This Pot Stock Could Be Special
Today, I’m taking a look at a special stock: GW Pharmaceuticals PLC (NASDAQ:GWPH).
It’s no secret that retail investors love pot stocks. With companies in this booming industry often posting double-digit—in some cases, triple-digit—percentage year-over-year sales growth, a lot of people want to get a piece of the action.
And that’s why at one point, 4 of the 14 most widely held stocks on Robinhood—an investing app popular among millennials—were pot stocks. (Source: “4 of the 14 Most Widely Held Stocks on Investing App Robinhood Are Marijuana Stocks,” Yahoo! Finance, June 16, 2019.)
However, while marijuana companies have gained a lot of attention, they are not really the go-to choice for institutional investors.
Think about it: when was the last time you hear about Warren Buffett or Ray Dalio talking about cannabis stocks?
And that, my dear reader, is why GW Pharmaceuticals PLC could be special.
GW Pharmaceuticals isn’t the usual pot stock that grows and sells cannabis. Instead, as the name suggests, the company is in the pharmaceutical business.
In particular, it has a special focus on developing novel therapeutics from its proprietary cannabinoid product platform in a broad range of disease areas.
Most notably, GW’s lead product, “EPIDIOLEX” oral solutions, is the first FDA-approved medicine derived from cannabis plants. EPIDIOLEX is commercialized in the U.S. for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS) and/or Dravet syndrome in patients two years of age and older. (Source: “GW Pharmaceuticals Investor Presentation,” GW Pharmaceuticals PLC, last accessed August 28, 2020.)
While you can consider GW Pharmaceuticals PLC simply as a drug manufacturer, it holds strong appeal for pot stock investors. In fact, the company is a component of the North American Marijuana Index and is currently the second largest holding of Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ). (Source: “Horizons Marijuana Life Sciences Index ETF,” Horizons ETFs, last accessed August 28, 2020.)
Better yet, this is a pot stock that institutional investors don’t seem to mind owning. For instance, billionaire Steven A. Cohen’s hedge fund recently loaded up on some GWPH shares.
Compared to other deep-pocketed investors, Cohen keeps a relatively low profile. But he is definitely a force to be reckoned with in the hedge fund industry.
In 2006, The Wall Street Journal described Cohen as “the Hedge Fund King”. In 2007, he was named as one of the 100 most influential people by Time magazine.
According to the latest 13F filing, Cohen’s hedge fund Point72 Asset Management LP added 439,523 shares of GWPH stock to its portfolio in the second quarter of 2020. (Source: “Form 13F Information Table,” United States Securities and Exchange Commission, last accessed August 28, 2020.)
Factoring in the 75,283 shares of GWPH that Point72 Asset Management already owned, the hedge fund had a total of 514,806 shares of the pot stock as of June 30, 2020. At the current share price, the stake is worth approximately $53.0 million.
There are other hedge funds that have this pot stock in their portfolio, too. For instance, Rock Springs Capital Management had 120,043 shares of GW Pharmaceuticals stock at the end of June, while Citadel Investment Group owned a whopping 843,750 shares. (Source: Ibid.)
The reality is that, while GW Pharmaceuticals PLC is not growing and selling cannabis like most other pot companies, its business is still firing on all cylinders.
According to the latest earnings report, the company generated $121.3 million in total revenue in the second quarter of 2020, representing a growth of 68.5% year-over-year. (Source: “GW Pharmaceuticals plc Reports Second Quarter 2020 Financial Results and Operational Progress,” GW Pharmaceuticals PLC, August 6, 2020.)
“We were pleased with the strength of U.S. Epidiolex sales in the second quarter in spite of the COVID-19 pandemic,” said the company’s chief executive officer, Justin Gover. “Further, the recent approval and imminent launch of Epidiolex for the treatment of seizures associated with TSC provides a meaningful new opportunity to accelerate momentum through the second half of 2020 and beyond.” (Source: Ibid.)
For the bottom line, GW Pharmaceuticals reported a net loss of $8.8 million for the second quarter of 2020. While this seems like a major setback from a net income of $79.7 million in the second quarter of 2019, the prior-year quarter results included $104.1 million in net proceeds from the sale of a rare pediatric priority review voucher.
GW Pharmaceuticals PLC (NASDAQ:GWPH) Stock Chart
Chart courtesy of StockCharts.com
With so many pot stocks on the market, investors have plenty of options to choose from. However, because a lot of pot companies trade over the counter, and because investing in weed-selling operations is not something that every money manager would feel comfortable with, the industry is not known for having a big following among institutional investors. With the NASDAQ-listed GW Pharmaceuticals PLC, though, we might see things starting to change.