Why Recreational Marijuana Legalization in the U.S. Will Actually Boost Medical Marijuana Stocks

Medical Marijuana Stock Will Governments Do the Right Thing
iStock.com/Denise Hasse

Resurgence of Medical Marijuana Stocks 

One segment of the marijuana market that has been lost in the shuffle is medical pot. Medical marijuana companies, once the only way investors could interact with marijuana trade, are now quickly morphing into both recreational and medical marijuana companies as laws begin to relax.

A major reason for this shift in focus has to do with perceived higher potential in the recreational pot market. After all, many believe that many prescriptions made pre-legalization in Canada were thinly veiled ways to provide access to casual consumers. That is likely accurate, but doesn’t tell the whole story.

You see, while medical marijuana has taken a backseat to the excitement over recreational pot—especially as momentum builds up behind legalization in the U.S.—many investors are missing a huge opportunity: medical marijuana research.

Right now, as it stands, the U.S. has very limited research capabilities when it comes to marijuana. That’s because the country still classifies pot as a Schedule I narcotic, meaning that it is considered to have no restorative qualities.

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While we know this to be a lie—even the  U.S. Food and Drug Administration (FDA) has indicated as much—the Schedule I designation monumentally inhibits pharmaceutical companies from looking into marijuana as a curative substance.

And the research, while light in many areas, has shown promising signs for treating all sorts of ailments, from post-traumatic stress disorder, to certain effects of cancer, to pain. (Source: “Promise of marijuana leads scientists on search for evidence,” CTV News, June 11, 2019.)

And these are all very Big Pharma markets that would dramatically boost medical marijuana stock values if they were to be penetrated by cannabis.

U.S. Medical Marijuana Market

As mentioned earlier, the U.S. medical marijuana market has not been overly kind to medical marijuana stocks, at least when it comes to research.

Across the country, many states have permitted medical pot. But in terms of large federal institutions providing funding and resources in order to help jump-start potential medical pot remedies, there’s nothing.

The fact is, until the federal government opens itself to the possibility that marijuana could be a valuable tool in fighting a variety of ailments, we’re not going to see the industry hit its full potential.

And the FDA has already come out and said as much—that marijuana does have medical applications.

“Epidiolex” is the first cannabis-derived medicine that received approval from the FDA and is now prescribed across the U.S. to treat epilepsy. The workaround that the FDA struck with the Drug Enforcement Administration (DEA) is that Epidiolex has a minimal amount of tetrahydrocannabinol (THC) (the substance that gets one high) and a high concentration of cannabidiol (CBD).

The FDA approval helped fast-track CBD in the U.S. to where it is now: largely accepted across the country. But by sticking to its guns when it comes to THC, it has hampered what could have been a major breakthrough for medical marijuana stocks.

We already know that cannabis has potential applications in number of areas; what we need now is research to back up those hypotheses. But until the U.S. comes to its sense on the federal level, we’re not going to see pot stocks hit the highs we know they can hit.

Medical Marijuana Stocks

While there are many companies who purport to be medical pot stocks, it is important we make a distinction here.

Many companies deal in both recreational and medicinal pot, but these companies aren’t the ones I’m focusing on here. This has more to do with Big Pharma stocks getting into the marijuana trade, as we’ve seen with GW Pharmaceuticals PLC-ADR (NASDAQ:GWPH).

They behave differently from traditional marijuana companies in that they are less like pot stocks and more like pharma companies on the edge of a major scientific breakthrough.

For instance, look at how well many companies that make opioid medications have fared over the past decade—much to the detriment of many people, mind you, but still, those gains have been impressive.

Marijuana pharma companies could replicate that massive gain, but without the added effect of leaving a health epidemic in their wake.

Furthermore, medical marijuana companies could enjoy a healthy symbiosis with recreational marijuana, with medical users consuming cannabis as a health supplement, then turning back to recreational pot once their treatment is complete.

Overall, it’s a very positive outlook for medical marijuana. We just need governments to get out of the way and let them help people and make money in the process.

Analyst Take

It’s not rocket science: marijuana is clearly not as dangerous as heroin and some of the other substances it is scheduled beside in the U.S.

But more importantly, it is clear that marijuana has some restorative effects; the people who swear by CBD remedies can’t all be wrong.

Medical marijuana companies have some major potential if they can disrupt the health market through extremely lucrative sectors like pain management. Not to mention that people might genuinely be helped by the introduction of more comprehensive marijuana medication.

All it will take is an increase in focus on research and development, and that means government intervention—or at the very least, government getting out of the way.

When that happens, I anticipate huge gains from medical marijuana stocks.