Canada legalises pot this week – here are the ASX stocks that could benefit
On Wednesday Canada becomes the second country in the world to legalise recreational marijuana — and at least four ASX pot stocks offer some exposure to the story.
Cannabis suppliers — and investors — are salivating over what could be a market of $C7.2 billion in total sales in 2019, according to Deloitte.
While it’s illegal for Aussie pot companies to export non-medical bud into foreign recreational markets, they can benefit through foreign operations.
The main way for Aussie investors to get easy exposure to Canada’s recreational market is via MMJ (ASX:MMJ), Australia’s first-ever pot stock.
As at mid-September, seven of the company’s ten investments were in Canada. The portfolio spans retailers like Fire & Flower, cannabis drinks maker BevCanna, a cannabis ‘dream water’ maker, and edibles maker Bien.
The next on the list is THC Global (ASX:THC), formerly known as The Hydroponics Company.
Its subsidiary Crystal Mountain Products in Vancouver sells growing equipment like lighting and nutrients and is, according to THC, “well positioned to take advantage of the rapidly changing cannabis market and growth in personal indoor farming”.
THC nixed a deal to acquire another Canadian cannabis equipment seller in July.
YPB (ASX:YPB) has a three year deal with Canadian cannabis ecommerce play Namaste Technologies to provide tracking technology and software for retail cannabis products sold through the site.
RotoGro (ASX:RGI) sells a rotating hydroponics system that they say can be used at home, but also has an R&D unit in Caledon, Ontario, Canada, and say they are “assessing opportunities” in that country.
Besides these four, a few other of our 30-odd pot stocks may offer indirect exposure to the Canadian marketplace.
Althea (ASX:AGH), AusCann (ASX:AC8) and Cann Group (ASX:CAN) all have major Canada shareholders — Aphria, Canopy Growth, and Aurora cannabis respectively.
But the intellectual property is all coming this way so far: all three are either taking product, technology or intellectual property from their major shareholder for use in the Australian market.
Creso Pharma (ASX:CPH) does have a lifestyle division — it’s making cannabis infused beer — but that is focused mainly on Europe. Its Canadian arm is purely — at this stage — medical.
Queensland Bauxite (ASX:QBL) struck a deal with CannTab Therapeutics in January to bring in its canntab pill, but that is still on hold. The company says the delay is on the Canadian side.
All four of these pot stocks are focused on the medical side of cannabis.
When the Australian government allowed cannabis exports in January it was only for value-added products, such as pills, and only as a medical product. Meaning no one can sell products made in Australia into the Canadian recreational market.
What’s going on
Canada follows Uruguay as the second country in the world to fully legalise recreational cannabis.
North Korea possibly has as well, but no one is quite sure of that, while some states in the US and the Spanish province of Catalonia have legalised it as well.
Portugal — where all drugs are decriminalised — and the Netherlands have in fact not taken the next step of fully legalising marijuana.
Eleven other countries around the world have decriminalised small amounts for recreational use.
The US makes up 90 per cent of the total legal global cannabis market, according to a report this year by Arcview Market Research and BDS Analytics.
But it’s not federally legal there, which has opened the way for the Canadian market to clean up with listings and investment dollars.
And while they’ve only got a population of about 37m, demand projections for cannabis are riding at anywhere from 600 tonnes on the low side, says Deloitte.
But no one really knows how large or small demand for recreational cannabis in all of its forms will be.
Ontario researcher C.D. Howe Institute estimate current production might meet about 30 – 60 per cent of total demand, but says that could be anywhere between 384 tonnes to 800 tonnes a year.
Statistics Canada estimates that Canadians consumed about 775 tonnes of cannabis in 2017.