And why the federal legalization of pot in the U.S. is probably a long way off. There’s a growing movement for marijuana legalization in the U.S. and around the world. And a key part in winning regulators over is in showing them that the industry can be trusted to govern itself. However, the problem for…
There’s a growing movement for cannabis legalization in the U.S. and around the world.
Here are a number of examples where the market’s been doing itself more damage than great.
1. Making claims that aren’t precise or backed by strong information
Clients take cannabidiol (CBD) for its health benefits. Cannabis company GW Pharmaceuticals ( NASDAQ: GWPH) has benefited from strong demand for its Epidiolex drug, which can treat children with two uncommon forms of epilepsy– Lennox-Gastaut syndrome and Dravet syndrome. The U.S. Food and Drug Administration (FDA) authorized the drug in2018 It’s the first and only cannabis-based drug authorized by the FDA.
Image source: Getty Images.
The growing appeal and approval of Epidiolex has led to considerable growth for the business. In 2019, its sales totaled $3113 million, up from simply $127 million in the previous year. And throughout the first quarter of financial 2020, sales of $1206 million were triple the $392 million that GW generated in the prior-year period.
There might be even more growth for the company now that the European Commission also approved the drug, a choice that stands in all the countries in the European Union.
And so there’s a lot at stake for companies to encourage consumers that CBD is valuable.
Multistate marijuana operator Curaleaf Holdings ( OTC: CURL.F) received a caution letter last July, with the FDA keeping in mind numerous instances where the business was making unapproved claims. Amongst the claims the FDA declared Curaleaf was making was that CBD could be efficient in treating Parkinson’s disease and Alzheimer’s, and that it “was effective in killing human breast cancer cells.”
While there may be small research studies where a connection’s apparent between CBD and a specific illness, one of the problems with cannabis research study is that in a lot of cases, it’s far from conclusive, and claiming otherwise is not a wise business move.
2. Not doing enough to prevent marketing to kids
The one thing that there’s basic agreement on in the industry is that pot ought to be off-limits for kids. But that can be an issue when it concerns edibles. Cannabis edibles frequently look similar to sweet, which of course interest kids.
More egregious examples of the industry’s recklessness have actually happened in the branding department.
More just recently, in Canada, a Vancouver-based dispensary got into trouble for using a name and logo design similar to popular toy business Toys “R” United States, called Herbs “R” United States. A judge ordered the dispensary to damage anything that had the angering logo design on it and pay damages of 30,000 Canadian dollars to the toy company.
Even if the stores wouldn’t have actually offered their products to kids, these instances demonstrate that pot business aren’t making severe efforts to restrict their advertising and marketing of cannabis to grownups.
Why should financiers care?
Financiers might scoff at these concerns, thinking they’re simply legal issues that any market faces.
Further, the market’s public image can go a long method in forming attitudes that are vital in moving legalization forward. These examples are pointers of how far the industry still needs to go in legitimizing itself and winning over the electorate.
Investors must appreciate these problems since the longer the market’s seen as high-risk, the more speculative and unpredictable it’ll be. And that makes pot stocks unattractive buys for long-lasting financiers seeking stability and predictability in their returns.
While these issues will not take away from the success that a business like GW’s taken pleasure in therefore far, the industry’s image certainly isn’t doing the stock any prefers.
David Jagielski has no position in any of the stocks discussed. The Motley Fool has adisclosure policy“>