Medical Marijuana Inc.: Too Risky, Avoid For Now – Medical …

Medical Marijuana Inc (OTCPK:MJNA). may face stiff competition from big pharma companies who are working on the same CBD technology for the prescription market.

If the FDA approves cannabidiol-based drugs, it may restrict over the counter use of the active pharmaceutical ingredient. The Trump administration seems to be going down this route. Restrictions on CBD could harm Medical Marijuana Inc.’s sales and the sales of its portfolio companies.

On top of this, MJNA’s portfolio company, Axim Biotechnologies (OTCQB:AXIM), is listed on the OTC markets and has questionable transparency and weird expenditures. Many of MJNA’s holdings are illiquid, and it may be difficult for MJNA to realize full market value if it ever decided to sell its equity stakes in its portfolio companies.

Cannabidiol in the Treatment of Epilepsy

Currently, there is little doubt that CBD is an effective treatment for epilepsy indications. Legal CBD oils have been used to treat the condition for years, and Epidolex, a pipeline drug from GW Pharmaceuticals (NASDAQ:GWPH) has had strong clinical results.

CBD oil is legal is all 50 states of the United States. And on top of this, the agricultural hemp it is derived from is also legal. However, on Dec. 14th, the DEA established a drug code to regulate CBD under the justification that it contained trace amounts of psychoactive THC – and THC is illegal.

On top of this, CBD is on its way to becoming an Active Pharmaceutical Ingredient ‘API’ – assuming CBD drugs like Epidolex earn FDA approval. If CBD becomes officially recognized as a drug, it will come under the full pressure of pharmaceutical political clout and likely end up heavily regulated. Crushing the over the counter CBD market may be the only way for big pharma to profit off of the virtually identical API that both OTC and prescription CBD drugs will use.

If CBD is not regulated, it makes little sense to develop it as a pharmaceutical product when patients can buy in online for a fraction of the price.

Donald Trump’s drug policy further supports the negative outlook for over the counter CBD. Trump is expected to diverge from the Obama administration’s policy of not enforcing federal drug laws in states when marijuana is legalized. And with the new classification of CBD as a potentially controllable substance, both THC and CBD producers may face regulation under Trump’s administration.

Axim Biotechnologies

Medical Marijuana Inc, as a holding company, owns a substantial equity stake in Axim Biotechnologies. The company develops CBD chewing gum products, and its pipeline can be seen here. It is in the midst of several FDA trials for IBS and other indications.

A stake in a company producing FDA-approved products may go a long way toward helping MJNA hedge its risk against future regulation against CBD. That being said, Axim has some strange characteristics for a biotech with a market cap of over $600m.

Axim is listed on the OTC markets and trading volume is extremely low. The corporate filings are also low on information because of different filing requirements for OTC stocks. Nevertheless, with a market cap of over $600m, MJNA’s 47% stake in this company is worth more than its entire market cap, so why is the market heavily discounting this large asset when valuing MJNA?

Axim’s financials has some red flags. The company spends a relatively small amount on R&D compared to a strikingly large SG&A budget. On top of this, with such a huge percentage of AXIM owned by one holder, the stock presents a significant risk. MJNA may find it difficult, if not impossible, to realize the full value of this investment due to the illiquidity of Axim.

MJNA also holds investment stakes in Kanna life Sciences Inc. and CannaVest Corp, but these are private companies.

Conclusion

CBD may find itself regulated in the coming years, and such a development would harm the CBD businesses of MJNA and its portfolio companies. MJNA could theoretically reduce its risk profile by taking ownership positions in regular FDA approved biotechs, but its stake in Axim will remain risky until the company has more FDA successes under its belt.

Axim has low liquidity, strange expenditures, and lacks transparency and an OTC stock. It may be difficult for MJNA to realize the full value of its stock position in Axim due to the illiquidity of the stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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