DEA to Legalize Cannabis? Stocks to Buy

07/07/2016 9:10 am EST

Focus: CANNABIS INVESTMENTS

Michael Berger

President & Founder, Technical420.com

The DEA plans to announce an update on cannabis’ classification soon; here's a look at some stocks that would benefit for this expected announcement, says Michael Berger, Associate Editor of MoneyShow.com.

2016 has already been a monumental year for the medical cannabis industry as three separate Phase 3 clinical studies focused on products derived from cannabis have yielded positive results. At this time, we may see a watershed event that will profoundly impact the industry.

The DEA and FDA classify cannabis as a Schedule I substance, which places it in the same category as heroin, LSD, ecstasy, and peyote.

Data Disagrees with DEA

The Schedule I category is reserved for substances that have the highest potential for abuse, that have no accepted medical use, and that cannot be used safely even under medical supervision.

A substance needs to possess all three traits to be classified as a Schedule I substance and it is obvious that cannabis does not meet any of those criteria, let alone all three.

Are the Rumors True?

There have been a number of stories floating around about the DEA and its plans to reschedule cannabis during the first half of 2016.

A few months ago, the DEA responded to questions from members of Congress and said it hopes to announce its decision about cannabis’ classification in the first half of 2016. As much as we wish these rumors were true, the first half of the year ended and cannabis is still a Schedule 1 substance.

Although this news is exciting, DEA spokesman Rusty Payne told Vice News that it does not have a timeline on the decision. The government works on its own schedule and would typically be the last to jump on the bandwagon.

Evidence is Insurmountable

In our view, the decision to reschedule cannabis is clear cut. Earlier this week, Insys Therapeutics (INSY) announced that the FDA approved its orally-administered treatment for anorexia associated with weight loss in AIDS patients, and for nausea associated with chemotherapy. The treatment, Syndros, is a liquid formulation of the pharmaceutical cannabinoid dronabinol, a pharmaceutical version of tetrahydrocannabinol (THC).

Last week, GW Pharmaceuticals plc (GWPH) reported positive results of the first Phase 3 clinical trial of Epidiolex for the treatment of Lennox-Gastaut syndrome (LGS). On average, the patients taking Epidiolex saw a decrease in monthly drop seizures of 44% compared with a reduction of 22% in patients receiving a placebo.

These positive results come less than a few months after GWPH reported positive data from a Phase 3 trial of Epidiolex for the treatment of Dravet syndrome. Epidiolex was accorded Orphan Drug Designation by the FDA for the treatment of LGS and Dravet syndrome.

Not Enough Positive Data for You?

If the results reported by Insys and GW did not provide enough evidence to support the claim that cannabis has medical benefits, Zynerba Pharmaceuticals (ZYNE) also reported positive data in late June from a Phase 1 clinical trial for its cannabis-based treatment of epilepsy, osteoarthritis, and Fragile X Syndrome.

Not only has the amount of medical data supporting cannabis grown but support from high ranking individuals and organizations has also increased.

  • Years ago, a National Institute of Health panel determined that smoking marijuana could help treat a number of chronic conditions including pain and nausea. The panel also said that marijuana could help people who failed to respond to other remedies.
  • Sanjay Gupta, CNN's medical guru and a renowned neurosurgeon, once spoke out against the legalization of marijuana for medical purposes. Two years ago he wrote an article called, Why I Changed my Mind on Weed, in which he apologized for his previously negative stance toward marijuana. Dr. Gupta said that further research convinced him that he was simply wrong.
  • In their April 2015 publication, the National Institute on Drug Abuse (NIDA) reported that marijuana can kill certain cancer cells.
  • Last year, Surgeon General Vivek Murthy appeared on CBS This Morning and said, we have some preliminary data showing that for certain medical conditions and symptoms, marijuana can be helpful. He also said added, I think that we have to use that data to drive policymaking.

Although the opinions of the Surgeon General, the National Institute on Drug Abuse, and the National Institute of Health were not enough to remove cannabis from its Schedule I classification, recent clinical evidence is hard to ignore.

Where to Find Value

The rescheduling of cannabis will serve as a major catalyst for the cannabis sector and this has created countless investing and trading opportunities for investors today.

Despite my optimism, investors must approach this sector carefully and have a strategy before investing. We would recommend targeting companies like GWPH, INSY and ZYNE, as long-term investments. These companies would be very attractive takeout candidates for big pharma businesses that want to enter the legal cannabis industry.

We also see value in certain OTC traded cannabis stocks as they too represent takeout opportunities. We would focus on companies that are levered to the biotech sector, that own valuable intellectual property, or that fill a specific and growing niche.

Some stocks to look at include MassRoots (MSRT), Terra Tech Corp (TRTC), CV Sciences (CVSI), Aurora Cannabis Inc. (ACB.CN) (ACBFF), Canopy Growth Corporation (CGC.V) (TWMJF), OrganiGram (OGI.V) (OGRMF), Medical Marijuana Inc. (MJNA), just to name a few!

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By Michael Berger, President of Technical420.com

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