Honey containing THC *might* be able to be exported and imported. The UK is the Next Big Thing in pot, Brexit or no. And 2020 is starting to look like a very hard deadline for a series of big events.

There are 30 companies doing, or saying they’re doing, cannabis in some form or another on the ASX, and a myriad who are still private.

Since February we’ve interviewed, lunched with, and interpreted over dodgy WA phone lines 12 people at the top of companies with operations intimately tied to the burgeoning cannabis sector.

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What we found is an ‘industry’ which still doesn’t quite know where the moneyball will land, yet considerable amounts of money are being spent to find out.

And although a number of companies look similar when packaged up nicely, few are going in the same direction.

In the battle for market share, and ideas, nine concepts stood out.

You must bring something more to an IPO now than blue sky and promises

In 2016 and 2017 it was possible to list, and do so very successfully, with promises of licences and plans for the future.

Not anymore.

Emerald Clinics has delayed its IPO until later this year and LeafCann is flat out refusing to consider one until 2020 at the earliest, when both have something concrete to say in a prospectus.

The wizard at Emerald, Stuart Washer, wants a data contract in the bag and a share registry full of names before it makes an offer to retail investors.

After two years of work and revisions, Elisabetta Faenza says LeafCann doesn’t need the cash yet — it has a small number of deep-pocketed, supportive shareholders, but if it does list it’ll be with licences and construction well under way.

US hemp was the most successful cannabis arm but it’s getting super tough

Even though Australia legalised industrial hemp growing before the US did (November 2017 to their December 2018), US hemp operations were mature years ahead of those here.

It meant that Elixinol Global (ASX:EXL) had an edge on the ASX when it listed in January 2018, as it was already making serious money.

But as the ASX joined its second real hemp play in March, with Ecofibre (ASX:EOF), Elixinol was also proving how tough this section of the cannabis industry will be.

As cowboys, old hands, and Silicon Valley nerds turn to the now legal hemp and hemp-cannabidiol (CBD) market, Elixinol was caught wondering whether to follow the profit path or take a more bitter pill.

It chose the latter, booking a $860,000 full year loss in February. CEO Paul Benhaim told us they planned to spend 20 per cent of revenue on marketing to keep and perhaps grow their market share, as competition bit.

Paul Benhaim. Pic: Elixinol
Elixinol chief Paul Benhaim. Pic: Elixinol

The ODC staff are doing a fine job in difficult circumstances, but the rules truly suck

A number of pot stock bosses with Australian operations are complimentary about the Office of Drug Control (ODC) staff who have the power to make or disappear their business.

But many have also been scathing, on and off the record, about the processes they must engage in (and have since vented to the recent review).

The ODC assumed they’d get just 18 applications a year and staffed accordingly but were overwhelmed with hundreds, all of which require in depth — and at times overlapping — scrutiny.

READ: Cannabis stocks guide: Here’s everything you need to know
THC’s Charteris was sanguine about the time it takes to get certifications, saying it’s an 18-month to two-year process from application to permit.

But he’d smelled the pungent odour of delay. Last year he put himself on the line as to when he believed their first licences and permits would come through — and was right.

This year he wasn’t so keen to put a firm date on when the next round of licences and permits would come in. Indeed, in February he would only say “this year” as to when a manufacturing licence for the big, new plant at Southport, Queensland, would be awarded. They have a licence (not a permit) for a smaller factory at their Bundaberg growing site).

Benhaim is frustrated by the red tape, saying “nearly every country in the world is more attractive than Australia”.

Others, from Auscann (ASX:AC8) to Eve Investments (ASX:EVE), have had to replace much vaunted contracts or sit on their hands and wait as partners Tasmanian Alkaloids and THC, respectively, continue to wait for their certifications.

Synthetic (or purified extract) vs whole plant

They all say they understand each others’ positions, but the lines are drawn: some companies are travelling the synthetic cannabis extract (Botanix) or purified extract (Medlab) route, but most others are taking the whole plant+entourage effect path.

Botanix (ASX:BOT) and Medlab (ASX:MDC) heads both say a product containing a single compound will be easier to get a drug approved by the FDA, the TGA, and the European regulator.

