The White House has moved closer to legalising cannabis, which could boost medical cannabis stocks. Challenges remain, however. The question for companies like Amyris, Jazz Pharmaceuticals and Innovative Industrial Properties is whether the grass will be getting greener.
President Joe Biden’s plans to overhaul cannabis policy, including a promise to pardon people convicted of marijuana possession, could mean a boost for the share prices of Amyris [AMRS], Jazz Pharmaceuticals [JAZZ] and Innovative Industrial Properties [IIPR].
The three companies are the top holdings in the HanETF Medical Cannabis and Wellness UCITS ETF [CBDP.L], accounting for 47.39% of the fund’s portfolio as of 30 September. The fund might be down 10.8% in the past month and 43.5% year-to-date, but Biden’s recent announcement of expunging small-scale federal marijuana offences could end up being a tailwind – not just for this ETF, but the cannabis industry as a whole.
“This action opens [the] door for federal decriminalisation as well as encourages near-term business friendly reform which could potentially [result] in the second bull market in US cannabis,” said the ETF’s manager, Nawan Butt.
Butt also expects there to be “a secular pivot in the cannabis industry rather than a one-time revaluation”. This will boost medical cannabis stocks held within the fund.
A sovereign situation for Amysis
Californian biotech firm Amysis creates microbes through genetic engineering to produce chemicals for cosmetics, food and cannabinoid ingredients. Its consumer products make use of cannabigerol (CBG), a non-psychoactive cannabinoid. Last year, the company acquired Terasana, which uses its CBG in a skincare oil used to treat acne.
According to The Street’s Maxx Chatsko, while “the potential of the technology platform is impressive, the reality of the business has been much more sobering”. For starters, Amyris missed the majority of annual guidance issued since 2014 and the company is yet to post a profit. It also spent $1.14 for every $1 of revenue earned in the 12 months to 30 June and it ended the first half of 2022 with a negative $279.6m.
The Amyris share price is down 53.6% year-to-date through 19 October to $2.51, up 70.5% from its 52-week low of $1.47 set on 11 May, but a hefty 83.4% below its 52-week high of $15.12 recorded on 1 November last year. As novel as the trend of synthetic biology is, it’s going to take a lot for the stock to recover to its pandemic heights.
Jazz’s MS cannabinoid drug hits setback
The Dublin pharmaceutical firm made its cannabis intentions clear last year when it acquired GW Pharmaceuticals and its nabiximols oromucosal spray for multiple sclerosis (MS) for $7.2bn.
The cannabis treatment, known as Sativex across Europe, has been available on the continent for over a year and is the only drug in the UK with a licence to treat muscle stiffness and spasms caused by MS. However, plans to gain approval in the US were dealt a blow in June when topline results for its phase 3 trial disappointed – Jazz is hoping to rely on data from a further two ongoing trials to support an FDA submission.
Revenue from Sativex was $4.14m in Q2 2022, up from $1.96m in the year-ago quarter. Another cannabinoid product, Epidiolex/Epidyolex, earned revenue of $175.3m, up 60% from Q2 2021.
The Jazz Pharmaceuticals share price is up 6% year-to-date to $135.03, closing on 18 October 14.8% above its 52-week low of $117.64, which it fell to on 30 November last year. It’s fallen 20.6% since reaching a 52-week high of $169.98 on 7 April.
Default risk facing Innovative Industrial Properties’ portfolio
Innovative Industrial Properties is the only real estate company on the New York Stock Exchange (NYSE) targeting the cannabis industry. Last month, it announced it had acquired a property for $21.5m for the cultivation and processing of cannabis. It also announced it was entering into a long-term lease agreement with medical cannabis dispensary Curaleaf [CURLF].
Despite the security offered by long-term leases, cannabis producers will struggle as long as the drug remains federally illegal. On the flip side, legalisation could see a wave of companies scrambling to increase their manufacturing capacity, with the real estate investment trust at a head-start in its offering.
The Innovative Industrial Properties share price has tumbled 61.9% year-to-date to $95.81 as of 18 October and 66.7% since setting a 52-week high of $288.02 on 16 November last year. Its recent close is an 9.5% gain on its 52-week low of $87.47 set on 1 September.
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