Here’s the investor’s guide to ASX cannabis stocks in 2021 – including a recap of what’s happened in the last 12 months and what might be to come for investors.

Cannabis-based medicine and health products have grown into a sizeable business and an ASX sector in just a few short years.

Some companies are biotechs undertaking clinical trials to verify the beneficial health effects of medicinal cannabis products in treating Alzheimer’s, anxiety, insomnia, dementia and providing pain relief for cancer.

Other companies are beyond clinical trials and are already looking to bring such products to supermarket and pharmacy shelves in Australia and in other markets.

Others, grow cannabis plants and provide their produce to cannabis companies across Australia and the world.

Product offerings are ever more sophisticated and take in everything from health supplements, food and beverages, to medicine and seeds and oils.

While progress has been slower than some investors and industry players would’ve liked the past 12 months has seen significant process.

The most pertinant was the declassification of low-dose cannabinoid (CBD) oils and pills, by Australia’s regulatory body the Therapeutic Goods Administration (TGA), last December.

 

Marijuana, pot, weed, ganja, cannabis, hemp — what even is it?

Marijuana, the colloquial name for the cannabis variety that’ll get you high, has been used for millennia as both a medicine and a recreational drug.

There are two main cannabis species: cannabis sativa and cannabis indica.

Both produce delta-9 tetrahydrocannabinol (THC) — the part that gets you stoned — and cannabidiol (CBD) along with about 600 other known compounds.

Hemp is a variety of cannabis sativa grown specially for its fibre. It contains low levels of THC and slightly higher levels of CBD.

The other key compound to know about in cannabis are terpenes.

Terpenes are fragrant oils found in plants that carry flavour and aroma. They carry the pungent odour of cannabis and offer some medicinal properties — but they don’t contain THC or CBD.

About 200 terpenes have been identified which give cannabis its distinct aromas.

Together, cannabinoids and terpenes produce a range of effects known as the “entourage effect” or the type of feelings the drug or treatment gives.

They do this by tapping into the body’s own endocannabinoid system and different cannabinoids and terpenes will influence whether it makes you sleepy, hungry, creative, or acts as a pain reductor.

The most common terpenes found in cannabis. Pic: TotalHealthCBD

ASX listed cannabis stocks

There are approximately 40 stocks on the ASX that are in the cannabis business to varying degrees. For some it’s their entire bread and butter, but for others cannabis makes up a part of the business.

Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop.

 

While each company is unique, they typically fit into one (or more) of the following categories:

  • Biotechs and pharmaceutical – These are companies that are focused on creating drugs and taking them through clinical trials, a risky business with a 9.6% success rate. Two of the more prominent stocks are Incannex (ASX:IHL) and Zelira (ASX:ZLD).
  • Growers – These companies grow cannabis plants and ship their produce to cannabis companies in other categories. Examples include Little Green Pharma (ASX:LGP) and Ecofibre (ASX:EOF).
  • Hemp – Hemp is a specific variety of cannabis sativa grown specially for its fibre as well as for its low levels of THC. This category contains some of the most successful ASX pot stocks including Australian Primary Hemp (ASX:APH) and ECS Botanics (ASX:ECS).
  • Lifestyle – Again these groups have their fingers in a range of pies but generally speaking they create cannabis-based lifestyle products and sell these to the public. One example is Live Verdure (ASX:LV1).
  • Ancilliary – These are businesses for whom cannabis is not their primary trade but are involved with the sector such as having cannabis clients. One example is Roto-Gro (ASX:RGI) which makes vertical farming systems including for cannabis companies.

 

Why invest in ASX cannabis stocks?

The most common reason investors have been attracted to ASX cannabis stocks is because of their promised future growth.

While most companies are at an early stage, industry advocates have compared the progress of cannabis as akin to gradual legalisation of alcohol in the early 20th century, not just in terms of pace but the monetary opportunity when governments abandoned regulation.

There have been varying estimates of the size of cannabis markets but one of the more recent came from FreshLeaf Analytics which in July 2021 estimated the market would surpass $200 million this year. Prohibition Partners tips it will hit US$1.5 billion by 2025.