The others — Althea, THC, Zelda, LeafCann et al — all tout the whole plant and its entourage effect, the idea that marijuana’s 70-plus cannabinoids can work together to offer an end result greater than the sum of its parts.

This is a burgeoning field of research, although much like with research into the whole cannabis sector, it doesn’t have many answers yet.

Registered vs unregistered

What the above debate does involve is the idea of registering a drug.

Traditionally, companies offering medical treatment had to get these through intensive clinical trials and registered.

But because cannabis is already widely used (and has been for millennia) it’s been allowed through as an unregistered product.

Botanix and Medlab want to have their treatments registered, believing that in the areas they’re going into it’ll give them an edge.

Zelda is specifically targeting the German unregistered market. CEO Richard Hopkins says they have an IP pipeline ready for registration, but in the interim they plan to make a killing and get bought out on the back of said IP.

Ambitious timelines

It’s always good to give the troops a date to believe in, but some of the timelines offered by pot stocks don’t add up.

Althea (ASX:AGH) is hoping to have homemade product in the market come 2020.

But that depended on getting planning approvals for its southern Melbourne site through, building the thing in a city which already has significant construction commitments under way, and growing a cannabis crop from scratch.

While Althea is steaming ahead with other plans, its Australia growing and manufacturing project has been held up in the planning stages, with final submissions to the Frankston City Council on an amended proposal due on June 24.

Althea is far from the only pot stock to have ambitious timelines.

Aussies reckon Australian-made GMP will be a winner

But Althea boss Josh Fegan is on trend with his plans to build.

The heads of THC, Cann Group, LeafCann, AusCann and Eve all agree the medical cannabis world is lacking medical grade, Good Manufacturing Product-level (GMP) marijuana and facilities to manufacture it.

Dr Andrew Beehag (left) and THC CEO Ken Charteris in the extraction lab, where dried bud is mixed with ethanol to start the extraction process. Pic: Rachel Williamson

They are either building, have bought, or have contracted third parties to make drugs that can be held to European and Australian medical standards.

It’s a level that Canada and the US, markets driven by either recreational use or bottom-up consumer rather than top-down pharmaceutical demand, are struggling to catch up to, as enormous markets such as Europe, the UK and Latain America begin to open — but only to high quality medicines.

The UK is a big deal, but so is Latin America

Althea is eyeing off the UK, saying despite Brexit it’s too big a new market to ignore, and eSense Lab (ASX:ESE) stuck its first contract after that drought in the UK.

But Latin America is getting hot too.

AusCann is sitting on a Chilean joint venture it expects to get $1m from come the end of the year. Chairman Mal Washer (yes, Stuart over at Emerald’s father), says the continent didn’t open its doors to exports as expected, but it’s hoping that may start to change.

The continent is rapidly opening to the idea of medical cannabis, as newly legalised Brazil becomes a hot spot for international investment and medical cannabis market in the region is estimated to be worth $US8.5bn by 2028.

Comebacks are difficult

Are they what.

eSense’s new CEO Haim Cohen made his company’s mea culpa to the market this year, promising the series of new contracts would continue in the coming months.

But it’ll be a hard road winning back investors burned by 18 months of in-fighting.

Eve also has to win people back to its cannabis honey plan, after first announcing it in 2017 and is still waiting to get started thanks to THC’s licensing delays.

After months of inactivity as it switched business models and took a very long time to find a CEO, AusCann must convince shareholders it can come back after being an early number 2 in the Australian industry before falling off the wagon.

And Elixinol is beginning to run into headwinds after a fairytale run on the market, as researchers begin to give them a more critical eye.

But in fairness, it hasn’t been a great year for ASX pot stocks generally.

Of the listed companies we canvassed, only Elixinol, Botanix and Althea are up over the last 12 months, and Althea only listed in September.


We interviewed:

THC Global’s Ken Charteris
Althea’s Josh Fegan
Botanix’s Matt Callahan
eSense Lab’s Haim Cohen
Elixinol’s Paul Benhaim
Medlab’s Sean Hall
Zelda’s Richard Hopkins
Cann’s Peter Crock
Emerald’s Stewart Washer
LeafCann’s Elisabetta Faenza
AusCann’s Mal Washer
Eve’s Ben Rohr