GW Pharmaceuticals PLC-ADR GWPH made history Monday when the company’s Epidiolex became the first cannabis-based drug ever approved by the FDA. New Cannabis Ventures and 420 Investor founder Alan Brochstein joined the PreMarket Prep trading show on Tuesday to discuss the approval and the muted reaction in GW Pharma shares.
"I think this is actually one of the most important things that has ever happened for the cannabis industry,” Brochstein said. "Our federal government says that cannabis has no health benefits and it's dangerous; so it's Schedule 1. Now we have a drug that's been approved by the FDA...and I think the federal government has a logic issue here because how can you say that cannabis has no health benefits and a federal agency has approved a derivative of it?"
The market will likely get more insight within the next 90 days once the scheduling of Epidiolex is announced.
Brochstein drew comparisons to the cannabis legalization process in Canada, where citizens sued the government on the basis that denying people rights to potentially beneficial healthcare was a human rights violation.
“Ultimately, you could get a rescheduling or de-scheduling of cannabis, and maybe get legalization down the road here as well,” he said.
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Why The Sell-Off?
GW Pharma shares haven't reacted as positively as the news implies, but Brochstein said he thinks FDA approval was widely expected and largely already priced into the stock. GW Pharma shares are already up 38.5 percent in the past year.
Brochstein said these types of catalysts are hard to predict, and he reduced almost all of his exposure to the stock during its run-up in recent weeks.
“What happens after these events is often a ‘sell the news’ type of event,” Brochstein said. “In this case, it was extremely likely the drug was going to be approved based on the advisory committee.”
He also suggested another theory explaining the sell-off.
“A lot of times these things sell off because people fear there’s going to be an equity offering right afterward,” Brochstein said.
He said GW Pharma will likely raise cash at some point down the line, but the company has a healthy cash position for now and has no immediate need to conduct an offering.
The only other potential issue for GW Pharma investors in the near-term is the type of reimbursement Epidiolex will receive, but Brochstein says the drug's economics look favorable. He says investors should particularly watch for Medicaid reimbursements given that the potential Epidiolex patient base is highly dependent on Medicaid.
Click here to watch the full interview with Alan Brochstein on Tuesday's PreMarket Prep. Brochstein's segment starts at 17:15.
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