The following article is part of a package of stories that MarketWatch is publishing to mark the start of full legalization of cannabis for adult use in Canada on Wednesday.

The cannabis sector has been making waves lately, from plans for full legalization in Canada this week to companies seeing the potential for CBD-infused drinks.

But cannabis is expected to have many medical applications. One of the major players in the space is the Cambridge, U.K.-based GW Pharmaceuticals PLC GWPH, +2.66% which has been working to develop and sell cannabinoid medications for the last 20 years.

Epidiolex, the company’s lead therapy, became the first cannabis-derived drug in the U.S. in June, when it was approved for seizures associated with two rare types of childhood epilepsy. The drug is expected to come on the market in the next month.

Drugmakers commonly make their medicines synthetically — think a lab, not a greenhouse. But because its medications employ cannabinoids, GW Pharma is also involved in agriculture, growing cannabis plants both in partnership with another company, British Sugar, and on its own.

Epidiolex, for example, is made from cannabis plants that have a very high percentage of cannabidiol (CBD), a component of cannabis that is distinct from the psychoactive component, THC.

GW Pharma then extracts a purified substance with a high concentration of CBD and mixes it with sesame oil to make a syrup. Patients with the two diseases it was approved for, Lennox-Gastaut syndrome and Dravet syndrome, can consume Epidiolex on its own or mix with food.

So does Epidiolex’s U.S. approval merely mean that CBD helps those with these diseases — and potentially more down the road?

In other words, patients could buy CBD from other sources, especially since GW Pharma plans to charge about $32,500 a year for Epidiolex. (Notably, though, Epidiolex “comes at a slight discount” relative to a common anticonvulsant taken by Lennox-Gastaut patients, Eisai’s Banzel ESALY, +1.62% according to Stifel analyst Paul Matteis.)

Stephen Schultz, vice president of investor relations, says: “not exactly.”

“Our position on the matter is we do what we do because we believe physicians and patients desire a FDA-approved medicine. And they do that because they prefer that and believe there are specific things that come with a FDA-approved medicine,” he said, including consistency in the product, health insurance coverage, dosing instructions, and information for physicians about side effects and potential interactions with other drugs.

Epidiolex, “even though it has what, relatively speaking, seems like a fairly high price, actually the cost to the patient is much lower than any reasonably high-quality, artisanal CBD product at clinically-meaningful doses,” because Epidiolex would be covered by insurance, Schultz said.

Drug pipeline and intellectual property

GW Pharma is developing Epidiolex for two other medical conditions, and has other products in clinical trials for autism spectrum disorders, the aggressive cancer glioblastoma, schizophrenia and more.

CBD is also thought to have potential in more broad-based conditions like anxiety and depression.

Asked about these, spokesperson Schultz said that the company’s list of drugs in development represents “only a fraction of the work we’ve done.”

“We have a treasure trove of evidence of how cannabinoids can be utilized in the therapeutic market, beyond what we described in our current pipeline,” he told MarketWatch.

GW Pharma also differs from other biopharmaceutical companies in that it can’t obtain a composition of matter patent on cannabinoid itself, or the cannabis plants it grows, because they are naturally-occurring.

But the company does patent the process it uses to make its CBD medicines and the use of those medicines in specific medical categories, Schultz told MarketWatch, “and we believe those patents are very defensible.”

Because Epidiolex is considered an “orphan drug” in the U.S., it has a market exclusivity period of seven-and-a-half years, as well as 12 patents either granted or allowed by the U.S. Patent and Trademark Office.

GW Pharma is also studying Epidiolex in other conditions — including an ongoing phase 3 trial in tuberous sclerosis, for which results are expected next year — and is working on a capsule version, two strategies commonly employed to increase patent protections on a product.

GW Pharma also has patents on another product, Sativex, a more complex compound that includes both CBD and THC and has already been approved in many other countries.

What business is GW Pharma in: recreational or medical?

GW Pharma is entirely focused on cannabinoid medications, and is not involved in recreational cannabis.

Supply agreements

GW Pharma breeds cannabis plants “to have a specific fingerprint, to meet a specific need,” Schultz said, then clones them so each generation is exactly the same.

The company works with British Sugar to grow cannabis plants, leasing glasshouses at a location that Vice called “Britain’s biggest weed greenhouse,” as well as growing its own cannabis plants, including for its Sativex product.

How much does it grow and what are the costs?

GW Pharma’s Schultz declined to discuss quantities and costs, except to say “we grow a lot,” all in the United Kingdom.

How much can it eventually grow?

GW Pharma has invested in expanding its manufacturing capacity in recent years, Schultz told MarketWatch, expecting high demand for its Epidiolex upon the U.S. launch.

“As we need to expand growing and formulation capacity in other areas, we should be able to do that quite effectively,” Schultz said, describing the process of growing cannabis as “straightforward.”

“We are quite experienced in sophisticated growing techniques. But in the end it’s an agricultural process — we can grow as much cannabis product as we need to.”

GW Pharmak’s U.S.-listed shares have gained 11% in 2018, while the S&P 500 SPX, +1.98%  has gained 4% and the Dow Jones Industrial Average DJIA, +1.92%  has gained 3%.

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Original Article at https://www.marketwatch.com/story/marijuana-stocks-to-watch-gw-pharma-is-a-drugmaker-that-grows-its-own-cannabis-plants-2018-10-16