ASX cannabis stocks right now: here’s everything you need to know
Health & Biotech
Marijuana is the hottest herb on the planet right now, but while investing in medical cannabis stocks could make you a fortune, it could also risk the house.
After a flurry of activity on the ASX in 2017 as the sector kicked off following legalisation the year before, medical cannabis in Australia began re-emerging towards the end of 2018 from news-hibernation.
Growth strategies began kicking in and companies finally started making revenue. Licences were obtained from the Office of Drug Control (ODC), companies rejigged their business models to better exploit a rapidly growing global sector, and some plans just completely fell over.
In this guide, Stockhead explains the factors that have been driving ASX cannabis stocks, and what will spur demand — and stock prices — into the future.
ASX Listed Cannabis Stocks
There are 13 pot stocks on the ASX that are neck-deep in the cannabis business; for another 15, cannabis makes up a part of the business; and two companies, Suda (ASX:SUD) and BPH Energy (ASX:BPH) say they’re keen.
Why Invest in Cannabis Stocks?
The global market for legal marijuana was estimated to be worth $US9.3 billion in 2016 by Grand View Research, with the two biggest markets being the US and Canada, albeit a distant second.
Future forecasts put the value of the industry anywhere between New Frontier Data’s $US25bn estimate to Grand View Research’s monumental $US146bn.
The US makes up 90 per cent of the global legal marijuana stock trade, even though it’s still federally illegal there (at least seven ASX cannabis stocks are looking to exploit this market).
It’s moving closer to legalising some versions of cannabidiol (CBD), a compound in cannabis, as they look to open up industrial hemp cultivation in their long-delayed Farm Bill. There is also the STATES Act, which would exempt cannabis-legal states from the Controlled Substances Act and clarify rules around banking and tax deductions, allowing cannabis businesses to operate like any other industry.
The other major global market is Canada, where a move to legalise recreational cannabis in October has already had an impact there in terms of a revenue bounce. While it’s still unclear how big a market Canada could become, Cannacord Gennuity analyst Matthijs Smith estimates annual recreational sales could be around 585,000kg.
In Australia, New Frontier Data suggests the total current cannabis market, legal and illegal, is worth between $4.6bn and $6.3bn, with an estimated 2m users who consume about 391,903kg of cannabis a year.
Australia imported 145kg of medical cannabis oil from Canada in 2017, making it the second-largest importer of cannabis products from Canada.
But the country plans to be a next exporter of goods.
Currently the sector is split between those like AusCann (ASX:AC8), which believe Australia’s future lies specifically in tapping the country’s existing talents as a drug developer.
Others, like Cann Group (ASX:CAN) or THC Global (ASX:THC), believe they can corner all parts of the market and succeed as vertically integrated grower-manufacturer-distributors, in the face of cheaper products and greater market power from other countries.
Marijuana, pot, weed, ganja, cannabis, hemp — what even is it?
Understanding the types of cannabis stocks out there can help you make a clear distinction when looking to invest.
Marijuana, the colloquial name for the cannabis variety that’ll get you high, has been used for millennia as both a medicine and a recreational drug.
There are two main cannabis species: cannabis sativa and cannabis indica. Both produce delta-9 tetrahydrocannabinol (THC) — the part that gets you stoned — and cannabidiol (CBD) along with about 600 other known compounds.
Hemp is a variety of cannabis sativa grown specially for its fibre. It contains low levels of THC and slightly higher levels of CBD.
The other key compound to know about in cannabis are terpenes.
Terpenes are fragrant oils found in plants that carry flavour and aroma. They carry the pungent odour of cannabis and offer some medicinal properties — but they don’t contain THC or CBD.
About 200 terpenes have been identified which give cannabis its distinct aromas.
Together, cannabinoids and terpenes produce a range of effects known as the “entourage effect” or the type of the feelings the drug or treatment gives. They do this by tapping into the body’s own endocannabinoid system and different cannabinoids and terpenes will influence whether it makes you sleepy, hungry, creative, or acts as a pain reductor.
