ASX-listed cannabis stocks are surging but “there is certainly consolidation ahead”, says expert Adam Miller of medical cannabis accelerator BuddingTech.

Cannabis stocks have taken off in the past few days, what’s behind all the attention?

People are looking at the Canadian cannabis market — which is expected to boom when recreational marijuana use is legalised there mid-next year — and somewhat predicting the future. That is why our stock market has skyrocketed in the past few days.

Almost every cannabis company listed on the ASX has increased in its value.

In the past three weeks there has been announcements in Canada of buyouts or mergers or big companies investing in the industry. There has been a lot of activity in the space which is encouraging people to see the legitimacy of the market.

What is the regulatory outlook for cannabis use in Australia?

The Canadian approach has been significantly different to how the Australian legislation is playing out.

Canada has quickly become the second country to legalise recreational use behind Uruguay, but Australia has taken a largely scientific approach.

If you look at the US, they are largely focused on the same. The recreational market dwarfs medicinal uses — we’re seeing nowhere near the same amount of growth in their medicinal market and I think they will soon realise that has stagnated.

Canada is a first-world country, similar to Australia in its economical make-up and the strength of its economy and many think we can draw similarities in their market. But to be honest, we have a substantially different approach.

They have sought to legalise the recreational market, but Australian legislation is strongly geared to medicinal and pharmaceutical applications.

Will Canada’s move to open up cannabis use benefit ASX cannabis stocks?

The Australian market is largely reacting to the Canadian market – but in all honestly, there is little each can take from one another.

Mass scale growing will be the biggest lesson we can take from Canada – and diversifying products. Coming in from a recreational level will be difficult for big business in the long run, as medical outfits lack the information on what the market needs.

Which ASX-listed cannabis plays have the best exposure to Canada?

AusCann (ASX:AC8) and Cann group (ASX:CAN) have collaborations with major companies in Canada (such as Aurora and Canopy) but there will be no huge gains from the changes in that market.

It doesn’t hurt that they are working with Canadian companies with strong balance sheets but the single biggest concern in the turning on of the recreational market is that there may not be enough product to supply the nation.

If these companies shift their focus to supplying the Canadian market, they won’t have the resource to supply other countries. It’s prompted a land race at the moment as companies scramble to find land to grow.

Take Nevada as an example. They ran out of product within a week when they became legal and this could be a reality for Canada. The nature of the market is that they truly don’t know what the demand will be.

There’s been a domino effect in Australia – the more this industry becomes legitimised, the quicker these companies will grow and flourish.

Companies like MGC Pharma (ASX:MXC) who continue to sign deals — both cosmetic and pharmaceutical — are doing well off solid news flow and the signing of significant deals.

That being said, it can be dangerous for new investors who aren’t well informed.

What other ASX cannabis stocks should investors watch?

Esense labs (ASX:ESE), Cann Group (ASX:CAN) and Creso (ASX:CPH) have all had significant news in the past few weeks and their share price has traded accordingly.

On the whole, every single company in Australia is definitely doing good work, respective to their core strategy, but in the next year or two you will see some drop off the radar.

We saw Capital Mining pull out of the industry this week and they won’t be the last. It all comes back to team and experience – if you don’t have a good team who can build you a viable operational strategy then you don’t have anything.

Investors need to be mindful that cannabis is a buzz word – it is valuable industry that will be worth more than $55 billion globally in the next ten years but only the players that are doing it right.

People will use this buzz word and make announcements to generate interest but investors need to have their wits about them.

The flurry of interest at the moment has seen a lot of companies come to the fore, but in reality the industry is still very new, everyone is learning and elements can easily change overnight.

There is certainly consolidation ahead – I think it would be really interesting if companies did joint research, but right now everyone is so focused on their own activities because the market is going so quickly.

The growth of the medicinal cannabis market now is comparable to the internet in the 90s and people are largely focussed on their own agenda. Once they start generating their own revenue we will see companies band together and start collaborating.

Adam Miller is the founder of BuddingTech and The Medical Cannabis Council.

BuddingTech is a medical cannabis accelerator that identifies and commercialises projects for the Australian medical cannabis pharmaceutical industry.

Adam studies Business Entrepreneurship at Royal Melbourne Institute of Technology and Sweden’s Jönköping University for international business. In 2016 Adam published two Australian industry White Papers with MGC Pharmaceuticals & The University of Sydney on medical cannabis.