On April 19th, an advisory panel for the Food and Drug Administration (FDA) unanimously recommended that the FDA approve Epidiolex, a cannabis based treatment for epilepsy.
The next hurdle for Epidiolex to receive actual approved by the FDA, and a decision is expected on or before June 29th of this year. If that were to occur it would be a watershed moment for the cannabis industry.
Currently Marijuana and its derivatives continue be a Schedule I drug. This means, according to the U.S. government, cannabis has absolutely no medical benefit and is highly prone to addiction and abuse. The Schedule I designation means that companies conducting research using cannabis must do so outside of the U.S., because the federal government will not sanction clinical trials. It also means that domestic funding for such medical research is difficult to come by and federal grants are prohibited.
That will likely change if Epidiolex is approved, because cannabidiol (the compound used to make Epidiolex) will need to be rescheduled within 90 days of approval. Our bet is that the Drug Enforcement Administration (DEA), which is the governmental body in charge of scheduling substances, will reschedule cannabis entirely. If cannabis is reclassified as a Schedule II or even Schedule III substance, the floodgates could be opened for research, development, and funding.
That being the case, we wanted to take a look at the small cap landscape to assess which companies could stand to benefit from Epidiolex’ approval, and the subsequent rescheduling of cannabis.
Roughly 3 million people in the US have epilepsy, and 73 million people worldwide, which equates to approximately one percent of the world’s population. That’s a larger market than Parkinson’s and Multiple Sclerosis combined. The approval of Epidiolex in the U.S. would be groundbreaking on a number of levels, which is why GW remains one of our favorite picks in the medical cannabis space.
In the last 30 days, the stock has risen over 15 per cent, largely on the news of Epidiolex’s approval by the FDA. There is always a big benefit to being a lead horse in a race, and make no mistake, the markets understand this is a race.
With the potential of not just Epidiolex but the other products in GW Pharma’s pipeline reaching U.S. markets, the stock likely has even more space to run.
Based in Arizona, Insys Therapeutics(INSY) is working in the pain management space. They currently offer a sublingual fentanyl spray and an anti-nausea dronabinol solution for AIDS and cancer sufferers.
The company has 300+ employees and a market cap of $500m. They are investing in CBD (Cannabidol) therapies heavily, with clinical trials for products dealing with infantile spasm, childhood absence epilepsy and Prader-Willi syndrome all underway.
The stock has benefitted from the positive cannabis news in the last 30 days, with the market giving the stock a bounce at the same time as GW Pharma’s growth.
Insys is a good example of a small, potentially undervalued stock, floating with the broader market. Should the FDA reschedule cannabis, there will be a gold rush to find companies already developing products in this area, and Insys will be a good prospect for investment dollars, or for a larger fish to gobble up in an acquisition.
Cara Therapeutics (CARA) is another potential beneficiary of a loosening of restrictions on cannabis. A small clinical-stage biotech company based in Stamford CT. Their focus is on using the unique nature of cannabis’ pain relief effects to develop products to address neuropathic pain.
With a market cap of $400m, the company’s stock is still recovering from the overall dip in cannabis-related stocks from earlier this year, but is still likely undervalued compared to it’spotential.
What Cara and Insys have in common is a pipeline of cannabis base therapeutic treatments in trials. Both have more research and development milestones to hit, and reaching those goals will be qualitatively easier, if the federal funding gates fully open.
With Epidiolex on the verge of breaking through the bureaucratic logjam holding back full development of an R&D economic in cannabis with federal support, not restriction – these types of small cap companies are definitely worth a look.
GB Sciences (GBLX)
By far our favorite microcap in the cannabis space is GB Sciences (GBLX). GB is currently working on a compound for the treatment of Parkinson’s, but they have patents on cannabis based treatments for pain, neurodegenerative disorders, and cardiovascular disease. GB has also invested heavily in the science of tissue culture and propagation, which is a prerequisite for consistently creating medical grade cannabis. As far as we know, GB is the only company in the U.S. (and possibly all of North America) that can breed perfect plant clones, without genetic drift or disease.
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