Cara Therapeutics, Inc. (NASDAQ: CARA), a clinical-stage biopharmaceutical company, focuses on developing and commercializing chemical entities with a primary focus on pruritus and pain by selectively targeting kappa opioid receptors in the United States.
On March 12th, CARA released its 2018 earnings. Total revenue was $13.5 million for the full year ended December 31, 2018 as compared to $911,000 for the year ended 2017. For the full year ended December 31, 2018, net loss was $74.0 million, or $2.06 per basic and diluted share, compared to a net loss of $58.1 million, or $1.86 per basic and diluted share, for the year ended 2017.
Cara’s lead candidate, Korsuva, an intravenous formulation is currently in a phase 3 clinical trial for treating pruritus (itching) in patients with chronic kidney disease who are on dialysis, while its oral formulation is in a phase 2 trial for the same indication in patients who aren’t on dialysis. The company expects to announce the results from both studies this year.
Questions, Catalysts, and Hurdles Every Marijuana Stock Investor Should be Considering
Cannabis has become incredibly popular in recent past and widely available, both online and in brick and mortar formats across many countries. Sellers and users engaged with the industry say that Cannabis products are revolutionary and help with pain, anxiety, and inflammation, though limited scientific research supports those claims. It’s turning up in an extensive and ever-growing range of products right from lotions, cosmetics, and soap to diet pills, juices, cocktails, candy, and drinks.
According to reports from public sources, the market for Cannabidiol (CBD) beverages alone could achieve a value of $260 million in the United States by 2022. CBD beverages form part of an even broader market for marijuana-infused drinks that is predicted to reach a value of $600 million in three years. Overall consumption through legal channels is expected to rise by up to 35 percent, as likely new consumers offset the proportion of current ones who elect not to transition to legal channels.
Moreover, Interest has spiked from the beer industry on mounting evidence of a substitution relationship between cannabis and alcohol, while large soda companies increasingly view CBD as a natural fit within their strategically important wellness offerings.
Given the immense popularity of the Cannabis industry in the past, investors didn’t have to be too careful about choosing and or dissecting any individual cannabis stock, as the growing legal cannabis market and investor enthusiasm about its future propelled almost all of the group’s stocks higher, and most of them became a participant in this GREEN RUSH. This was the time where most of the investors were inclined to dismiss any potential risks related to policies/regulations.
That being said, these ongoing widespread dynamics is likely to change soon and perhaps this year as the players and market that they operate into, become more unique and differentiated. Therefore, careful stock-picking while understanding the regulatory and political developments should become much more critical.
What, then, how do we expect those regulatory challenges to look like?
Notwithstanding the ongoing positive outlook/bias, the cannabis industry is, in many respects, still in the nascent stages and the companies operating in the industry continues to face significant regulatory risks and uncertainty, while at the same time additional states legalize cannabis. Therefore, despite the belief by some that the 2018 farm bill broadly legalized the cannabinoid, the truth is that federal agencies are still scrambling to determine their next steps.
For Example, The US Drug Enforcement Administration may still consider CBD an illegal, Schedule I drug, even when the national drugstore chain CVS apparently disagrees.
Just last Friday, two independent stores in North Texas were raided by police and had their CBD products confiscated. According to a report on News 5 in Dallas/Ft. Worth, police in Duncanville, TX, removed hundreds of pounds of CBD products from the shelves of two GM Tobacco stores. Scott Friedman and Jack Douglas Jr. reported for NBCDFW.com:
The Passage of the 2018 farm bill in Congress late last year has undoubtedly opened doors for hemp-derived CBD products and led many to believe that hemp-derived CBD had become legal nationwide. That’s not quite the case. The US Drug Enforcement Administration has taken aggressive steps to insist that CBD because it’s derived from cannabis, a Schedule I substance, and is therefore illegal under federal law.
What’s the near to medium term regulatory outlook for Cannabis:
2019 is expected to be an overall decisive period for the cannabis sector. The following paragraphs highlight what to expect in 2019 for the cannabis industry.
Perhaps the most significant change will be on the federal level which if such a dream becomes a reality, would provide the outline by which all states could see legalized cannabis
One of the significant changes for cannabis on the federal level would be the shift in power that is likely to take place in the House of Representatives in 2019.
The FDA announced Tuesday that it would hold a public hearing in May to gather more information. Ahead of a public hearing on CBD scheduled for May 31 near Washington, DC, the agency is asking for public comment on three specific aspects of CBD and infused products: health and safety risks; manufacturing and product quality; and marketing, labelling, and sales.
On the flip side, Lawmakers in Texas and California are often in opposition, but they’re both pushing bipartisan legislation to sidestep federal law and allow sales of the CBD products. Republicans and Democrats in Congress also are urging the U.S. Food and Drug Administration to change its stance.
What Political/ lawmakers and public are commenting and their concerns for nationwide medical or recreational on a national level (USA).
Much of the political alignments are taking place in 2019. It is possible that by the end of 2019, we will have some federal legalized cannabis policy enacted into law.
