[Todd Harrison is the CIO and co-founder of CB1 Capital and a columnist for Investopedia. The views expressed herein are those of the author and do not necessarily reflect the views of Investopedia.]

In recent weeks, Tilray Inc. (TLRY) became the first Canadian licensed produced to list on the NASDAQ, while Constellation Brands (STZ) invested an additional $5 billion-dollars in Canopy Growth Corporation (CGC) to develop cannabis-infused beverages.  What both companies have in common is that inherent in their respective share prices, investors are getting the upside call option of their biotech research & development.

While history paints a picture of Reefer Madness, cannabis and hemp have emerged as the base-line ingredients in a wide array of end-products and use cases that include building materials, plastic composites, cosmetics & vanity, pet supplements, clothing, food, and yes, medicine.  While each of these verticals have investment merits, it is the wellness arena that excites us most.

Why?  Because the medical community informs the stock market and they’ve never studied the science behind cannabinoid wellness given it’s Federal scheduling.  Most doctors remain unaware that the cannabinoids found in cannabis are identical in action to the endocannabinoids our bodies produce to regulate neurotransmissions.  By using our endocannabinoid system (ECS) as a retrograde pathway, we’re able to target a multitude of pernicious conditions and disease.

Most of the world is just beginning to understand the therapeutic benefits of cannabis but two players on the global stage figured it out long ago.  Israel has studied the science for 50 years, thanks to groundbreaking work of Dr. Raphael Mechoulam, but there are only a handful of publicly traded early-stage biotech companies with which to express an investment view.  And there’s the UK-based GW Pharmaceuticals (GWPH).

The GWPH Advantage

In the 1990s, the U.S. and U.K. governments commissioned separate but similar studies to help determine whether cannabis had the potential for medical efficacy, and both found there to be encouraging evidence. The U.S. ignored those findings and continued its failed War on Drugs, while the U.K. government laid the groundwork for GW Pharmaceuticals, which was founded in 1998.

Over the last twenty years, GW has conducted groundbreaking clinical research and importantly, they’ve filed numerous patents in both the U.S. and U.K.  They’ve studied CBD, THC, and a wide range of novel cannabinoid molecules in several distinct therapeutic areas, including epilepsy, autism, cancer and schizophrenia. In short, they’ve got a massive first-mover advantage in a space that most people still don’t realize is a space.

Of course, there is much to learn once the Federal decriminalization of cannabis arrives, paving the way for research, banking and institutional investment in US-based operators, along with what I presume will be a fair amount of M&A.  There are two pathways on that front: legislatively, through efforts such as the STATES ACT; and with the demonstration of medical efficacy, which compels the DEA to reschedule within 90 days.

GW’s first drug, Epidiolex ™ for the treatment of childhood onset epilepsy disorders, received FDA approval in June but the collective body language suggests that only CBD will be rescheduled, leaving cannabis as Schedule I.  This is due to perceived fear of THC, the cannabinoid that is responsible for the euphoria often associated with cannabis,  and widely considered the black sheep of the cannabinoid family.  We believe that perception is misplaced and GW has two opportunities to establish that.

Sativex®, a THC-based oromucosal spray for the treatment of MS spasticity, has already received regulatory approval in numerous countries outside the U.S., and we expect an NDA to be filed shortly.  Further along the clinical pathway, and the story to which nobody seems to be paying attention to, is glioblastoma, or brain cancer, which we believe will serve as the foundation of GW’s oncology platform and demonstrate once-and-for-all the efficacious agility of cannabinoid wellness.

In February of 2017, GW announced positive phase two primary endpoints for their GBM trial, which used a 1:1 CBD:THC ratio, but they couldn’t release secondary endpoints (overall survival) because “too many people were still surviving.” CEO Justin Gover said at the time that more information would likely be available in “the coming weeks to months.”

Fast-forward to August 2018, a full seventeen months later, and we’re still waiting for those secondary endpoints.  The only data we received, a few weeks ago, was that the median survival rate was 662 days compared to 369 days on placebo, and that the company received an Orphan Drug Designation from both the FDA and EMA.  For those paying attention, the company is quietly positioning for this new reality.

Last May, the company hired Dr. Volker Knappertz as their Chief Medical Officer. Dr. Volker received his clinical scientist training and M.D. as well as a doctorate degree in research on glioblastoma from the University at Cologne in Germany. We found this to be an interesting nuance given the street-wide perception that GW is only an epilepsy platform.

It’s not uncommon for a biotech company to have a promising pipeline; it is uncommon, however, for analysts to assign no value to it.  Only eight Wall Street analysts cover the stock and for the most part, all of them base the entirety of their price targets on the blockbuster potential for Epidiolex ™.  We don’t think they understand the story, just as most people don’t understand cannabis; and therein lies the opportunity.

The chasm between perception and reality is where profits are found, and most of the world still views ‘pot’ as a gateway drug.  By the time clinical validation arrives, and other people understand that cannabis is more impact investing than vice-fund fringe, GW Pharmaceuticals, more than any other stock in the cannabis universe, is poised to benefit the most.

(Disclosure: At the time of writing this article, CB1 Capital Management has a position in GW Pharmaceuticals, Tilray and Canopy Growth Corporation)