In President Donald Trump's short list of potential new heads of the Food and Drug Administration, one sparked more controversy than the rest. Jim O'Neill, a managing director at investment firm Mithril Capital Management, collected criticism for his more explicit stance that drugs should be approved first and proven effective later. But more shocking than who O'Neill alienated was the group that came to his defense.

A sizeable base of marijuana law reform advocates rallied behind the candidate, citing his board seat on the Coalition for Cannabis Policy Reform 2012, an organization formed in 2011 aimed at legalizing the drug in California. The reformers, who hadn't taken too kindly to other Trump picks such as Attorney General Jeff Sessions, argued that with O'Neill as commissioner, the FDA would be more apt to reevaluate its position on marijuana's health benefits and push the Drug Enforcement Administration to downgrade cannabis from Schedule 1 classification.

Such a move would also resonate well with a select crop of pharmaceutical companies developing what are called cannabinoid drugs – treatments that act on the body in a similar fashion to the chemicals found in marijuana. For those medicine makers, working with Schedule 1 substances is a sharp turn to navigate on the already arduous road of drug development, where stigma, clinical setbacks and post-market flops serve as potholes, sidelining many promising candidates.

The market

While researchers have for decades investigated the pharmaceutical applications of cannabinoids, defined as the group of active compounds synthesized by marijuana plants, the first FDA-approved medication in that class didn't come until 1985. Solvay Pharmaceuticals' Marinol (dronabinol) got the greenlight as an antiemetic for patients receiving chemotherapy who couldn't take or didn't respond well to other anti-nausea therapies. Though Eli Lilly's Cesamet (nabilone), now a Valeant-owned drug, received approval later that year in the same indication, its parent took it off the market in 1989.

Flash forward almost 30 years, there are now 90 cannabinoid drugs in development worldwide, according to a November whitepaper from market analysis firm GBI Research. The firm explained that 74, or 82%, of those drugs haven't made it to in-human testing yet, with 60 in pre-clinical investigations and 14 under discovery. Phase 1 and Phase 2 each claim six drugs in the global pipeline, while just two candidates – GW Pharmaceuticals' Sativex (nabiximols) and Epidiolex (cannabidiol) – are in Phase 3.

Just a handful of drugs have actually made it to the U.S. market. They include Marinol, Cesamet and Insys Thereapeutics' Syndros, an oral dronabinol treatment.

"An increasing number of companies are getting involved with that space," Edison Investment Research analyst Maxim Jacobs said via phone. "What we're seeing, though, is generally re-formulations of already existing products like Marinol."

Researchers have discovered 113 cannabinoids, though there are surely more. The most commonly referenced in the healthcare world are cannabidiol (CBD), cannabinol (CBN) and tetrahydrocannabinol (THC). Importantly, the latter two interact with CB1 and CB2, receptors located largely in the brain and central nervous system but also in the gastrointestinal and urinary tracts that are responsible for regulating neurotransmission. The receptors help control bodily reactions like inflammation and pain, therapeutic areas of great interest for a medley of drugmakers.

Identifying cannabinoid receptors and the compounds that interact with them, as well as learning how to synthetically manufacture those compounds, has helped accelerate clinical investigations of cannabis-like drugs, according to the 1999 book "Marijuana and Medicine: Assessing the Science Base." Currently, pharmaceutical companies are investigating cannabinoids for an array of illnesses, from Crohn's disease to epilepsy.

"There's a lot of areas that it could help where people have kind of self-medicated over the years, and now we're able to get data," Jacobs said.

Trials up in smoke

A great deal is still unknown about the space, however, making it difficult for drug companies to prove the safety and efficacy of their pipeline candidates. As a result, trial failures have become a trademark of the space. GW Pharmaceuticals, considered the heavyweight of the sector, and partner Otsuka, for example, revealed in early 2015 that Sativex failed a Phase 3 trial testing it as a pain medication for cancer patients.

"Our vantage point is most of the products that have been developed in the cannabinoid space have been, we'll call them kind of pan-cannabinoid targets," Amit Munshi, CEO of Arena Pharmaceuticals, said in an interview. "And one of the reasons we think products in the category have had less than perfect success is because ... no one's really understood exactly what all these cannabinoids targets do and how to hit them with a level of specificity required to turn a certain switch on or off inside the body."

Munshi's company focuses exclusively on creating drugs that target a large family of highly specific proteins called G-protein coupled receptors (GPCRs)—CB1 and CB2 are members of that family. Arena's APD-371 targets the latter receptor, and is under investigation in Phase 2 as a pain reliever for Crohn's disease patients.

Zynerba Pharmaceuticals, another cannabinoid drugmaker, is taking a different approach. The Devon, Penn.-based company is developing only transdermal products, pointing to their more consistent drug release as opposed to oral treatments, which have had a history of adverse psychological events and spikes in blood THC levels. The science behind developing such drugs remains difficult, however.

"There's always some risk, and usually that risk is around can you manage the placebo rate in the double-blind, placebo-controlled studies, because usually the drug will have its activity, but if placebo has activity too or has more activity than you anticipate, it could mess up the trial," Zynerba's CEO Armando Anido said.

Both Arena and Zynerba deal solely with synthetic cannabinoids versus companies like GW, which extracts its active ingredients from plants. Arguments have been made about why one type is superior to the other – synthetics, some say, don't have to deal with growing plants and the subsequent manufacturing constraints that may cause, while others assert non-synthetics have less severe adverse effects. In either case, drugmakers across the cannabinoid space shoulder the burden of working with a Schedule 1 drug and the perceptions that shadow such a classification.

"Each clinic has to be cleared by the DEA to handle a Schedule 1 drug and to have the appropriate safe and safety capabilities. So that's tricky and complicated," GW's head of investor relations Steve Shultz said in an interview.

"They're making stuff more powerful than heroin, and yet that's fine, while cannabinoid companies are viewed as 'oh, I don't know, that's a little shady,'" Edison's Maxim said. "I think once you have some more mainstream medicines derived from cannabinoids, I think the stigma will go away."

Keeping investors happy

In spite of the pratfalls, investors are flocking more and more to companies that deal in cannabis. Their interest comes as a growing collection of states, now tallying 28 and Washington, DC, have legalized the possession of marijuana. In Colorado alone, marijuana taxes, licenses and fees brought the state more than $127 million in 2016.

ETF Managers Group, a financial firm concentrating on a type of investment vehicle called an exchange-traded fund (ETF), has been one to take note. The company, in February, filed an 8-K with the Securities and Exchange Commission for permission to start its own ETF for cannabis-based businesses – and particularly pharmaceutical developers.

The ETF, Emerging Agrosphere, contains 69 companies. Zynerba and GW are listed, as are Abbott Laboratories, InMed Pharmaceuticals and Pharmacyte Biotech. ETF Managers Group declined to comment about the fund, citing quiet period restrictions.

Companies have also attracted new investors by going public. Zynerba raised $42 million through its initial public offering in August, and later watched stock surge 29% to $18 per share at opening. A follow-on offering in January brought it another $50 million. Underlying the stream of investor interest was promising data from the clinic, according to Anido.

"They all of a sudden could see that we've got some very transformational data that'll come out," he said, adding that positive Phase 2 and Phase 3 data would present to investors a clear path to FDA licensure.

Meanwhile, GW stock is up more than 50% over the past year.

Investors have come to realize the "very substantial therapeutic benefit" of cannabinoid therapies, Shultz said. "This is sort of a green field opportunity, and these opportunities don't come around very often."