intrigue that is CR845 could reduce the central nervous system side effects often observed with traditional opioids, such as morphine.

Of course, investors are eyeing Cara Therapeutics for the development of CR701, a CB receptor agonist. In preclinical studies, the administration of CR701 in animals with neuropathy resulted in the reversal of hyperalgesia and allodynia, suggesting that it could one day serve as an alternative to opioids to treat pain.

Image source: GW Pharmaceuticals.

4. Zynerba Pharmaceuticals

Zybnerba Pharmaceuticals (NASDAQ: ZYNE) is another marijuana stock that's wholly dependent on cannabinoid therapies to fuel its entire pipeline. The company only has two drugs currently in development -- ZYN001 and ZYN002 -- though its pipeline covers five indications.

ZYN001 is currently readying for mid-stage trial initiation in the second half of this year as a treatment for fibromyalgia and peripheral neuropathic pain. ZYN001 is a THC pro-drug patch that the company believes could have future uses as a chronic cancer, chronic pain, and gastrointestinal disorders treatment.

On the other hand, ZYN002 is much closer to delivering game-changing results. This is a cannabidiol-based gel (the non-psychoactive component of cannabis) that's absorbed through the skin and aimed at treating adult epilepsy, osteoarthritis, and Fragile X syndrome. The STAR 1 epilepsy study and STOP osteoarthritis study are expected to yield mid-stage, top-line results by July or August, while the FAB-C Fragile X trial should have mid-stage data by the end of the first half of 2017.

Image source: Getty Images.

5. INSYS Therapeutics

It's a bit of a stretch to call INSYS Therapeutics (NASDAQ: INSY)a "marijuana stock" given that it generates nearly every cent in sales from sublingual pain medication Subsys. However, the recent approval of Syndros could change all of that.

Syndros is an orally administered solution containing dronabinol, a pharmaceutical version of tetrahydrocannabinol (THC), the psychoactive component of cannabis. The drug was approved to treat weight loss in patients with AIDS, as well as chemotherapy-induced nausea and vomiting. Shortly after its approval, Piper Jaffray suggested Syndros could generate peak annual sales of up to $400 million.

INSYS is also developing a cannabidiol-based drug designed to treat severe pediatric epilepsies that's currently in mid-stage clinical trials. Considering that Subsys has already made INSYS profitable on a recurring basis, INSYS has a solid foundation to complement its portfolio with cannabinoid-based drugs.

While these marijuana stocks are all offering promise, they've also appreciated significantly in value over the past year. This Fool would suggest adding these cannabinoid-based drug developers to your radars, but staying firmly on the sidelines for now.

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Sean Williams 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.