GW Pharmaceuticals Stock
When we think of the legal marijuana industry, our minds often go to massive greenhouses or poorly chosen pun-named storefronts, but that discounts a whole subsection of the industry that is on the rise: medical cannabis.
The development of medical cannabis, while perhaps not as sexy as recreational marijuana, a very lucrative and exciting aspect of the marijuana market.
That brings us to GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), one of the largest medical marijuana companies in the world. It approaches from a pharmaceutical background as opposed to other players in the medical cannabis sector that are marijuana producers first and medical companies second.
GW Pharmaceuticals stock is judged much in the same way that most other pharma stocks are, by which I mean that the company undertakes long research and development (R&D) stages before jumping through multiple regulatory hoops until its product can finally reach the market.
It’s an arduous process filled with ups and downs that are staples of the pharma industry. But when a drug eventually breaks through, the stock gains can be astronomical.
GW Pharmaceuticals recently had one such breakthrough with its flagship cannabis-derived drug, “Epidiolex.”
Used to treat epilepsy (one of the more promising areas of use when it comes to cannabis-derived medicines), Epidiolex is known as a breakthrough drug less for its curative effects (although for those suffering from epilepsy, it will be a welcome respite if effective) than for its political impact.
Epidiolex became the first cannabis-derived drug to receive approval by the U.S. Food and Drug Administration (FDA).
FDA approval took place on June 25, with GWPH stock rising in anticipation.
“This approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies,” said FDA Commissioner Scott Gottlieb. (Source: “US approves first marijuana plant-derived drug,” Reuters, June 25, 2018.)
What this means is that U.S. doctors will eventually be allowed to prescribe Epidiolex to patients. That in and of itself is a major win for the marijuana industry as a whole, but dig a little deeper and you’ll see that Epidiolex opens up a political window of opportunity.
Marijuana is currently classified as a Schedule I drug under the eyes of the U.S. federal government, meaning that it has no positive effects. With Epidiolex’s approval, however, it’s clear that cannabis does, in fact, have medicinal applications. The FDA said as much.
This will likely result in a reclassification of marijuana by the feds, not only loosening regulations on pot in general, but also allowing medicines derived from cannabis to have an easier time going through the approval process.
Therefore, GW Pharmaceuticals has already opened the door to ensure continuing success by tapping into the U.S. market.
With that background in mind, let’s take a look at the GWPH stock forecast.
GW Pharma Q3 Financial Result
Revenue for GW Pharmaceuticals for the nine months ended June 30 came in at £10.7 million ($14.2 million), compared to £6.1 million over the same period a year prior. (Source: “GW Pharmaceuticals plc Reports Fiscal Third Quarter 2018 Financial Results and Operational Progress,” GW Pharmaceuticals PLC, August 7, 2018.)
This is in conjunction with a loss of about $180.2 million in the quarter. However, the company did post cash and cash equivalents of $440.2 million.
Ultimately, the revenue gains and other key financial wins were able to offset the losses marked in Q3. GW Pharmaceuticals stock has been on an upward trajectory since the results landed in early August.
|All figures in thousands.||June 30, 2018||June 30, 2018||June 30, 2017|
|Cost of Sales||-$1,741||-£1,321||-£1,110|
|Research & Development Expenditure||-$24,503||-£18,592||-£27,936|
|Sales, General, & Administrative Expenses||-$35,158||-£26,677||-£11,751|
|Net Foreign Exchange Gain||$21,825||£16,560||-£8,410|
|Interest & Other Income||$1,452||£1,102||£456|
|Loss Before Tax||-$34,971||-£26,535||-£46,605|
|Loss for the Period||-$35,705||-£27,092||-£40,358|
GWPH Stock Forecast
While the Epidiolex drug is exciting and its potential to yield huge profits for GW Pharmaceuticals is certainly real, my GWPH stock forecast is a cautious one.
As I mentioned at the outset, GW Pharmaceutical behaves like a hybrid between marijuana and pharma.
That means that the company faces the volatility of being in an emerging industry as well as having to move through a slow, taxing regulatory process that can sometimes end in total defeat.
It’s a risk that any investor in the pharma sector knows well. Coupled with marijuana, it might be too much volatility to bear.
One major benefit is that GW Pharmaceuticals stock is likely to stay on the more stable side, despite its increased volatility—if only because of its size relative to other marijuana companies.
But that size and stability is a double-edged sword; in my view, it is unlikely that the stock will see as massive gains as other marijuana stocks.
Chart courtesy of StockCharts.com
Looking at the above stock chart, you can see that gains are often muted. GW Pharmaceuticals has largely followed the marijuana trends—even after its brief flirtation with success in 2018, when Epidiolex first received approval from the FDA, only to give all those gains back.
While other major marijuana players have seen 50% growth during the boom times, GW Pharmaceuticals stock has only gained a relatively weak 12%.
While the company’s relative strengths mean that it is less prone to massive falls and that it has the potential for big victories beyond following the marijuana stock market trends, my GWPH stock forecast sees the company measuring modest gains over the course of the year, while other pot stocks have far more promising outlooks.
There’s definitely a lot to like about GW Pharmaceuticals stock, and a new cannabis drug hitting the market alongside Epidiolex could certainly help convince me to upgrade my GWPH stock forecast.
GW Pharmaceuticals is definitely one of the safer “buy and hold” marijuana stocks in the coming years. But with so many strong marijuana stocks out there, I find it hard to recommend one that underperforms compared to its rivals and operates in a space that often sees more volatility without providing the extra benefit of yielding potentially higher gains.