North American pot stocks are roaring back from lows in March but the same cannot be said for their antipodean counterparts, many of which continue to wallow.
The New Cannabis Ventures Global Cannabis Stock Index soared 26 per cent last week and it’s up almost 90 per cent from its March lows.
The cannabis information service said the rally was supported by Canadian company Aurora Cannabis’ positive third quarter report which exceeded revenue expectations and forecast positive EBITDA (earnings for interest, tax, depreciation and amortisation) in the September quarter, followed by news of an acquisition in the US.
“From our perspective, interest in the sector has just started to return,” New Cannabis Ventures analysts wrote yesterday.
“We expect that a lot of stocks that are rallying could be dead-cat bounces and short-squeezes, but at the same time those companies with strong access to capital, good cash flow and defensible valuations could offer investors outsized returns ahead.”
It says the North American cannabis market is entering a “third wave” as the US continues to move on marijuana legalisation at state and federal level, another round of well-funded US companies debut on markets, and as the global first movers tip over $1bn in revenue.
“This next rising tide will not lift all boats, but we are optimistic that investors who follow fundamentally sound companies could enjoy better returns ahead after two straight years with market declines.”
No love for Aussie pot
Australians invested in the ASX are unlikely to benefit from this third wave even though some locally-listed pot stocks have exposure to the North American cannabis market.
Of over 40 pot stocks on the ASX, only seven have recovered their February highs.
These include surprises such as unpopular Canada venture fund MMJ (ASX:MMJ), but only Little Green Pharma (ASX:LGP), which only listed when global markets were peaking in February, and US hemp play Ecofibre (ASX:EOF) are doing better than in 2019.
Four others have risen a little from bottoms hit in March.
The remaining 30-odd are still wallowing.
Of the pot stocks monitored by Stockhead, 25 have operations that are wholly focused on marijuana or have geared a majority of the business towards that sector.
Not including MMJ, which as an investor measures its capital differently to a revenue-generating business, only Althea (ASX:AGH) and Ecofibre were cashflow positive over the first nine months of the 2020 financial year.
| Ticker | Company | Cash receipts fiscal YTD (9 months) | Net cashflow +/- |
|---|---|---|---|
| AGH | Althea | $3,033,000 | $14,604,000 |
| AC8 | AusCann | 0 | ($5,454,000) |
| BOT | Botanix Pharmaceuticals | $1,672 | ($11,423,000) |
| CAN | Cann Group | $1,672,000 | ($11,506,000) |
| CP1 | CannPal Animal Therapeutics | 0 | ($880,000) |
| CPH | Creso Pharma | $1,443,000 | ($1,164,000) |
| CAU | Cronos | $44,979,000 | ($3,790,318) |
| ECS | ECS Botanics | $298,000 | ($2,254,000) |
| EOF | Ecofibre | $35,677,000 | $4,765,000 |
| EXL | Elixinol | $3,972,000 | ($9,049,000) |
| ESE | E-Sense Lab | $2,000 | ($285,000) |
| MXC | MGC Pharmaceuticals | $1,720,000 | ($8,106,000) |
| RGI | Roto-Gro | $1,208,000 | ($3,543,000) |
| CGB | Cann Global | $1,013,000 | ($5,271,000) |
| THC | THC Global | $4,120,000 | ($5,894,000) |
| ZLD | Zerila Therapeutics | $234,000 | ($3,630,000) |
| EMD | Emerald Clinics | $713,000 | ($3,269,000) |
| LGP | Little Green Pharma | $1,125,000 | ($5,757,000) |
| APH | Australian Primary Hemp | $822,000 | ($2,496,000) |
| IHL | Impression Healthcare | $719,000 | ($2,513,000) |
| BDA | Bod Australia | $1,303,000 | ($2,863,000) |
| LSH | Lifespot Health | $0 | ($242,000) |
| MDC | Medlab Clinical | $5,086,000 | ($8,721,000) |
| SCU | Stemcell United | $794,000 | ($1,004,000) |
Australian companies have struggled to revive enthusiasm for marijuana that peaked in 2018.
Slow revenue growth, even slower movement towards profitability, and rigid business models that committed companies to a grow-manufacture-sell strategy which more nimble companies have leapfrogged has dulled growth in the local market.
A Senate committee hearing into the medical cannabis market in Australia this year heard high prices, difficulties with finding doctors who prescribe and navigating rules to access the drug has limited growth in Australian users.