Cannabis legalisation: from medical to recreational
But as countries have begun to legalise medical use, and, in the case of Uruguay, Canada and South Africa, fully legalise recreational use, bans on cannabis have begun to fall.
Fifty-one countries have legalised or decriminalised cannabis use in some form, and of those, 31 have fully legalised medical and/or recreational use.
Australia pulled the trigger in 2016, with medical legalisation coming into effect on October 30 of that year.
It led to a rash of new, cannabis-focused companies listing, or backdoor listing, onto the ASX in 2017, and a variety of others changing their business operations to incorporate facets of the new industry.
Australia’s first pot stock was MMJ Phytotech (ASX:MMJ), which has since morphed into a cannabis investor named MMJ.
The biggest IPO was Cann Group, which followed that with a mammoth $60m capital raising in November 2017. Strongly supported by institutions, it was the first indication of professional money in Australia becoming interested in cannabis.
The interest from Australian institutional investors is now so high, North American companies are raising money here in order to list in Canada.
While 2018 was a very quiet year for cannabis listings — only Elixinol Global (ASX:EXL) and Althea (ASX:AGH) joined the ASX that year — 2019 is shaping up to be very healthy, with at least three IPOs scheduled for the first quarter already.
Efforts to legalise recreational cannabis in Australia have started, with the Greens and Liberal Democrats for it, citing a Parliamentary Budget Office estimate that it could yield almost $2bn for the economy annually. Labor and the Liberal-National Coalition are very much against it.
Experts agree that Australia is probably five years away from recreational legalisation.
In March 2019, the United Nations Commission on Narcotic Drugs may even change its classification of CBD, the compound many companies are eyeing as a potential drug for all kinds of diseases from epilepsy to skincare.
Licensing: what you need to know
Licences and permits are needed to grow, manufacture and research cannabis in Australia.
By mid-November 2018, the federal government’s Office of Drug Control (ODC) has issued an ever-increasing number of licences that allow companies to grow cannabis for commercial purposes, grow cannabis for research, and manufacture cannabis-based products.
In October 2018 the ODC gained Cabinet-level approval to hire more staff after being swamped by licence applications: they expected 18 a year but at one point were trying to wade through about 190.
Scroll down to find out which ASX cannabis companies have licences.
The government will not reveal which companies hold the one-year licences — or even which States they are based in. We only know about listed licence holders because of ASX disclosure requirements.
We also know the number of companies actually growing cannabis locally is small: only Cann Group, unlisted companies Little Green Pharma in West Australia and MediFarm have permits to grow.
That’s because federal (and state) licences are only the first step. Growers also need a permit which involves a facility inspection and specifies things like which strains a licence holder can grow and the number and weight of its plants.
The ODC website lists 15 authorised suppliers of medical cannabis, which include Bod Australia (ASX:BDA), Cann Group, and Medlab Clinical (ASX:MDC). The list does not include CannPal (ASX:CP1) or Althea which also have the appropriate import licences.
Creso Pharma (ASX:CPH), MGC Pharma (ASX:MXC) and Queensland Bauxite all piggyback off other companies’ import and supply licences.
Who can use it in Australia
The Therapeutic Goods Administration (TGA) controls who can use medical cannabis in Australia, under two ‘special access schemes’ (SAS): SAS B is for unapproved products and SAS A is for people in palliative care.
As there are only two registered cannabis medicines in the world, Epidiolex for epilepsy and the nose spray Sativex, both owned by UK company GW Pharma, the TGA has also allowed the import of unregistered products that can be used in for medical purposes — that is, products that haven’t been tested in clinical trials.
Until October 31, the TGA had approved 1771 SAS B users and about 500 SAS A users.
However, this is not the total number of people in Australia using medical cannabis.
Applications are per product so if one person is using multiple products, they have to apply separately for each; some people are approved, but are turned off at the final hurdle by the high price of medical cannabis products, which can range from $300 for a month’s supply of cannabis oil to $1200 for a 10ml vial of Sativex.
