Small Cap stocks / Cannabis & Psychedelics / Growth Stocks / Industry / Tech/BioTech

Investing in Small-Cap Cannabis-Biotech Stock

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 4 years of experience investing in financial markets. As a fundamental investor, Declan embraces the investment principles of Warren Buffett and his disciples. This puts a focus on finding businesses with healthy financials, competent and accountable leader, enduring competitive advantages, and those that are selling at discount to what they are worth.

    View all posts

U.S. Cannabis Pharmaceuticals Market graph

The medical cannabis-biotech industry is revolutionizing the way society perceives marijuana altogether.

With major markets such as the United States quickly evolving and adopting new policies to legalize this once villainized drug, it is no wonder why investors are bullish on the industry.

Currently, the biotech sector, along with many others, is being tested as the broad market sell-off continues to challenge investors’ temperament:

  • SPDR S&P Biotech ETF (Nasdaq: XBI): -15.83% YTD
  • iShares Biotechnology ETF (Nasdaq: IBB): -9.15% YTD
  • ARK Genomic Revolution Multi-Sector ETF (ARCA: ARKG): -10.71% YTD

However, as the legend Warren Buffett would say, the perfect time to “buy when others are fearful.”

Today, we dive into how to invest in small-cap cannabis-biotech stocks and which ones are well-positioned to succeed.

The Medical Cannabis Industry at a Glance

According to, the legal consumption of recreational cannabis is limited to a few countries: Uruguay (2013) & Canada (2018).

However, there are additional countries where it has been fully decriminalized such as Jamaica, South Africa, Georgia, Mexico, and the Netherlands.

In the United States, 37 states permit the legal use of medical cannabis, while 31 states have legalized or decriminalized recreational weed also.

Although the industry still has a long way to go until universal adoption, many statistics are indicating a promising future for the medical cannabis market, especially in North America.

Here are a few stats on the global legal marijuana market according to Grand View Research:

  • A global market value of $943.5 million in 2021
  • 80% of the market share is captured by the medical cannabis market
  • Global market value is expected to grow 104.2% annually until 2028

All-in-all, the medical cannabis industry is expected to be a highly profitable market for businesses and investors alike.

By capitalizing on these growth stage tailwinds, investors are sure to find success when investing in the cannabis-biotech small-cap space.

Are small-cap cannabis-biotech stocks a good investment?

To understand whether small-cap cannabis-biotech stocks are a good investment, one must consider both the risks and opportunities available in the industry. 

Risks when investing in small-cap cannabis-biotech stocks

Likelihood of Approval from Phase I Clinical Trials Graph.

Source: Nature Reviews

As many businesses operating in this medical cannabis market are striving to produce alternative solutions for major diseases (e.g. Alzheimer’s, Parkinson’s, Cardiovascular Disease (CVD), etc.), stocks in the sector are bound to face intense regulatory scrutiny before achieving any profits.

In fact, if a business is to receive FDA regulatory approval, its treatment must undergo clinical trials before consumers ever encounter the drug.

On average, only 9.6% of clinical trials reach completion, largely in part due to a lack of efficacy or harmful side effects, according to a study conducted by Nature Reviews.

Since these clinical trials are often expensive and timely, large volumes of capital investment and R&D are required up-front if they wish to be successful. 

However, when they do receive approval, biotech firms provide patients with a valuable alternative to traditional medicine, especially in the cannabis space because cannabidiol (CBD) virtually contains no harmful side effects through testing.

Therefore, when a business of this type finally pushes its product to the market, the firm gains a massive competitive advantage over other players because its remedy is unlike anything else available in the market today.

In other words, medical cannabis solutions offer huge potential upside for investors.

Opportunities when investing in small-cap cannabis-biotech stocks

The size of the Epidiolex market in the US and Europe Graph.

One such way for cannabis-biotech stocks to gain a competitive advantage is through Orphan Drug Designation (O.D.D.), a status given to certain drugs which show promise in the treatment, prevention, or diagnosis of orphan diseases. 

