Expert: Lack Of Catalysts, Hurdles Could Spell Trouble For Marijuana Stocks

Alan Brochstein, founding partner at New Cannabis Ventures and founder at 420 Investor, was recently a guest on Benzinga’s PreMarket Prep, and shared some a look at the U.S. and Canada marijuana market going into 2017.

There haven’t been “that many losers this year,” he pointed out. “Whether you were investing in Canada or the United States, you made money.”

GW Pharma

Among the big winners was GW Pharmaceuticals PLC- ADR GWPH.

“Quite recently, there was a meeting in Houston, where they were presenting to the American epilepsy society," Brochstein said. "And, they kind of stole the show (…) That story is on track. So, that will be an interesting one to watch in 2017, because in the first half of the year they'll be submitting their new drug application (NDA) with FDA, for Epidiolex, which treats epilepsy, and that thing's looking pretty good.”

Having said this, he doesn't expect the stock to perform as well in 2017 as it did in 2016.

“I think it could do well, but it's probably going to be back-end loaded,” the expert said. “There is no catalyst in the near term.”

NDA

“The next thing on the agenda is to get that new drug application filed,” Brochstein explained. “So I think, even then, biotechs are kind of tough when they're in this wait-and-see period. So, the approval itself, if it comes, hopefully not an action letter, would be late 2017 or early 2018. I think that if the company is able to get Epidiolex approved there's some upside to the stock; but I don't know that traders are going to run it up too far in advance of that.”

“The math I'm doing says this really could be a billion dollar drug,” he added later. “It will take a few years [though].”

“The other thing that's interesting about GW Pharma is, they are not a one-trick pony. They’ve turned into one for now, but they have a pretty rich pipeline; we’ll see some other things come out of them. That's one of the other things that I hope will sustain the stock next year,” Brochstein concluded.

The MJNA Story

The expert then went into Medical Marijuana Inc MJNA.

“It's kind of interesting,” Brochstein noted. “I would ordinarily just tell people to avoid it – period. They were the first ones start trading publicly; it's over three billion shares, so you know you're talking about 440 million market capitalization for company that's doing… their sales are in decline, they don't generate positive cash flow, they have a lot of toxic debt on the books… So, it’s pretty much an ‘avoid it anyway.’”

“We just got hit with a big surprise earlier this month,” Brochstein said. “The DEA created a new code for marijuana extracts [and] that's what that's what these guys sell.”

"The business model for MJNA is to identify hemp in Eastern Europe, convert it, bring it over, and sell it sell the CBD that comes from it. They've always said this is federally legal, and legal in all 50 states [but this is] not exactly correct," he explained. "The DEA really threw some cold water on that, and it's unclear what's going to happen. But, the DEA is basically now saying that this is illegal, what they're doing, so (…) if this continues to roll out the way it looks this company could face some big problems, to go above and beyond the ones that I've already noted."