Biotech Firms That Sound Like Cannabis Stocks Join Frenzied Pot Rally

As pot stocks surged this year amid nationwide legalization hopes, a relatively obscure group of biotechnology companies have echoed their moves.

Drugmakers that target the endocannabinoid system -- which is believed to play a key role in regulating body weight and controlling energy balance -- have skyrocketed in 2021. While those biotechs wouldn’t necessarily benefit from any legislative push for the pot industry, analysts say the stocks have jumped on the idea that they would be associated somehow with cannabis. And they are not.

Take Corbus Pharmaceuticals Holdings Inc., for example. The Norwood, Massachusetts-based company that develops drugs to treat inflammatory and fibrotic diseases has almost doubled this year. That huge rally compares with an advance of less than 2% for the S&P 500 Index. Similar developers such as Artelo Biosciences Inc. and Zynerba Pharmaceuticals Inc. have enjoyed gains of 167% and 35%, respectively.

Biotech Firms That Sound Like Cannabis Stocks Join Frenzied Pot Rally

Such meteoric ascent has also been reflected in cannabis companies like Sundial Growers Inc. and Tilray Inc., which have almost tripled in 2021. Meanwhile, a proxy for the pot industry, the $1.9 billion ETFMG Alternative Harvest ETF (MJ), has jumped 59% in the span.

“It’s kind of a co-mingling of two different worlds,” said Leland Gershell, an analyst at Oppenheimer & Co. in New York. The fact that cannabis is growing in terms of its acceptance “is making the market more supportive of any company that has that in its name,” he added.

For Jason McCarthy, an analyst at Maxim Group in New York, the excitement around the legalization of cannabis has created a “follow-on effect,” drawing investor interest to companies working in the endocannabinoid space.

Other analysts cite the fact that biotechs have benefited from retail-investor attention this year. Fueled by money pouring in from individual traders on low-cost platforms such as Robinhood and booming initial public offerings, those stocks have increasingly become disconnected from traditional fundamentals, Evercore ISI’s Josh Schimmer wrote in a recent note to clients.

While Gregory Gorgas, Artelo’s chief executive officer, clarifies that “our product candidates are not derived from cannabis,” some analysts see those biotechs still enjoying the rally in pot shares.

For the foreseeable future, those stocks are “probably going to be grouped along with the consumer cannabis companies,” Gershell said.

©2021 Bloomberg L.P.

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