Medical marijuana stocks let investors own a piece of one of the most profitable niches in the rapidly growing marijuana industry.
Medical marijuana sales currently account for the majority of the industry's sales. As of 2014, they represented 92% of $4.6 billion in overall marijuana sales, according to ArcView Market Research.
And in 2020, that figure could increase to $10.7 billion, or around 47% of the overall market, ArcView found.
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For investors, now's the time to get in on the fast-growing cannabis industry. On Nov. 8, nine states will vote on marijuana laws. Of these nine, polls in at least three states, California, Massachusetts, and Florida, indicate that propositions will likely pass. And 23 states have already legalized marijuana in some form.
Of course, the rush of companies into this space means investors need to be careful when looking for profits. That's where we can help...
When searching for the best medical marijuana stocks, it's important to look for companies that either already have approved drugs and treatments, or are otherwise conducting late-stage clinical research.
For the three medical marijuana stocks we've found today, we've made sure that their companies already have solid pipelines, with marijuana drugs that are already on the market or at least approved by the Food and Drug Administration.
What's more, two of these companies have diversified pipelines. This means even if their companies' marijuana efforts don't catch on, you don't have to worry about the stocks tanking. They have other successful non-marijuana drugs to fall back on.
These stocks are so promising, almost all the analysts that track them have given them "Buy" or "Overweight" ratings, with target prices representing growth of 20% or higher.
One last thing to note: These medical marijuana stocks and the companies focus on medical conditions we know cannabis-based medication can treat. Most notably, for pain, nausea, and appetite-enhancing applications.
Unlike other medical marijuana companies that target more obscure treatment areas (i.e., using cannabis to treat cancer), our three companies have drugs that are much more likely to pass clinical trials (or already have).
Let's take a look at three of the most promising medical marijuana stocks on the market now...
Best Medical Marijuana Stocks No. 3: Cara Therapeutics (Nasdaq: CARA)
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Founded in 2004, Cara Therapeutics is a clinical-stage biopharmaceutical that sells drugs that alleviate pain and inflammation. The company has a diverse portfolio of compounds, which are both opioid- and cannabis-based.
Before we go into Cara's cannabis drug candidate, let's talk about its balance sheet, because it differs from a lot of other cannabis-related drug companies.
The great thing about Cara is it currently has no long-term debt. The company is funding itself exclusively through its $55.9 million IPO and other equity issuances, totaling $75 million as of December 2015. Now, Cara's debt load could change at any time, but for now, it's a very smart business decision to avoid taking on debt. Having no debt limits risks for both the company and investors.
Cara's core cannabis drug candidate is called CR701, and it's a CB agonist. This means it's made to attach to a number of cannabinoid receptors that have been shown to be involved in pain and inflammatory responses. CR701 has already been evaluated in a rodent model to significantly reverse hyperalgesia, or heightened sensitivity to pain.
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Cara's most-hyped product candidate is actually a non-cannabis-based drug called CR845. It is a drug meant to treat uremic pruritus, which occurs in those with chronic kidney disease and involves systemic itching. The drug has already received a "best-in-class" rating compared to other similar compounds intended to treat the disease. Its first phase 2 trial was a large success.
As of Nov. 2, CARA currently has a consensus "Buy" rating with an average target price of $20.29 per share based on seven analyst ratings, according to FactSet. That's a whopping 197% gain from its current price of $6.81 per share as of Wednesday intraday.
Best Medical Marijuana Stocks No. 2: AbbVie Inc. (NYSE: ABBV)
Founded in 2013, AbbVie is a researched-based biopharmaceutical company. Like Cara Therapeutics, AbbVie isn't an exclusive medical marijuana company. It does, however, have a lot of exposure to the medical cannabis industry through its drug, Marinol. This cannabis-based drug is (one of the few) approved by the FDA to treat nausea and vomiting caused by chemotherapy. Marinol also restores hunger in AIDs patients.
Additionally, AbbVie has a pipeline of over 50 clinical-stage or non-cannabinoid drugs. That gives investors peace of mind in case any single one of AbbVie's cannabis-based drugs fails a test trial.
And AbbVie is a lot less risky than most other marijuana drug companies. That's because the company is on solid ground financially and is net-revenue positive. As of December 2015, AbbVie reported an annual net income of $5.1 million. That's not great, but for a biotech company that's just three years old, it's an encouraging development.
Twenty-four analysts give AbbVie an average rating of "Overweight" (buy), with a mean target price of $70 per share. That's roughly 23% higher than its current price of $56.94 per share Wednesday intraday. ABBV has a price-to-earnings ratio of 15.29, which shows that investors expect a good deal of earnings growth ahead but are not over-speculating about the company's potential.
Best Medical Marijuana Stocks No. 1: GW Pharmaceuticals (Nasdaq: GWPH)
Founded in 1998, GW Pharmaceuticals is a UK-based company that develops and discovers cannabinoid-based drugs to treat a broad range of diseases.
Its lead drug Sativex has been approved in 15 countries, including the United Kingdom, Italy, and Germany. The drug helps to treat spasticity due to multiple sclerosis and is also currently being developed to alleviate pain associated with certain cancers. In addition, the company is researching the application for Sativex to reduce spasticity in children with cerebral palsy and is currently in its phase 2 trial.
In addition to Sativex, which as you can see has a wide range of applications, GWPH has been in the news recently for its cannabis-based epilepsy drug, Epidiolex. The FDA just granted the drug orphan status in April for treating tuberous sclerosis complex, a genetic disorder that causes epilepsy in over 80% of those affected. "Orphan" status is a unique designation that the FDA reserves for drugs that treat rare diseases and provides tax reductions. It also gives GPWH an exclusive seven-year market priority in the United States.
Looking ahead, GWPH will continue to broaden its application for Sativex as it invests more into R&D for the drug, according to its latest third-quarter earnings report. Currently, GWPH is funding itself from its equity issuances, with roughly $355 million of cash on its balance sheet as of September 2015. The company has also secured grants from venture capitalists. As GWPH begins more heavily marketing Sativex and its other drugs to the public, it should see a big increase in its sales, which last clocked in around $44 million as of September 2015.
Nine analysts currently give GWPH a mean target price of $144 per share, which is roughly 28% higher than its price of $112 per share Wednesday intraday.
These three pot stocks are just the start to making your fortune from the marijuana industry...
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