Money Talks: These 3 pot stocks could profit as regulatory roadblocks crumble in 2020
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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Maxim Jacobs, managing partner at New York-based Edison Investment Research.
2019 was a brutal year for pot stocks.
Sans a few outliers, a scoreboard check in mid-December shows ASX-listed cannabis companies tracked by Stockhead posting an average 12-month decline of more than 20 per cent.
The local market has followed its more developed counterparts — Canada and the US — lower.
Supply issues, earnings disappointments and regulatory obstructions in these two markets have resulted in sector-based declines of around 50 per cent.
Maxim Jacobs says investors have had to reign in some unrealistic expectations this year, but he continues to view the cannabis sector as one to watch for 2020 for one main reason — positive regulatory changes.
“I continue to believe that cannabis has the potential to be a +$US200-billion-a-year market worldwide,” he says.
“Regulatory changes simply take time and I think in 2020 we will see broad improvements there, which will allow companies to execute on their promises.”
In the US, Jacobs expects to see the Food and Drug Administration (FDA) finally come out with its guidance with regards to selling CBD as a supplement.
“This will help lower the current state of regulatory uncertainty in the area and could see larger states like New York and New Jersey legalise,” he says.
“And Canada — high profile since it is the only western country with legal recreational cannabis — should see regulators allow more forms of cannabis on the market and additional retail locations.”
There are three interesting ASX and CNSX-listed companies set to benefit from these regulatory trends in 2020, Jacobs says.
Market Cap: $44m
“MGC Pharma has seen rapid uptake of its medical cannabinoid products in Australia and the UK,” Jacobs says.
“They are an early mover in the UK market, where medical cannabis was only allowed in November of 2018, and we would expect the growth we have seen to continue.”
Market Cap: $69.38m
“Abacus Health Products currently sells topical CBD containing products combined with known traditional active pharmaceutical ingredients in around 5,000 retail locations in the US right now and will be up to 7,000 locations in January (including the three largest pharmacy chains),” Jacobs says.
“In the most recent quarter, sales were up almost 100 per cent compared to the prior year and there is no reason to believe the sales momentum won’t continue.
“They will be coming out with an ingestible line next year which will help them expand their addressable market substantially.”
Market Cap: $75m
“Australis Capital is a holding company with multiple investments in various cannabis related companies,” Jacobs says.
“They are invested in many areas within the cannabis industry including cultivators, brands and devices with a focus on the US market.
“They are a diversified way to play the up and coming US market where the momentum for legalisation is strong.”
Maxim Jacobs heads up Edison’s North American research franchise, which is currently focused on healthcare but is expanding into other sectors. He conducts investment research and extensively models healthcare companies, publishing findings in periodic research reports that are available to investors globally. Prior to joining Edison, Jacobs worked at Guidepoint Global, conducting primary market research on various medical device and therapeutic areas, as well as modelling the results.