medical marijuana vs recreational marijuana

Medical Cannabis vs. Recreational Cannabis Stocks: What’s the Difference?

Medical Cannabis vs. Recreational Cannabis Stocks: An Overview

Investors and companies alike have been excited about the cannabis market. Once on the fringes of the financial world, cannabis companies are gaining more traction, with mainstream companies jumping on the marijuana bandwagon.

Uruguay fully legalized pot in 2013, followed by Canada, which did so in 2018. But many other countries have been slow to follow suit—partly because of the stigma associated with marijuana. The drug still remains illegal at the federal level in the United States, but attitudes are shifting at the state-level. Colorado became the first U.S. state to legalize marijuana, and as of November 2020, medical marijuana is legal in 35 states while recreational usage is legal in 15 plus the District of Columbia.

But even as the sector racks up significant gains in the stock market, investor assessment of marijuana stocks is still colored by past stereotypes. Some investors still find it hard to jump in on the action, even with promises of big gains.

The industry is broadly divided into two markets—medical and recreational marijuana. As their names suggest, both have applications in different industries and cater to different markets. Medical marijuana stocks represent companies involved in research and development for the treatment of certain health conditions, while recreational cannabis companies cater to products that don’t serve a medical purpose. Instead, their users seek the high that comes with smoking, consuming, or drinking cannabis.

Depending on an investor’s risk profile and time horizon, stocks in both markets are attractive because they represent a growth opportunity, similar to the one that existed for tech stocks.

Key Takeaways

  • Although it is used to treat medical conditions and symptoms, medical marijuana is still considered a controlled substance at the federal level in the U.S.
  • Recreational marijuana caters to a larger market and has multiple applications from marijuana-infused beer to coffee and cigarettes.
  • According to research, more spending is expected to take place in the recreational cannabis market, but it is heavily taxed.

Medical Cannabis Stocks

Medical cannabis is a type of therapy prescribed by doctors for a wide variety of health conditions and symptoms. For this reason, a patient must receive a prescription before he or she can get access to cannabis treatment. To date, the drug has been used to treat Alzheimer’s, different forms of cancer, various mental health conditions, multiple sclerosis, nausea, and pain.

Medicines that incorporate marijuana may find significant applications in government health care. A 2016 research paper by Ashley Bradford and W. David Bradford from the University of Georgia found that prescription drug sales for painkillers “fell significantly” in states which legalized medical marijuana. “National overall reductions in Medicare program and enrollee spending when states implemented medical marijuana laws were estimated to be $165.2 million per year in 2013,” the authors wrote.

As noted above, 35 states legalized medical marijuana as of November 2020. But there are limitations because of how the drug is viewed at the federal level. The Food and Drug Administration (FDA) has approved four drugs with chemicals from or similar to the ones found in the cannabis plant, including Epidiolex, a drug used to treat a rare and severe form of epilepsy in children. The agency has yet to approve medical marijuana as a whole. That’s because the U.S. Drug Enforcement Administration (DEA) still lists marijuana as a controlled substance.

Despite this, the industry has been moving forward. Research conducted in 2018 stated that Sanofis Aventis (SNA) and Merck (MRK) are among the top cannabis-related patent holders. And companies currently involved in the use of marijuana for medical uses are GW Pharmaceuticals (GWPH), Tilray (TLRY), Corbus Pharmaceuticals (CRBP), Cara Therapeutics (CARA), and Zynerba Pharmaceuticals (ZYNE).

According to ArcView Market Research and BDS Analytics, spending on legal cannabis is poised to grow 230% worldwide from $9.5 billion in 2017 to $31.3% billion in 2022—33% of which is expected to go toward the medical marijuana industry. Most of this figure will be spent in the United States.

So how does this all stack up for investors? The basic framework for evaluating medical marijuana stocks remains similar to that for the pharmaceutical industry, which means investors should focus on the company’s pipeline of drugs and spending on research. Because research in cannabis is relatively new, it is safe to assume that the payback for investors in this industry will be longer as compared to recreational marijuana. For context, consider that GW Pharmaceuticals spent 19 years researching cannabis chemicals before getting its first drug approval earlier this year.

Getting into the market is as easy as any other industry. Investors may consider purchasing stock in companies researching or those that currently have medical marijuana on the market as mentioned above. Many are listed on stock exchanges like the Toronto Stock Exchange (TSX), while many are traded over-the-counter (OTC).

Another option is to consider an exchange-traded fund (ETF), as limited as they are in the market. These instruments trade just like stocks but pool together assets such as stocks, bonds, and/or commodities. The Alternative Harvest ETF includes companies such as GW Pharmaceuticals and Tilray and was trading at $13.12 as of Nov. 10, 2020.

Uruguay and Canada are the only two countries that have fully legalized both medical and recreational cannabis for its citizens.

Recreational Marijuana Stocks

Even though medical marijuana was legalized first and already has a semblance of distribution infrastructure in the form of medical dispensaries, recreational marijuana caters to a bigger audience and has a greater recall in public memory. This head start translates into a potentially bigger market for this type of marijuana and is reflected in the exponential growth statistics for companies involved in this sector.

