Merrill-Lynch: Bullish on Marijuana Testing Equipment

Merrill-Lynch, the investment arm of Bank of America, issued a 4- page primer on medical marijuana last week.

The carefully researched equity report, distributed only to members, covered a wide range of topics. There are the basics about cannabis and cannabinoids, the different state laws, public opinion, the various medical conditions where marijuana is beneficial, as well as a rundown of the potential windfall certain sectors could experience.

To be clear, there’s nothing in the report about taking a stake in any company that directly produces or dispenses marijuana. The main focus is about companies that are engaged in FDA-approved clinical trials and others that supply various scientific instruments.

GW Pharmaceuticals is in the midst of a clinical trial involving their experimental CBD drug, Epidiolex, to treat rare and severe forms of pediatric epilepsy. The Merrill Lynch report highlights GW’s Phase 3 testing, which will continue in  2016. A publicly traded company, GW (GWPH) was trading at more than $85 per share as of this writing.

More significant in the report is in information about equipment used in testing cannabis potency and quality. Gas chromatography, mass spectrometers and liquid chromatography all require expensive and specialized equipment. Only a few manufacturers make these devices, which were previously only used in academic research laboratories and the pharmaceutical industry.

With medical and adult-use marijuana becoming more prevalent and state laws requiring more rigorous laboratory testing to monitor the products, this sector seems to have fired up some investors. Some major players – Aligent, Waters Corporation and Thermo Fisher Scientific – control the market for these tools.

The report estimates that the lab equipment market, specifically for the cannabis industry, will grow to between $50 million and $100 million by 2020.