There’s a growing movement for marijuana legalization in the U.S. and around the world. And an essential part in winning regulators over is in revealing them that the industry can be depended govern itself. Nevertheless, the problem for the market is that there’s excessive enjoyment surrounding its growth potential customers, and this is when business sometimes lose sight of whatever else.
Here are a number of examples where the industry’s been doing itself more harm than great.
1. Making claims that aren’t accurate or backed by strong data
Patients take cannabidiol (CBD) for its health benefits. Marijuana business GW Pharmaceuticals ( NASDAQ: GWPH) has actually benefited from strong need for its Epidiolex drug, which can deal with kids with two rare forms of epilepsy– Lennox-Gastaut syndrome and Dravet syndrome. The U.S. Food and Drug Administration (FDA) approved the drug in2018 It’s the first and just cannabis-based drug authorized by the FDA.
Image source: Getty Images.
The growing popularity and approval of Epidiolex has led to substantial development 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 created in the prior-year duration.
There could be a lot more growth for the business now that the European Commission also authorized the drug, a choice that stands in all the nations in the European Union.
And so there’s a lot at stake for companies to convince consumers that CBD is practical.
Multistate marijuana operator Curaleaf Holdings ( OTC: CURL.F) received a caution letter last July, with the FDA noting numerous circumstances where the business was making unapproved claims. Amongst the claims the FDA alleged Curaleaf was making was that CBD could be efficient in treating Parkinson’s illness and Alzheimer’s, which it “was effective in eliminating human breast cancer cells.”
While there may be small-scale studies where a correlation’s apparent in between CBD and a specific disease, among the problems with marijuana research study is that in a lot of cases, it’s far from definitive, and claiming otherwise is not a clever business relocation.
2. Refraining from doing enough to prevent marketing to children
The one thing that there’s general consensus on in the market is that pot should be off-limits for kids.
More egregious examples of the industry’s recklessness have actually occurred in the branding department. Last year, a Canadian animation studio took legal action against a dispensary in Oklahoma for infringing on its logo. The Treehouse Dispensary was using an image that resembled Treehouse TV, a channel that airs children’s shows in Canada. The animation studio won a default judgment against the cannabis company.
More 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 bought the dispensary to destroy anything that had the angering logo on it and pay damages of 30,000 Canadian dollars to the toy business.
Even if the shops would not have actually offered their items to kids, these instances demonstrate that pot business aren’t making major efforts to restrict their advertising and marketing of marijuana to adults.
Why should investors care?
Financiers may discount these issues, thinking they’re simply legal issues that any industry deals with. It’s a sign of the industry’s maturity and early development stages. The aggressive pursuit of sales at all expenses can motivate companies to take shortcuts, such as extending marketing claims beyond what’s accurate or legal. It’s symptomatic of why lots of marijuana business struggle to end up being profitable– since their focus is on the leading line rather than on the bottom line and having a healthy operation in place.
Even more, the industry’s public image can go a long way in forming attitudes that are important in moving legalization forward. These examples are tips of how far the market still needs to go in legitimizing itself and winning over the electorate.
Financiers should care about these problems since the longer the market’s seen as high-risk, the more speculative and volatile it’ll be. Which makes pot stocks unappealing buys for long-lasting investors seeking stability and predictability in their returns.
While these problems will not take away from the success that a company like GW’s delighted in therefore far, the industry’s image definitely isn’t doing the stock any favors.
David Jagielski has no position in any of the stocks mentioned.”>