The market opportunity for cannabis is enormous. According to Grand View Research, the spending is expected to hit a staggering $146.4 billion in the U.S. by the end of 2025.
Nowadays there are more publicly traded companies to play this megatrend, including names like Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON), and Tilray (NASDAQ:TLRY). Beyond these stocks’ extreme volatility, they also fetch sky-high valuations, with price-to-sales multiples often well over 50x.
So, is there way to get exposure to the cannabis opportunity — but not take on too much risk? Interestingly enough, there is one such stock to consider: AbbVie (NYSE:ABBV). It’s a company that rarely pops up on many people’s radar screen when it comes to cannabis. After all, it’s one of the world’s largest traditional pharma operators, with roots going back to 1888. Keep in mind that ABBV stock was spun-off from Abbott Laboratories (NYSE:ABT) in 2013.
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So what does ABBV stock have to do with cannabis? Well, consider that the company has a drug on the market, called Marinol. It is based on a compound known as dronabinol, a synthetic form of THC, which is a natural part of the marijuana plant (that is, cannabis sativa). This is what activates the “high.â€
Now Marinol has proven to be effective in dealing with the symptoms of a host of terrible diseases. For example, it helps deal with the nausea from chemotherapy and the weight problems resulting from those who suffer from AIDS.
Granted, Marinol is not a blockbuster drug. But then again, it does show the promise of cannabis as a treatment. More importantly, as for AbbVie stock, the drug is an indication of the company’s ability to push innovation with alternative treatments. In other words, it would not be a surprise that it will go on to leverage this experience to look at more treatments.
What’s more, the use of cannabis for medical purposes is certainly a major opportunity. There are already 41 countries that allow for this, whether on a federal or state level.
Granted, it would not be a good idea to invest in AbbVie stock just because it has a cannabis drug. To be sure, as seen with the latest earnings report, the company does have some problems as it issued disappointing guidance. Since early this year, ABBV stock has sunk from $91 to $81.
The nagging issue is the company’s most important drug, Humira (this is for the treatment of arthritis, plaque psoriasis, Crohn’s disease, and ulcerative colitis). For the most part, the growth is slowing. And yes, there are worries about when the U.S. patent protection comes off in 2023.
Despite all this, I still think there is a bullish case for AbbVie stock. One, the company has a decent roster of drug candidates that could move the needle — and help make up for a shortfall in Humira. For example, it has several immunology treatments (risankizumab and upadacitinib) that should hit the markets this year. Interestingly enough, when it comes to the pipeline, AbbVie has lots of potential with the cancer market. To this end, its drug Imbruvica is likely to spin-off various treatments for the category.
And who knows, perhaps there could be potential from cannabis as well? I think so.
In the meantime, AbbVie stock sports a dirt-cheap valuation, with the forward price-to-earnings multiple at only 8.6x. Oh, and the dividend is at 5.15%, making it one of the highest among the major pharma companies.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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