Is GW Pharmaceuticals a Good Bet?

Last year, GW Pharmaceuticals (GWPH) outperformed cannabis ETFs and its peers. In 2019, the company delivered returns of 7.4%. During the same period, the ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) fell by 31.4% and 39%, respectively. In the first three quarters of 2019, GW Pharmaceuticals outperformed analysts’ revenue and EBITDA estimates. The strong performance appears to have led to a rise in the company’s stock price. However, weakness in the cannabis sector could have offset some of the increases in the company’s stock price.

Jim Cramer is bullish on GW Pharmaceuticals

In a lightning round on CNBC on December 10, 2019, a viewer asked Mad Money host Jim Cramer about GW Pharmaceuticals. In response, he said, “I have said it’s a long-term hold.” He said that cannabis and oil face challenging conditions. However, GW Pharmaceuticals is a pharmaceutical company. The company focuses on medical marijuana instead of recreational marijuana.

On November 18, Cramer said, “We like GW Pharma, but we’ve said it’s part of the cannabis cohort and because it has been pulled down by a lot of ETFs, and therefore it is still too early,” as reported by CNBC.

GW Pharmaceuticals develops and commercializes cannabinoid medicines. The company’s Epidiolex, which treats seizures, is the only CBD product approved by the FDA. The European Commission also approved the product in September 2019. The company stated that the commercialization of the product in France and Germany is underway. The company plans to launch the product in Spain and Italy this year. During the third-quarter press release, the company’s management announced that it’s developing several new CBD formulations including a modified oral solution, a capsule, and an intravenous formulation. So, I think that the company has strong growth potential in 2020.

Cramer was bullish on other cannabis companies

In August 2019, Cramer was bullish on Cronos Group (CRON) and Aphria (APHA). On August 20, a viewer asked Cramer about Canopy Growth during the lightning round. In response, he said, “That was a terrible quarter. It was a terrible quarter, they still have a lot of money. I think they’ll be fine, but Cronos has now eclipsed them in my mind as has Aphria … because that quarter was just, wow.”

Since Cramer made the statement on August 20, Cronos Group has lost 43.6% of its stock value as of Monday, while Aphria has lost 25.4%. During the same period, Canopy Growth has fallen by 27.9%, respectively.

Other analysts’ recommendations for GW Pharmaceuticals

Overall, 15 analysts follow GW Pharmaceuticals as of Monday. Among the analysts, five recommend a “strong-buy,” while ten recommend a “buy.” None of the analysts recommend a “hold” or “sell.” Analysts’ consensus target price is 206.07, which implies a 12-month return potential of 100.4%. Since GW Pharmaceuticals reported its third-quarter earnings on November 5, 2019, J.P. Morgan, Morgan Stanley, Stifel, Oppenheimer, and Guggenheim have lowered their target prices.

Let’s look at analysts’ recommendations for the company’s peers:

  • Analysts are bullish on Charlotte’s Web Holdings. Among the ten analysts that cover the stock, eight recommend a “buy.” Analysts’ consensus target price is 21.16 Canadian dollars, which implies a 12-month return potential of 138%.
  • For OrganiGram Holdings, 12 of the 15 analysts that follow the stock recommend a “buy.” Analysts’ average target price is 6.84 Canadian dollars, which implies a return potential of 144.3%. Read What Do Analysts Think About OrganiGram in December? to learn more.
  • All of the 11 analysts that follow Cresco Labs recommend a “buy.” The average 12-month target price 16.11 Canadian dollars, which implies a return potential of 89.5%.

Analysts’ expectations

Analysts expected GW Pharmaceuticals to report revenues of $302.1 million in 2019 and $546.3 million in 2020. They expect the company to report a negative EBITDA of $114.4 million in 2019. However, analysts expect the company to become profitable in 2020. They expect the company’s EBITDA to be $42.8 million in 2020. Considering the growth potential, I think that GW Pharmaceuticals will perform well this year.

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