In Canada, cannabis is as big as autos… and these ASX stocks are in for the ride
Health & Biotech
Health & Biotech
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For as long as Australia’s cannabis industry has existed, companies have looked to Canada with hope for what Australia’s industry could be.
In late 2018, Canada became the second country to legalise recreational cannabis; a move that got many cannabis investors excited. Medical cannabis was legal for several years prior to that.
In May this year, the cannabis industry contributed C$18.3 billion to the economy, with the bulk of that (C$16.4 billion) being producers. This amount rivals the contribution of the local automotive industry to Canada’s economy.
Canada goes to the polls in less than a week’s time, but no one is questioning the place of the cannabis industry in the economy.
Canada’s cannabis industry has benefited a number of ASX stocks.
One is Althea (ASX:AGH) which has a stake in Canadian cannabis product manufacturer Peak.
Creso Pharma (ASX:CPH) is a recent entrant into the industry, owning a company (Mernova) that has a licence to sell medical and recreational cannabis in Canada.
Another stock is Epsilon Healthcare (ASX:EPN) – formerly known as THC Global. This company owns a cultivation solutions provider in Canada in addition to its medicinal cannabis factories in Australia.
And last week it deepened its roots in Canada, allowing Toronto listed company Valens to access its Good Manufacturing Practices Facilities (GMP) at Southport in Queensland.
Meanwhile, in Australia things are progressing but slower than investors and company executives would have liked. While only the ACT has legalised recreational cannabis, the use of medical cannabis is continually growing, although it is still tightly regulated.
In 2021, total product revenues are on track to exceed $200 million and active patients are at 60,000 according to Freshleaf Analytics.
But Epsilon Healthcare’s (ASX:EPN) boss Jarrod White says investors hoping Australia can rival the size of Canada’s cannabis industry might have a fair wait.
“The reality is the Australian market is going to take a lot longer to build than everyone’s been forecasting,” he said.
“I think everyone in 2017 when we started the process of providing access to cannabis, everyone looked to Canada said ‘we’re similar size, Commonwealth country, English speaking, cultural similarities, good healthcare system’ and people said we’re going to be a $1b market.
“The reality is it didn’t happen like that because Canada didn’t have an import market to compete with. The reality is we do.”
White says his company and the sector have had a challenging year but his company is in better shape than a year ago, particularly thanks to the recent tie up with Valens.
“We’ve repositioned the company to be there as an industry advocate in terms of acknowledging the fact there’s only space for so many brands, so many cultivators, so much product,” he said.
“Valens is really the mainstay in the cannabis market generally as a contract manufacturer, particularly [for] the cannabis stocks on the TSX.
“They’re like the BHP of the cannabis market, they get regular business, have a very good business model, get regular customers, all the big companies use them and they’re a well established and run business over there.”
At Stockhead, we tell it like it is. While Epsilon Healthcare, Creso Pharma and MXC Pharmaceuticals are Stockhead advertisers, they did not sponsor this article.