In fact, from a political perspective, gone are the days when statements like “I didn’t inhale” was quite prevalent. Cannabis is a very real thing now, said Carl Olsen, a Democratic activist in Des Moines, Iowa, noting that even President Donald Trump has suggested he’s open to some form of legalization. “The whole thing shifts now into not whether we do it, but how we do it”
The cannabis industry remains a minor but burgeoning political player. Industry groups spent $2.7 million on lobbying last year, according to the Center for Responsive Politics, more than six-fold increase over just two years earlier.
“I don’t see a path for how a Democrat running for president could win the presidential primary unless they do have a positive cannabis position,” said Neil Levine, CEO of the Cannabis Trade Federation, an industry-backed advocacy group.
Washington Gov. Jay Inslee has boasted that his state, one of the first to legalize recreational marijuana use in 2012, has “the best weed in the United States of America.” Sen. Bernie Sanders has been proposing some form of legalization for more than two decades. Sen. Kamala Harris has reminisced about lighting up in college. Moreover, Sen. Cory Booker makes overhauling drug laws a linchpin of his stump speeches.Nearly every Democrat in the field has embraced some form of legalization.
The change is driven by the rapid spread of legal cannabis markets. Ten states and the District of Columbia have full legalization, and another 23 states permit medicinal uses with permission from a doctor, according to the National Conference of State Legislatures. Even deep-red states like Arkansas and Utah have recently enacted medical marijuana laws. Sales topped $8 billion last year and could hit $80 billion by 2030, according to Cowen Equity Research
Also, the overall public opinion has steadily inclined in favor of the overall legalization. More than 6 in 10 adults are now in favour of legalization, according to the Pew Research Center — double the level of support at the turn of the century.
Therefore, despite short term uncertainty, CBD stocks are still having a great 2019 with so many expected developments and upcoming catalysts. While the industry is temporarily controversial, we also need to remember that this category has spurred innovation, entrepreneurship, and jobs.
As per a Deloitte report, what is certain is that legalization will open the doors to a dynamic, sophisticated industry that will create new jobs, new opportunities for businesses, and new revenues for the government. Moreover, executed well, legalization will also help shift a considerable proportion of cannabis consumption to legal channels in the years to come. That said, a policy risk remains on the table, and we should be watching for signs.
Overall Financing aspects of the industry while big money/institutional funds are opening up to investing in cannabis stocks:
Currently, with cannabis still illegal on the federal level, it is practically difficult for the companies to obtain the traditional source of financing, i.e. banks being able to invest in cannabis businesses. Should the Feds make the industry legal in some or other format at the federal level, we would see a surge in all traditional banks coming forward to finance within the cannabis communities.
Therefore, while the regulatory side is showing signs of green shots, significant money/institutional funds are already opening up to investing in cannabis stock. For example, The Cowen Group (NASDAQ: COWN) was the first big investment bank to begin significant coverage of the growing marijuana-stock universe.
Cowen’s top marijuana stock analyst, Vivien Azer has been extremely bullish about legal marijuana sales growth. As per her research, a substantial illicit market is just an indicator of how high the legal market could climb. A week before Canada’s adult-use sales began, Azer expressed excitement because a $7 billion illicit market was being brought into the legal market.
Furthermore, Merida Capital Partners, who launched its maiden fund in late 2016, will be openning an office in Toronto, which would be its fourth office after its New York headquarters and satellite shops in Bethesda, Maryland and San Francisco. Together with these developments, Merida is also looking forward to floating its largest fund yet, i.e. above US$200 million to be channelized into the cannabis industry across North America. The firm already has a couple of other funds, totaling almost US$80 million and US$125 million, with exposures in nearly 25 cannabis entities.
Moreover, the Cannabis industry is also on M&A spree, which has become a quite apparent and common theme in the cannabis sector. In fact, we have already witnessed substantial consolidation to date in Canada. In the U.S., many MSOs have been quite aggressive on the M&A front and willing to acquire privately held operators.
Cresco Labs, for example, one of the largest vertically integrated multistate cannabis operators in the United States, announced that it is entering the Florida market. Green Thumb Industries Inc. (GTI) Expanded with the Acquisition of Integral Associates, Nevada’s Top Cannabis Operator. Before that, Multistate marijuana firm iAnthus Capital agreed to acquire the U.S. assets of Toronto-based cannabis company MPX Bioceutical Corp. in an all-stock deal valued at 835 million Canadian dollars ($640 million), the second mega-acquisition in the American MJ industry in less than a week. The acquisition positions New York-based iAnthus as one the most significant U.S. cannabis operators and expands the firm’s footprint to 10 states, nearly doubling its reach.
Bottom-line is that the Consolidation and overall funding opportunities is growing in the cannabis space, and this will likely encourage other companies to be more aggressive in their M&A strategies and financial closure initiatives. Therefore, investors who are able to identify such deals at a discounted price successfully will be able to benefit significantly through the available arbitrage opportunities.
It’s apparent, therefore, that regulators, investors, and profit-seeking enterprises have their individual roles to play. Hence, the ongoing bullishness of CBD stocks is just the beginning of the upcoming boom, and the longer-term potentials are still intact and rock solid.
On Tuesday, April 9, 2019, CARA shares were at $20.48 per share on traded volume of 283K shares. The current RSI (14) is 67.93
At $20.48, shares of CARA or trading above their 50 DMA and 200 DMA of $17.57 and $18.25 respectively.
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