While Australian authorities say there is no predetermined list of conditions that cannabis can be prescribed for, guidance documents by the TGA endorse chemotherapy-induced nausea and vomiting, epilepsy, multiple sclerosis, chronic non-cancer pain and palliative care.
Patient access is looking to be big business for ASX marijuana stocks.
MMJ has an investment in Sydney-based Cannabis Access Clinics, while Medlab Clinical (ASX:MDB) and Cann Group own Medicinal Cannabis Medicines Portal and CannaTrac has the CannaHealth portal.
Finding the proof: the biotech route to market
The difficulty is, however, that while “everybody knows” cannabis causes drowsiness or increases appetite, there are vanishingly few completed clinical trials that can back that information up and give doctors a basis on which to prescribe.
Currently in Australia five companies are taking treatments through clinical trials or have imminent plans to do so.
Clinical trials are generally divided into three phases. Phase 1 focuses on safety, Phase 2 tests for effectiveness and Phase 3 examines whether the new drug is an improvement on existing treatment. Sometimes trials are further divided into parts A and B, where a B stage is generally more rigorous.
Botanix Pharmaceuticals (ASX:BOT) is testing a treatment for severe acne and dermatitis, Zelda (ASX:ZLD) is famously trialing a drug to cure insomnia, and Auscann wants to trial its capsules next year but hasn’t said for which indication yet.
Medlab Clinical is experimenting with its own cannabis mouth spray, while CannPal is working out whether cannabis offers pain relief in dogs. MGC Pharma has approval to trial CogniCann on dementia patients to treat anxiety.
Marijuana stocks to watch
Stockhead monitors 28 small caps that have all or part of their operations in cannabis or, increasingly, hemp.
Three companies, Atlas Pearls (ASX:ATP) and Blackmores (ASX:BKL) were on the list but Stockhead has confirmed they no longer have current cannabis operations.
Thirteen companies are neck deep in cannabis. These can be split broadly into six categories.
Biotechs: These are companies that are focused on creating drugs and taking them through clinical trials, a risky business with a 9.6 per cent success rate.
An example is Zelda Therapeutics which is developing cannabis-based drugs for insomnia, autism, cancer nausea, and also to wean people off opioid addiction.
AusCann is not a biotech, but styling itself as a cannabinoid pharmaceutical company which does the next stage from biotech, developing and manufacturing the products and drugs themselves.
The group also includes Botanix Pharma and CannPal.
Patient access: Althea is currently the only listed patient access play on the ASX.
While they have plans to get into growing their own pot, Althea’s main play is importing product made by its 25 per cent shareholder, Canadian giant Aphria, and selling them in Australia.
Growers: Cann Group is the dominant grower in Australia right now. It has a base in Victoria, with two current facilities and is building a third at Melbourne airport, designed by a subsidiary of its major shareholder Aurora Cannabis.
THC Global is the other main listed grower, although they are yet to secure a permit to grow.
Hemp: Elixinol is a major US hemp grower and one of the biggest hemp companies in the world. It makes the majority of its income from hemp-derived CBD oils and foods, although it is seeking to expand in Australian into medical cannabis.
Queensland Bauxite is also heavy in local hemp.
Investor: MMJ switched from being a lifestyle-cum-medical cannabis company to a pure-play investor, after a series of deals didn’t pan out.
Lifestyle: The last group are those with fingers in a range of pies.
An example is Esense-Lab (ASX:ESE) which makes synthetic cannabis terpenes (it doesn’t extract them directly from the plant).
MGC Pharma and Creso Pharma currently also fit into this bracket, though have ambitions as biotechs as well.
Australian cannabis stocks underwent a lull in 2018 as plans changed and companies geared up to exploit the changing global opportunities.
The medical cannabis and hemp markets grew off a very low base and by the end of the year, began to show signs of commercial viability.
In 2019, the ASX’s marijuana stocks are expecting patient numbers to grow, more locally produced medical cannabis raw material and products to start hitting the market, and generally more pot stocks hitting the market.