In June, the U.S. government lifted restrictions on scientific research into the medical and therapeutic benefits of marijuana, making biotech stocks hot property among investors.
“We believe that biotech is the most interesting sub-sector of the cannabis stock market because now U.S. companies and universities can engage in research and development that will eventually result in pharmaceutical drugs,” Scott Greiper, president of Viridian Capital Advisors in New York and creator of the Viridian Cannabis Stock Index, explained.
Among Viridian’s favorite biotech stocks are GW Pharmaceuticals (GWPH)—which finished the first quarter of 2015 up 34.6 percent—and Nemus Bioscience (NMUS).
“GWPH just closed on $180 million dollars in financing last month, making the company the highest valued stock from a market cap perspective in the publicly traded cannabis arena,” Greiper told HIGH TIMES. “They have several drugs in the making moving on to phase 3 of FDA testing that are designed to treat epilepsy.”
Although Nemus Bioscience was down 45.2 percent in the first quarter, Greiper believes the company is on the rise.
“They are positioned to generate market share and revenue growth since contracting this month with the University of Mississippi to commercialize research and development on cannabidiol (CBD) containing formulations,” Greiper said.
The overall biotech sector was up 10.9 percent, but fast-growing companies can also be found among ancillary businesses that can cross state lines without fear of violating federal laws since marijuana is still illegal federally. Ancillary products and services showed gains of 76.4 percent during the first quarter of 2015.
“Law firms like Vicente Sederberg and CannaLaw Group have succeeded in building sustainable practices nationwide,” said Kris Krane, co-founder and managing partner with 4Front Ventures, a consulting company in Massachusetts. “Infused product makers are also starting to expand to new markets—usually through licensing agreements that provides their extraction process and branding to license holders in new states.”
Currently, Greiper is bearish on the investment/M&A sector of the index, which was down 38.6 percent at the end of the first quarter of 2015.
“Companies going public were buying up other companies for a publicly traded vehicle, but because there’s still no marijuana mutual fund or ETF, the sector has under-performed,” Greiper explained.
That’s because there’s no rhyme or reason to the acquisitions.
“Investment companies have been acquiring a mixed bag of products and technology companies, while not being focused on creating a dominant company in any particular sector,” Michael Swartz, a senior analyst with Viridian Capital Advisors in New York, said.
Other hot sub-sectors for the remainder of 2015 include dispensaries and cultivation facilities, which returned 102 percent during the first quarter of 2015.
“At the end of the day, the root of the entire cannabis market starts with growing the product,” Swartz told HIGH TIMES. “In cultivation, we’re seeing a shift from the old world of growing in backyards and grow houses to the dawning of a new world of 200,000 square foot outdoor greenhouses with advanced technology in lighting and water systems.”
Favorites include national cultivation firm Terra Tech and regional dispensary company Café Serendipity.
“Café Serendipity is trying to create a franchise model for dispensaries, which gives consumers reliability in the same way people go to Starbucks for their favorite coffee drink because they know the customer experience is standardized,” Swartz said. “Investors could reap the rewards if Café Serendipity builds a brand dispensary, creates a uniform consumer experience across the country and executes their business plan successfully.”
Regionally, experts favor California because it is the largest pot market in the country.
“California presently accounts for nearly half of all sales in the nation's medical marijuana sector,” said Steve Gormley, chief business development officer with OSL Holdings, a Yardley, Pennsylvania-based holding company that manages dispensaries and hydroponic businesses. “I would invest in retail and cultivation because that's where the money is, and that's where the better returns reside currently.”
(Photo Courtesy of WSJ.com)