It’s not that easy bein’ green: Aussie pot stocks start FY20 in a slump

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It ain’t easy bein’ green at the moment: more than 70 per cent of ASX-listed pot stocks have lost value so far in the 2020 financial year, a Stockhead analysis has found.

The dire statistics fall against a wider backdrop of malaise in the global cannabis sector, which is being hit hard by supply issues, earnings disappointments and regulatory roadblocks.

On the ASX there are 35 “pot stocks”, or companies dabbling in cannabis in some form, whether it’s drug development, marketing, health and wellness products or pet supplements.

And since FY20 began, only seven have seen their share prices improve. Three are stagnant and the rest have fallen anywhere between 3 per cent and 60 per cent.

Stockhead spoke to the CEOs of two of those companies this week, both of whom admitted they were finding the going tough.

Cann Group’s (ASX:CAN) Peter Crock says the slide in his company’s share price — down 49 per cent in FY20 — is due to market conditions as it waits for the Office of Drug Control to allow it to sell its products.

“The whole sector is under pressure,” he told Stockhead. “A large part of it is nervousness in response to what’s going on globally, particularly in Canada.”

Canada has been beset by supply issues, and earnings reports from its pot stocks have been met with disappointment, says FreshLeaf Analytics’ principal consultant Rhys Cohen.

“There has been a lot of hurt in the last six months or so,” he told Stockhead. “The market was quite buoyant for some time, before companies were generating revenues and profits.

“A few years on and people are starting to expect revenues and healthy balance sheets and there have been some disappointing earnings results that has turned investor sentiment against the sector, which is bringing everyone else down simultaneously.”

Rodney Cocks, CEO of the ASX’s newest pot stock Cronos Australia (ASX:CAU), is already experiencing the blowback — since listing on Thursday its shares have traded below their 50c offer price in the IPO. However, he is taking a more optimistic, long-term view.

“Share prices and sectors always go up and down, and everyone knows at the moment the cannabis sector is taking a hit. Remember too, that the cannabis sector is in its infancy,” he told Stockhead.

“But we’re in this for the long haul, and we think the cannabis sector has a massive and exciting future. We think Cronos Australia has the right strategy, board and management to deliver for our shareholders.”

Cohen shares Cocks’ optimism, saying the current lull is more due to market psychology and a standard bubble burst than anything that should seriously worry investors.

“In terms of the fundamentals, nothing’s changed,” he says. “Companies are still progressing and moving forwards as planned and globally there’s a lot of good news — legalisations in several countries, moving regulations.

“Let’s face it, cannabis stocks are still very speculative. I personally don’t hold any for a number of reasons. But I think those that keep their heads down and ignore the noise will come through this period.”

FreshLeaf says the number of products in the Australian market jumped 40 per cent in the past six months, while patient growth has exploded by 1,000 per cent year-on-year.

Here’s a list of ASX pot stocks and their share price performance in FY20:

Scroll or swipe to reveal table. Click headings to sort.

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