In recent years, speculative investors have taken a liking to “marijuana” stocks. Most of these stocks are often high risk due to federal legislation still prohibiting marijuana use. This has led to an underdeveloped market surrounding the industry, especially its wall street counterpart. Investors in these stocks are usually hoping for either a change in federal legislation, or for more states to continue changing their regulatory laws. Today, I’d like to propose a way traders can benefit from changing regulations, but with a method less risky than usual marijuana stocks. This trade is buying stock in Cara Therapeutics, Inc. (NASDAQ: CARA).
Cara Therapeutics, Inc. is not a marijuana company by nature. It is actually a clinical stage biotechnology company. Their goal is to research non-addictive drugs capable of relieving pain and pruritis (chronic itching). Typically, pain medications are either non-steroidal anti-inflammatories, such as Ibuprofen, or opioids, such as morphine. Ibuprofen and other non-steroidals are relatively harmless, but there is currently an opioid crisis occurring across the nation. Currently availible prescription opioids act on the opioid receptors of the brain and have a strong potential to become addictive, and have other unwanted side effects.
FINVIZ CARA 2017-09-01
Research on marijuana has led scientists to the discovery of a different kind of receptor, a cannabinoid receptor. There are CB1 receptors which are in the brain and associated with the high that comes from smoking or consuming marijuana. There are also CB2 receptors. These receptors play a role in pain and inflammation, but are found outside of the brain. Cara Therapeutics, Inc. has a drug in their pipeline called CR701, which is a cannabinoid. This drug targets the CB2 receptors, meaning it delivers reduction in pain and inflammation without causing a high. Cara Therapeutics, Inc. is considered a marijuana stock because CR701 is a cannabinoid, meaning it is tied to cannabis.
The main issue with investing in Cara Therapeutics, Inc. as a marijuana stock is that CR701 is only a fraction of their drug pipeline. It is currently only in phase I, and for those unfamiliar with FDA calendars, this means it could take years before it gets to the market. The drug in their pipeline that will really determine the stocks fate is CR845. This drug is not a cannabinoid, but it still aims to be a non-addictive opioid targeter. CR845 does not generate euphoria and pleasure in the same way that typical opioids do. Currently, Cara Therapeutics, Inc. has two versions of CR845 in its pipeline. One is dedicated to stopping post operational pain, and is in phase III which is the final phase before commercialization. The other is meant to treat chronic pain, and is in phase II of its clinical trial.
The fact that Cara’s cannabinoid technology is not their primary concern does not mean it is a bad investment. In fact, any chance at disrupting the opioid market should send Cara stock soaring. By 2021, it is estimated that the US opioid market capitalization will reach $17.7 billion. Doctors are currently making an effort to prescribe fewer opioids, and a non-addictive opioid pain drug would be monumental in this effort.
Even so, if more states or the federal government eases off on marijuana regulation, Cara Therapeutics, Inc. could see a spike. Retail investors would likely buy into the stock based on their belief that it is a “marijuana stock” so I do still recommend buying it if you’re looking for a way to trade marijuana legislation. Just be aware it will not be the main driver of profits, and price action will likely be more associated with CR845 events. If you are looking for a trade that will pay off in the next few years if legislation changes, I still recommend buying this stock. You will be investing in the success of cannabinoids, and the potential upside of the other drugs in Cara Therapeutics, Inc. pipeline remains enticing.
Disclosure: No positions are held in CARA and are not expected to be initiatied in the near future.