The recreational marijuana industry primarily uses tetrahydrocannabinol (THC), a psychoactive agent that is responsible for the high that comes from smoking marijuana, for its products. It has multiple applications across products, from marijuana-infused beer to coffee and cigarettes. Instead of having a medical purpose, this industry markets the high that marijuana is known for and that many users seek.

According to the report released by ArcView Market Research and BDS Analytics mentioned above, 67% of global cannabis spending is expected to take place in the recreational industry—a big draw for investors. However, the federal legalization of recreational marijuana is essential before the market can reach its true potential.

The variety of products available for recreational marijuana comes with a catch—hefty taxes. For example, Colorado charges a 15% excise tax for sales from cultivators to retailers and another 15% sales tax. This makes the final marijuana product fairly expensive. Companies involved in recreational marijuana products will have to account for significant regulatory charges from governments on their balance sheets.

Just like medical marijuana, there are stocks and other investments available in the recreational cannabis sector. The most prominent company involved in recreational marijuana is Canada’s Canopy Growth (CGC). The stock price closed at $24.58 on Nov. 9, 2020, and had a market cap of $8.938 billion. Canopy Growth reported total annual revenue of $398.77 million for 2020, compared to $226.34 million from the previous year.

Medical marijuana and recreational marijuana are two high-growth sectors in the cannabis industry. Learn about how the two differ—and how you can get into the market.

There’s No Significant Difference Between Recreational and Medical Marijuana in the US, Study Claims

In recent days, thanks to the restrictive measures Covid-19 has forced authorities to put in place, the distinction between recreational and medicinal cannabis dispensaries has been made drastically clear in parts of the US. In states like Illinois and Massachusetts, medical stores have remained open, after being deemed “essential” businesses, while recreational stores have been forced to close.

But, according to a new study, the only major difference between most recreational and medicinal cannabis products is the store they’re sold in.

Published in the journal PLOS ONE, the study also found that more than 90 percent of the legal cannabis products offered in medical dispensaries vastly exceed the THC levels recommended for chronic pain relief.

M edical marijuana vs recreational marijuana

According to the researchers, cannabis products with 5 percent THC are sufficient enough to reduce chronic pain. Yet their study found that medical dispensaries across the US are advertising products containing 35 percent THC – levels on par with recreational products.

To reach their conclusions, the authors of the study scoured the websites of legal dispensaries in Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, Colorado, New Mexico, Washington, and California. They then recorded the concentrations of THC and CBD in advertised products. In total, 8,505 cannabis products across 653 dispensaries were sampled.

After analyzing the results, the researchers did find that the average THC concentration in medical products was slightly lower (19.3 percent) than the level found in products from recreational programs (21.5 percent). And the average CBD level in medical products was also slightly higher (2 percent) than in recreational products (1.3 percent).

But, according to the researchers, these averages shouldn’t be given too much heed, as the products’ cannabinoid concentrations varied extensively.

Ultimately, the researchers argue, the levels of THC in products from the medical and recreational stores were startlingly similar – and high. And that finding, they say, is worrying news for medical patients.

“We know that high-potency products should not have a place in the medical realm because of the high risk of developing cannabis-use disorders, which are related to exposure to high THC-content products,” said Edgar Alfonso Romero-Sandoval, an associate professor at Wake Forest School of Medicine and lead author of the study.

No pain, no strain

As the researchers didn’t test the products themselves to validate the advertised THC:CBD content, the study’s conclusions are contingent on the accuracy of the products’ labels.

But, even considering that limitation, Romero-Sandoval and his colleagues are still calling for stricter regulations on medical marijuana products, in order to safeguard patients from developing THC dependencies and cannabis use disorders.

“Better regulation of the potency of medical marijuana products is critical,” Romero-Sandoval said in a statement. “The FDA regulates the level of over-the-counter pain medications such as ibuprofen that have dose-specific side effects, so why don’t we have policies and regulations for cannabis, something that is far more dangerous?”

Cannabis use disorder (CUD) is recognized by the National Institute of Drug Abuse as an illness typified by cravings and withdrawal symptoms when cannabis isn’t taken. As legalization spreads across the United States there have been concerns that rates of CUD will follow and put further pressure on health services.

In a somewhat ironic finding, one recent study did find that the cannabis-based mouth spray Sativex can significantly reduce the rate of relapse for people with a cannabis dependency.

But, that result aside, many drug reformers are still mindful of public health policies that could help tackle cannabis dependence.

“Even a small percentage increase in regular cannabis users can increase the risk of developing problems like cannabis dependence, which services would be unlikely to have the capacity to support,” Ian Hamilton, a senior lecturer in addiction at the University of York, told Analytical Cannabis last year.

“For the small proportion of users who develop problems, support services need to be adequately funded and available – something [US] states and countries should factor in when thinking of changing their cannabis policies.”

Leo Bear-McGuinness

Leo joined Analytical Cannabis in 2019. From research to regulations and analysis to agriculture, his writing covers all the need-to-know news for the cannabis industry. He holds a bachelor’s degree in biology from Newcastle University and a master’s degree in science communication from the University of Edinburgh.

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There’s No Significant Difference Between Recreational and Medical Marijuana in the US, Study Claims In recent days, thanks to the restrictive measures Covid-19 has forced authorities to put in