When it comes to the market's top-performing stocks, you'd have a hard time topping marijuana stocks over the trailing year. A majority of pot stocks over the past 12 months have at least doubled in value, with some even tripling or quadrupling . For added context, the stock market tends to appreciate in value by about 7% annually, inclusive of dividend reinvestment. That's how strong marijuana stocks have been.
The buzz behind pot stocks
And we certainly don't need to dig deep to see why they've been such popular investments. To begin with, forecasts call for huge legal sales growth over the next five to 10 years. Cannabis research firm ArcView is predicting that legal weed sales in North America could grow by 26% annually through 2021, leading to a nearly $22 billion market. Investors believe that this legal sales growth should translate into strong top- and bottom-line growth for publicly traded pot stocks.
The perception toward marijuana has also changed dramatically in just two decades' time. Back in the mid-1990s, only 25% of respondents in Gallup's national poll wanted to see marijuana legalized nationally. Comparatively, 60% wanted to see weed legal across the country as of 2016. The higher marijuana's favorability goes among the public, the better chance that Congress will consider rescheduling the drug.
Of course, with the federal government maintaining its strict Schedule I categorization on marijuana, the ceiling is low for marijuana stocks, and they remain, as a group, exceptionally volatile. In fact, last week one marijuana stock soared to the heavens, while three others ate dirt, so to speak, and plunged by a double-digit percentage.
This marijuana stock soared last week
After turning in a number of disappointing weeks of late, Cara Therapeutics (NASDAQ: CARA) was last week's shining star with a 16.4% gain, all of which came on Friday. The very clear catalyst was the company's second-quarter earnings report.
For the quarter, Cara Therapeutics reported a net loss of $9.3 million, or $0.29 per share, which was a full $0.32 a share narrower than Wall Street had been forecasting. It also noted that it had enough cash on hand to fund its operations into 2019. The implication here is that Cara may be able to reduce costs and operate leaner while running its multiple clinical studies involving kappa opioid receptor agonist, CR845.
Perhaps the bigger news in its Q2 earnings release was its pipeline update. In particular, investors appear excited about the expected completion of enrollment in Clin-3001, the Cara's phase 3 study for intravenous CR845 as a treatment acute postoperative pain by the fourth quarter, and an upcoming end of phase 2 meeting with the Food and Drug Administration for intravenous CR845 as a treatment for chronic kidney disease-associated pruritus. This meeting will set the parameters for a pivotal phase 3 trial. While Cara has had its fair share of bad news lately, things could be looking up soon enough.
Meanwhile, these three marijuana stocks were pummeled
On the other hand, three marijuana stocks had a pretty bad week. Two of them hail from our neighbors to the north. Canadian medical cannabis growers and retailers Aphria (NASDAQOTH: APHQF) and Aurora Cannabis (NASDAQOTH: ACBFF) plunged by 13% and 12%, respectively, last week.
Now if there were good news to be found within these steep drops it's this: There was no notable news to speak of for Aphria or Aurora Cannabis. In other words, the drop appears to be nothing more than investors locking in profits for some of the hottest marijuana stocks in the marketplace.
Then again, investors have to be at least somewhat skeptical of Canada's plans to legalize marijuana after years of unsuccessful attempts from Prime Minister Justin Trudeau. After all, much of the gains and the hefty premiums we see in Canadian weed stocks like Aphria and Aurora Cannabis is a result of the expectation of recreational legalization.
However, there was no mistaking the reason Insys Therapeutics (NASDAQ: INSY) , the third and final bottom-fishing pot stock last week, underperformed. Shares of Insys wound up plunging by 12.2% after the company reported disappointing second-quarter results.
For the quarter, sales of Subsys, a sublingual oral medication designed to treat breakthrough cancer pain, plunged, leading to just $42.6 million in revenue compared to $69.2 million in the prior-year quarter. The reason for the massive dip in sales relates to ongoing investigations and lawsuits into Insys' marketing practices for Subsys. The company had allegedly been pushing for sales of Subsys in off-label indications, especially in instances where physicians wrote a lot of opioid prescriptions (Subsys is a synthetic opioid). These investigations and the following PR hit has reduced Insys' sales by about half and pushed the company into the red.
If there is a bright spot here, it's that Insys also launched Syndros early last week, its new oral dronabinol solution for the treatment of chemotherapy-induced nausea and vomiting, as well as anorexia associated with AIDS. These are highly competitive indications, but it gives Insys a new drug with which to offset its recent losses in Subsys sales and hopefully return itself to healthy profitability. Insys still has a lot of questions to answer, but it could be a blazing bargain if Subsys sales stabilize and Syndros is launched successfully.
10 stocks we like better than Cara Therapeutics
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cara Therapeutics wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.