The fear of the unknown must be wearing off among investors as the legalized marijuana market continues to gain traction. Between 2013 and 2015, legal marijuana stocks experienced one of the best rallies ever, and after a slowdown in the following 12 months, things appear to be looking up again.

There are many players in the market now including pharmaceuticals companies, as well as, fuel companies. Dealers are still exploring several other uses of legalized cannabis as more states in the US continue to embrace it in their legal framework. So far California is the biggest prospect with a projected market size of nearly $8 billion by the year 2021.

Washington, Pennsylvania, and Colorado have a target of close to $2 billion within the next five years while Michigan closes the list of top five with a target of about $1.3 billion. In total, this prediction indicates that by the year 2021, the US legal marijuana market could be worth $15 billion-$20 billion.

Currently, the legal marijuana market is valued at about $7 billion in the US, but some analysts have put the figure close to $10 billion. And in a report published on Bloomberg last year, it’s predicted to hit $50 billion by the year 2026. However, the most valuable pure play legal marijuana stock, GW Pharmaceuticals (NASDAQ:GWPH) currently has a value of just $3.26 billion. So, is GW Pharmaceuticals and other legal marijuana stocks undervalued?

Based on the recent earnings results, it looks like GW Pharmaceuticals is currently fairly valued. The company’s recent quarter revenue was in line with consensus analyst estimates while its earnings beat estimates by $0.58 per share. The stock is currently hovering around its all-time highs at $130.

The company’s drug pipeline is one of its most promising value plays as products continue to move towards FDA approval. This could be what has been holding it back from rallying to its true potential, which when you look at the overall industry projections could be twice its current worth.

On paper, GW Pharmaceuticals was established in 1999, but it has been researching marijuana-based medicine since 1990. One of its most promising products is a drug called Epidiolex, which has shown great effectiveness in treating epileptic seizures. It’s yet to be approved by FDA, but trials are in late stages and as anticipation for approval increases, investors could rally the stock to new all-time highs.

The company plans to file for FDA approval of Epidolex for the treatment of two childhood epilepsies, Lennox-Gastaut syndrome and Dravet syndrome within the first half of 2017. In addition, the company will also be conducting more trials on two other drugs in relation to the treatment of epilepsy and this means that even if Epidolex is not approved this year, there is a lot that GWPH investors could look up to within the next 10 months.

These trials will provide opportunities for GWPH stock to rally depending on the outcome of the studies, and based on the recent run of results, more investors could move to snap up the stock before the outcome. As such, GWPH could be due a leg up in 2017 as expectations on progress on its drug pipeline continue to soar.

Conclusion

In summary, GWPH is currently trading within the reach of its all-time highs. The medical marijuana industry appears to be gaining traction in the US, and projections point that it could grow 7-fold within the next 10 years.

On the other hand, medical marijuana stocks including one of the largest pure-play stocks in the industry do not seem to be reflecting the anticipated growth in the industry and this could suggest a potential undervaluation.

However, as the industry still remains largely in a gray area in several states in the US, this could explain why investors are approaching pure-play stocks in the market with caution.