In the United States, O.D.D. is only granted to pharmaceuticals that treat medical conditions affecting fewer than 200,000 people.

Although this number may seem small, the healthcare costs for some conditions exceed $30 billion annually, in the U.S. alone.

Therefore, when a business is able to offer a product that alleviates a medical condition, this company receives favorable incentives unattainable anywhere else.

The O.D.D. incentives include: 

  • total market exclusivity for 7 to 10 years
  • high reimbursement levels; and
  • regulatory fast-tracking.

An example of a company that successfully achieved Orphan Drug Designation status was GW Pharmaceuticals.

In 2018, their groundbreaking product, Epidiolex (cannabidiol) [CBD] was approved by the FDA for the treatment of two rare and severe forms of pediatric epilepsy, Lennox-Gastaut syndrome, and Dravet syndrome.

Since then, Epidiolex is now used by over 1 million people worldwide and helping provide a valuable alternative to traditional medicines by incorporating the cannabis extract CBD.

In 2021, GW Pharma was acquired by Jazz Pharmaceuticals (Nasdaq: Jazz) for $7.2 billion after its featured product achieved annual revenue of over $500 million in 2020.

This meant a whopping 2371.91% return on investment for investors since GW Pharma’s IPO in 2013.

Which begs the question, “Who’s got next?!”

Three small cap cannabis-biotech stocks to add to your watchlist

1. Cardiol Therapeutics (CRDL)

Market Cap: $57.38 million CAD

Price: $0.84 CAD

YTD Change: 65.98%

CEO: David Elsley

Cardiol Therapeutics Inc. (NASDAQ: CRDL) (TSX: CRDL.TO) is a clinical-stage company focused on the research and development of cannabidiol as an anti-inflammatory and anti-fibrotic therapy for the treatment of cardiovascular disease (“CVD”).

Cardiol’s lead product candidate, CardiolRx is being evaluated in a Phase II/III multi-national study.

Additionally, Cardiol received FDA authorization to evaluate the efficacy & safety in two orphan drug indications (Phase II trials), and has a proven management team in the biotech space.

Lastly, Cardiol is fully funded into 2024 and has no debt on its balance sheet, meaning it is capable of withstanding any near-term market turmoil.

2. InMed Pharmaceuticals (INM)

Market Cap: $1.53 million USD

Price: $0.46 USD

YTD Change: 77.18%

CEO: Eric Adams

InMed Pharmaceuticals (NASDAQ: INM) is a leading developer and manufacturer of rare cannabinoids.

The company’s technologies produce several pharmaceutical cannabinoid products for the treatment of pain, glaucoma, and various other ailments. 

Their BayMedica division is the leading batch producer of wholesale CBC cannabinoids for the consumer health and wellness industry.

InMed Pharmaceuticals achieved revenues of $575,000 TTM.

3. Zynerba Pharmaceuticals (ZYNE)

Market Cap: $50.14 million USD

Price: $1.15 USD

YTD Change: -60.07%

CEO: Armando Anido

Zynerba Pharmaceuticals (NASDAQ: ZYNE) operates as a clinical-stage specialty pharmaceutical company in the cannabinoid space.

They are a next-generation company with the main focus on developing pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders.

In addition, Zynerba is developing Zygel, a pharmaceutically-produced cannabidiol formulated as a permeation-enhanced gel for transdermal delivery.


Cardiol Therapeutics is a client of Edge Investments and certain employees of Edge own shares in the company. This article is for informational purposes only, and is not intended to be financial advice. Always consult with a registered investment professional before making any financial decisions. Cardiol Therapeutics has sponsored this article and both reviewed and approved its contents.

We are not brokers, investment, or financial advisers; you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser, or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures. The company provided information in this profile, extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your own research.
Copyright © 2023 Edge Investments, All rights reserved.

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 4 years of experience investing in financial markets. As a fundamental investor, Declan embraces the investment principles of Warren Buffett and his disciples. This puts a focus on finding businesses with healthy financials, competent and accountable leader, enduring competitive advantages, and those that are selling at discount to what they are worth.

    View all posts

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