BROCHSTEIN: Why investors are surprised by GW Pharma's drop

In a recent issue of New Cannabis Ventures, Alan Brochstein explains why he thinks investors are surprised and a little befuddled at the drop in the stock of GW Pharma (NASDAQ: GWPH). In a way, there are many parallels between GWPH and the overall cannabis market. So his article is helpful on two fronts. First, understanding the specific case of GWPH and second, understanding how similar factors have impacted the overall market.

Similar to Canada and cannabis legalization, GWPH made history this year being the first pharmaceutical derived from cannabis to receive U.S. Food and Drug Administration (FDA) approval for Epidiolex. Despite this accomplishment, GWPH stock has declined steadily since approval was received. Brochstein sees several reasons for this including:

1. Investors might have been overly enthusiastic regarding the company. The stock ran up from $9 to $111 per share following its Initial Public Offering (IPO) on the NASDAQ and although the approval of Epidiolex was remarkably quick, it was not as fast as some investors had expected. A similar conclusion could be drawn about cannabis stocks in general. While legalization in Canada happened comparatively smoothly and quickly, the October 17th date was seen as aa delay and disappointment to the market.

2. This week, GWPH announced how it intends to price Epidiolex. Some saw the price as too high even though it is probably quite reasonable. In the cannabis markets, as information on taxation of cannabis, provincial orders for cannabis and the expected price levels for the product as sales begin have been viewed by many as disappointing even though the levels are not out of line with general expectations.

3. There also seems to have been a general misunderstanding on the part of investors that Epidiolex has to be rescheduled before GWPH can sell it. We agree with Brochstein that this was clearly explained by the company but it has caused confusion on the part of investors. In Canada it was always clear that dispensaries would be subject to provincial and to some extent municipal regulation but this seemed to catch some operators off-guard. Similarly in an area like California, it has long been known that new regulations would come into effect but when they did, it seems people were surprised.

Brochstein concludes that all of this might have created an excellent entry point for investors to buy GWPH. We feel the same way about the overall cannabis market. You can read Brochstein’s article (here) and reach your own conclusions.