3 Big Pharma Stocks With Surprising Cannabis Connections

While smaller drugmakers such as GW Pharmaceuticals (NASDAQ: GWPH) and Corbus Pharmaceuticals (NASDAQ: CRBP) have plowed headlong into medical marijuana research, most of the largest pharmaceutical companies have stayed on the sidelines. Most -- but not all. A few of the top names in the sector have recognized the potential of cannabis. The rise in opioid lawsuits may lead drug companies to cannabinoids in the search for less-addictive pain relievers. It doesn't hurt that the compound annual growth rate (CAGR) of theglobal marketfor medical marijuana, according to one study, is estimated to be 24% over the next four years. This could considerably rise if federal laws around medical marijuana loosen. The reticence of those who have stayed out of this emerging business may not last long, especially with the share prices of the aforementioned stocks rising quickly. Johnson & Johnson (NYSE: JNJ), AbbVie (NYSE: ABBV), and Teva Pharmaceutical (NYSE: TEVA) are huge pharmaceutical companies that are less likely to see that same type of explosive growth in share price, but all three are establishing, at a distance, connections to medical marijuana.

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GW Pharmaceuticals made big news Monday when the U.S. Food and Drug Administration expanded its approval for the oral form of Epidiolex to treat seizures from tuberous sclerosis complex, a leading cause of genetic epilepsy that often produces benign tumors. Epidiolex, the only FDA-approved cannabidiol (CBD) treatment, was initially approved in 2018 for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS) and Dravet syndrome, two types of childhood epilepsy.

Given the possibility of massiveglobal marketgrowth over the next decade and the successes of small companies like GW Pharmaceuticals, it's not a surprise that three of the biggest drug companies in the world are quietly testing the waters on cannabis and preparing themselves for the possibility of medical marijuana legalization in the U.S.

Marijuana leaf on a stack of $100 bills.

Image source: Getty Images

Johnson & Johnson's cannabis association

Johnson & Johnson topped all pharmaceutical companies for revenue last year, and while you won't find the words "marijuana" or "cannabis" anywhere in its annual report, it is well-positioned to jump into the market.

Start with Avicanna, a biopharmaceutical company with facilities in Colombia that is focusing on commercializing cannabinoids for medical and wellness use. Avicanna is headquartered at Johnson & Johnson's JLABS, a medical and science incubator in Toronto, which provides Johnson & Johnson mentors and access to the company's labs and technology. Johnson & Johnson doesn't have an ownership stake in Avicanna, but it frequently initiates partnerships with other companies engaged in research at the JLABS campus. Another company working at JLABS is Vapium, which is developing dose-control technology for Grenco Science's cannabis products.

The Food and Drug Administration places tight restrictions on studying cannabis in the United States. For example, research on any Schedule I drug, including cannabis, must be done under the auspices of a site-specific DEA investigator.

Because of the regulatory limitations on studying cannabis in the United States, it makes sense that Johnson & Johnson would bolster studies in Canada, where medical marijuana has been legal nationwide since 2001. Johnson & Johnson did $82.1 billion in sales last year, a rise of 3.7% over the previous year, and it is constantly looking for ways to increase its sales and profit margin. Cannabinoid-related medicine could be a way for the pharma giant to boost sales in the future.  

AbbVie has been applying for cannabis-related patents

AbbVie, known as Abbott Labs before its spin-off as a branded pharmaceutical business, had produced and sold the anti-nausea drug, Marinol, for 35 years before selling it to Alkem Labs in late 2019. Marinol's active ingredient, dronabinol, is a synthetic form of tetrahydrocannabinol (THC). It has been prescribed to chemotherapy patients with nausea, and to induce appetite in patients with anorexia and AIDS. While AbbVie, the ninth-largest pharmaceutical company in the world by revenue, doesn't currently have any cannabis-related drugs in its catalog, it has filed for at least 59 cannabis-related patents in the United States, more than any other company, according to a 2019 report.

While 14 states and the District of Columbia have legalized marijuana for recreational use and 33 have approved it for medical use, it's still labeled as a Schedule I drug. Despite the federal government's history of restricting marijuana distribution and use, the U.S. Patent and Trademark Office has issued cannabis-related patents since 1942. AbbVie's active patents involving cannabinoids include a cancer treatment, a treatment for juvenile idiopathic arthritis, and cannabis as a treatment for skin disorders.

Teva is marketing cannabis in Israel

Teva Pharmaceutical is the largest supplier of generic drugs in the U.S. It's also quite active in the cannabis sector, although not in this country. In September, Salomon, Levin, Elstein (SLE), a subsidiary of the Israel-based pharmaceutical giant, announced that it would handle distribution of the products of Canndoc, a subsidiary of InterCure that specializes in medical marijuana. InterCure's CEO is former Israeli Prime Minister Ehud Barak.

This isn't Teva's first foray into marketing cannabis-related products. Last year, it agreed to market and distribute an inhaler from Syqe, another Israel-based pharmaceutical company. The Syqe is a dosing device for medical marijuana that comes with pre-loaded, cannabis-containing cartridges.

Teva earned $16.8 billion in revenue last year, down from $18.2 billion in 2018. In its annual report, the company talked of an effort to diversify its income. One way to do that could be to strengthen its reach into cannabis. For now, though, its cannabis-related business is pretty quiet. Its deal with Syqe wasn't referenced in the annual report, and its connection to SLE only earned a brief mention.

The tip of the iceberg

There are still plenty of roadblocks keeping these and other major pharmaceutical companies from diving into the cannabis business. A complicated patchwork of state and federal regulations and a wide spectrum of public perception are a few factors that have kept these players from going all in.

While some may see cannabis as a competitor to pharmaceuticals, if medical marijuana is legalized nationwide, it won't take long for pharmaceutical companies to establish a foothold in the sector, either by buying up cannabis companies or by expanding on the plans they're already making. Investors who realize this now may find themselves enjoying the benefits in the long term, when these big companies get even bigger.

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Jim Halley owns shares of AbbVie and Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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