The investment arm of Bank of America, Merrill Lynch, sent out a 45 page equity report last week focused on prospects related to marijuana, suggesting that Merrill Lynch is bullish on the marijuana industry. Carefully researched, it was an interesting peek at how heavy hitters on Wall Street are starting to view the expanding industry. The document is not publicly available. It was leaked to this writer by an individual who received the report as a member and investor.
Among the pages were extensive, basic information about cannabis and the cannabinoids THC and CBD. There was also a comprehensive outline on the patchwork of state medical cannabis laws. Further within the document there was an overview of the benefits for a long list of medical conditions, some public polling and then tantalizing information about publicly traded companies already operating in the sphere.
Among them is GW Pharmaceuticals who are conducting an FDA approved clinical trial on children using a CBD drug called Epidiolex. Their hope is to treat kids with severe epilepsy disorders with the plant-derived therapy.
GW made headlines this week when they presented the most recent data from the trial to the American Epilepsy Society Annual meeting in Philadelphia. They reported that the drug was well tolerated and showed promise. Further testing will continue in 2016.
The company is the only one in the world to have gone through the complete process of getting a cannabis-extracted drug approved for prescription use, albeit not in the US but in the United Kingdom and Canada. GW’s product Sativex, a sublingual THC spray that comes in a device that resembles and inhaler, is approved for Multiple Sclerosis patients in those countries. GWPH is on NASDAQ and currently trading at $83.09 today.
Merrill Lynch didn’t mention investing in growing, processing or selling marijuana products
The Merrill Lynch report did not in any way touch upon investing in any company that was directly in the business of growing, processing or selling marijuana products for medical or personal use under state laws. However, they did note that the cannabis market could be more than $7 billion annually already and could grow exponentially if legalization happened nationwide.
The crux of the report focused on an interesting sector they term as “Life Science Tools.” This is the realm of equipment used to test cannabis for potency and quality.
Recent recalls of retail marijuana products in Colorado because of the presence of pesticides highlights where this equipment comes into play.
Individual producers and even exact mandates by state laws are requiring more screening of products before they reach consumers.
In order to tell how much THC is in a given bud or if it contains any adulterants requires some expensive and specialized devices. Gas chromatographs, mass spectrometers and liquid chromatography equipment were exclusively in academic research laboratories or in the pharmaceutical industry. Now, labs exist specifically to only test cannabis plants and products.
The Merrill Lynch report says they are “bullish on the cannabis testing market.”
Major players in the manufacturing of these “tools” named in the report are some very established entities like Aligent Technologies a $4 billion dollar company based in Santa Clara California, Waters Corporation a $2 billion dollar company based in Massachusetts and Thermo Fisher Scientific a $17 billion dollar company that keeps two offices in Philadelphia.
The report estimates that the market for this equipment could grow to between $50 million and $100 million by 2020.
It is interesting to note that Bank of America, along with every other major financial institution, has not accepted accounts from legal marijuana businesses. This is because of the conflict with federal law. The wrinkle requires retail cannabis locations to operate on a cash-only model. Legislation is pending on Congress that would allow normal banking for the industry.