Investors cool on cannabis as scandals smoke out fearful traders

Australia’s cannabis stocks are struggling to recover after the market correction in early February.

Almost all of the 21 ASX-listed pot stocks monitored by Stockhead are still down from their January highs.

Only Atlas Pearls (ASX:ATP), which has a cannabis joint venture in Tasmania, Zelda Therapeutics (ASX:ZLD) and CannPal (ASX:CP1) are trading above their February 1 share prices.

It’s the same story in Canada’s Marijuana Index of 24 cannabis-related stocks, which is down around 30 per cent since the start of the year.

The dip has been partly caused by news of a delay in the legislation of recreational cannabis use in Canada, which has been driving Canadian — and Australian — pot stock values.

In the local market, John Athanasiou, founder and CEO of Red Leaf Securities, says reputational damage caused by recent scandals at tech companies Get Swift (ASX:GSW), Buddy (ASX:BUD) and Big Un (ASX:BIG) is also having an impact in other small cap sectors such as cannabis.

The Canadian Marijuana Index of 24 pot stocks has not recovered since the market correction. Source: marijuanaindex.com

“There’s concern in the small caps space given what’s happened in other small cap IT companies, it might be prevalent in other sectors as well — like cannabis,” he told Stockhead.

“There are also a few cannabis stocks with internal boardroom issues, which isn’t helping.”

The Hydroponics Company (ASX:THC) and eSense Lab (ASX:ESE) are both dealing with such issues, while others like Stemcell United (ASX:SCU) have struggled to sell capital raisings to a skeptical market.

However, growing demand for cannabis — especially in North America — is expected to underpin growth among cannabis plays later this year. The legalisation of recreational pot in Canada — now expected to go ahead after August — and a similar rollout in US States will drive demand.

ASX Code	Name	Change since Feb 1	Price Feb 22	Price Feb 1	52wk High	52wk Low	Market Cap
AEB	ALGAE.TEC	-0.08	0.033	0.036	0.07	0.018	25224606
ATP	ATLAS PEARLS	0.03	0.031	0.03	0.042	0.025	14119768
AC8	AUSCANN	-0.11	1.46	1.64
BDA	BOD AUSTRALIA	-0.18	0.45	0.55	0.72	0.09	24654080
BOT	BOTANIX PHARMACEUTICALS	-0.2	0.1125	0.14	0.21	0.039	75011760
CAN	CANN GROUP	-0.06	2.9	3.1
CP1	CANNPAL ANIMAL THERAPEUTICS	0.21	0.26	0.215	0.31	0.155	23281250
CHP	CHAPMANS	-0.38	0.01	0.016	0.033	0.004	14575000
CPH	CRESO PHARMA	-0.07	0.87	0.935	1.65	0.275	95817352
EXL	ELIXINOL GLOBAL	-0.09	1.39	1.535	1.995	1.235	136894960
ESE	ESENSE-LAB	-0.2	0.185	0.23	0.57	0.145	14118442
EVE	EVE INVESTMENTS	-0.21	0.011	0.014	0.033	0.0035	24127470
THC	THE HYDROPONICS CO	-0.04	0.79	0.825	1.15	0.19	91793352
LSH	LIFESPOT HEALTH	-0.18	0.135	0.165	0.36	0.11	10116923
MDC	MEDLAB CLINICAL	-0.16	0.76	0.9	1.2	0.5	165377232
MXC	MGC PHARMACEUTICALS	-0.09	0.105	0.115	0.125	0.038	118783064
MMJ	MMJ PHYTOTECH	-0.1	0.455	0.505	0.835	0.265	97323296
QBL	QUEENSLAND BAUXITE	-0.08	0.054	0.059	0.115	0.007	80315824
RGI	ROTO-GRO INTERNATIONAL	-0.19	0.435	0.54	0.705	0.185	37703924
SCU	STEMCELL UNITED	-0.19	0.035	0.043	0.9765	0.0117	16264281
ZLD	ZELDA THERAPEUTICS	0.13	0.135	0.12	0.16	0.031	105747872

“The potential move in Canada to legalise recreational use in 2018 should provide strong catalysts in the sector as a whole, leading into year’s end,” says Niv Dagan, Executive Director at PEAK Asset Management.

Investors should focus on “cannabis stocks that are undervalued relative to peers”, he says.