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
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.

“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.