As a long-time tech-investing analyst, I have one of the best vantage points in the country for tracking profitable marijuana industry trends.
Here's the thing: I live 10 minutes from the epicenter of the medical marijuana movement in northern California, and the rest of the nation for that matter.
Downtown Oakland contains a small cannabis-friendly district known as "Oaksterdam." In fact, there's a patient co-op across the street from a store where I buy my fedoras.
I bring all this up so you know I've followed what's been happening with the marijuana legalization movement for years.
In these parts, it's difficult to avoid - you see lots of folks walking around wearing their official Oaksterdam t-shirts.
Since California legalized medical marijuana in 1996, another 19 states have joined the movement.
The San Francisco-based market research firm ArcView Group estimates the national legal marijuana market at $1.53 billion in 2013. ArcView expects sales to nearly double to $2.57 billion by the end of this year.
Clearly, the industry is growing rapidly, and there's big money to be made... especially if you hear about its best profit play...
Avoid the New Industry Hype, and Take Profits
In a moment, I will tell you about what I think is by far the best cannabis tech play available today.
It involves a highly respected biotech firm with truly great science that has used a series of compounds known as cannabinoids to create breakthrough drugs to treat everything from pain to epilepsy to schizophrenia.
Before I do that, I want to give you some context to measure it against by taking a moment to analyze what have become highly popular marijuana stocks.
As I see it, these investments have received way too much hype. Yes, in the long run the industry will do well.
But right now, the stocks getting the most attention are traded over the counter. I generally only recommend OTC stocks of foreign firms that are co-listed on a major exchange and where I can quickly get detailed financial data.
While some of these OTC cannabis shares define penny stocks, a couple of them are starting to get pricey. Take a look:
- Cannabis Science, Inc. (OTC: CBIS) is involved in the research and development of cannabinoid-based therapies for the treatment of HIV/AIDS and cancer. With a market cap of $144 million, the stock trades at $0.18.
- Medical Marijuana, Inc. (OTC: MJNA) was the first publicly traded company venturing into medical marijuana and industrial hemp farming. It has a market cap of $303 and trades at $0.30.
- Vape Holdings, Inc. (OTC: VAPE) is a relatively young company specializing in vaporizers, e-cigarettes, and cannabis concentrates. E-cigarette sales eclipsed $1 billion in 2013, and cannabis concentrates have the highest growth segment in the industry. It has a market cap of $209 million and trades at $24.40.
- Medbox, Inc. (OTC: MDBX) makes and operates vending machines that dispense pharmaceuticals, primarily cannabis-based products, and has several patents in the field. MDBX has a market cap of $440 million and trades at $28.50.
- CannaVEST Corp. (OTC: CANV) is a producer of hemp- and cannabis-based products, particularly those with cannabidiol, a non-intoxicating extract. With a market cap of $810 million, the stock trades at $68.
As intriguing as these cannabis stocks may be, we actually have a much smarter play for you...
This Biotech Is a Leader
Founded in 1998, GW Pharmaceuticals plc (Nasdaq: GWPH) is the global leader in the development of plant-based cannabinoid therapeutics.
The company is partnering with a couple of the world's largest publicly traded drug firms and stands to gain more than $300 million in revenues from those alliances alone.
And better yet, it is a big play on the cannabis industry because of the company's robust pipeline that includes several drugs that utilize the science behind cannabinoids.
GW Pharmaceuticals is focused on the huge potential behind the more than 65 types of these cannabinoid compounds already discovered.
The two most abundant are tetrahydrocannabinol (THC) and cannabidiol (CBD). GW Pharmaceuticals uses both, but in very different ways.
THC is known to produce negative side effects that cause cognitive issues. So, GW Pharmaceuticals has engineered a way for those side effects to be negated, focusing instead on the positive therapeutic benefits that cannabinoids can provide.
Fact is, the company's main product candidate, Sativex, has awesome potential to treat patients with pain from cancer as well as those with a condition known as MS spasticity, which results in muscle spasms and stiffness associated with the diseases multiple sclerosis.
Sativex treats these conditions by allowing THC, CBD, and a naturally occurring chemical called anandamide to bind to receptors in the brain.
What's more, while Sativex is still in phase 3 clinical trials for approval by the FDA, it is already approved in 25 countries overseas.
Meantime, GW Pharmaceuticals is also teaming with some heavy-hitters in the pharmaceutical industry to help fund the development of Sativex.
For instance, the Japan-based company Otsuka Pharmaceutical is funding Sativex's phase 3 clinical trials and has agreed to pay all development costs related to the U.S. market.
GW Pharmaceuticals has also paired with three other companies to develop Sativex in additional countries.
Almirall S.A. has helped develop the drug in Mexico and parts of Europe. A unit of Novartis AG (NYSE: NVS) is concentrating on parts of the Middle East, Africa, and Asia. And Bayer AG (OTC: BAYRY) has provided key support in Sativex's development in the UK and Canada.
So far, GW Pharmaceuticals has received more than $113 million from its partners for the development of Sativex, and if it makes all its milestones, the company should receive an additional $325 million.
The rest of the company's pipeline also shows great promise.
It has a product candidate called Epidiolex to treat rare types of epilepsy in children. The key here's that GW's compound actively negates the euphoric and cognitive effects of THC when administered to children.
Epidiolex is proposed to treat conditions that are estimated to afflict around 95,000 cases in the U.S., and some 150,000 more in Europe, including children with Dravet syndrome, a rare form of infant epilepsy.
Some of GW Pharmaceuticals additional candidates aim to treat type 2 diabetes and schizophrenia and have already entered phase 2 trials.
With a $1 billion market cap, the stock trades at roughly $66 a share. I'd like to see stronger financials, but that's almost always true of biotech firms that still have several clinical trials to complete before all their products are on the market.
So far this year, the stock is up some 65% as the company continues to report progress on its drug pipeline. However, I still see plenty of upside. The PEG ratio is .47, a rate that makes it half the "fair value" ratio of 1.
With its solid science, multiple uses for its main cannabis-based biotech product, and strong alliances with global drug leaders, GW Pharmaceuticals should leave investors richly rewarded.
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.