Of course, Australia is just a small fraction of the broader cannabis market.

Emergen Research thinks by 2027, the global medical cannabis market will be US$47.15 billion.

 

Cannabis legalisation: from medical to recreational

Around 50 countries have taken steps to legalise the use of cannabis in a medical context, according to Wikipedia. Notable on this list is Australia (all states and territories), Canada, Germany, Israel, Italy, Mexico, New Zealand, Switzerland and the United Kingdom.

Medicinal cannabis use is allowed in 37 out of 50 US states, four US territories, and the District of Columbia.

Australia pulled the trigger in 2016, with medical legalisation coming into effect on October 30 of that year.

It led to a rash of new cannabis-focused companies listing, or backdoor listing, onto the ASX in 2017, and a variety of others changing their business operations to incorporate facets of the new industry.

Australia’s first pot stock was MMJ Group (ASX:MMJ), which has since morphed into a cannabis venture investor named MMJ. Its investments include a $2.65m interest in Canadian production and investment company Embark Inc.

The biggest IPO of 2017 was Cann Group (ASX:CAN), which followed that with a mammoth $60m capital raising in November 2017. Strongly supported by institutions, it was the first indication of professional money in Australia becoming interested in cannabis.

2018 was a very quiet year for cannabis listings — only Elixinol Global (ASX:EXL) and Althea joined the ASX that year despite it being a monumental year with Canada legalising cannabis and the US legalising industrial hemp at a federal level.

2019 saw a market glut and it was even quieter on the ASX with only Ecofibre (ASX:EOF) listing in March and Cronos Australia (ASX:CAU) listing in November.

2020 saw 3 listings with Little Green Pharma (ASX:LGP) and Emyria (ASX:EMD) listing just prior to COVID-19 and Live Verdure (ASX:LV1) rounding out the list in December.

Cannabis stocks fell amidst the market crunch but closed out the year with a bang off the back of the UN declassifying cannabis and the election of Joe Biden as US President, who promised to decriminalise recreational marijuana.

There have been no new cannabis companies to list on the ASX in 2021.

This is in spite of one change Down Under that is having a far greater impact than anything done in the Northern Hemisphere – namely, the TGA’s declassification of certain CBD products allowing them to be issued without a prescription.

 

The TGA declassification

Late last year the TGA made a new avenue possible specifically for patients seeking low-dose cannabinoid (CBD) oils and pills. Namely, the regulator declassified them from schedule 4 to schedule 3.

Prior to that change, a doctor’s prescription was required for such products but since February this year they don’t, so long as they have less than 1% THC.

In compiling this guide, Stockhead caught up with Cassandra Hunt, Managing Director at Freshleaf Analytics.

She said this was a watershed moment for the sector.

“I think the down scheduling of CBD is an absolute milestone in terms of patient access and the ability to grow the industry and grow patient numbers,” she said.

Nonetheless, it is still no quick feat to get products to market and arguably this is why some ASX cannabis stocks haven’t seen the same momentum they did immediately.

“It’s not going to be fast moving and so the companies who wish to use that channel to get their products to market need to register those products with the ARTG and that requires demonstrating that the product is safe, that they’re effective and of good quality,” Hunt said.

“In order to do that they need to do clinical research and comprehensive dossiers for TGA – and that’s a process that takes time prepare the dossier and for the TGA to review it.

“It’s certainly unlikely we’ll see products in pharmacies this year, possibly not even next year, next more likely the year after.

“So it’s probably slower than people in the industry would like but that’s the regulatory framework that we’ve got to work with.”

 

How else can you access medical cannabis in Australia?

There are only a handful of other pathways including through two ‘special access schemes’ (SAS): SAS B is for unapproved products and SAS A is for people in palliative care – although medical professionals can also apply to become an authorised prescriber, meaning they don’t need TGA approval for each prescription.

By the end of July 2021, the TGA had approved 140,000 SAS B applications, compared to 50,000 by the end of June 2020 and 4,200 by the end of February 2019.

However, this is not the total number of people in Australia approved to use medical cannabis.

Applications are per product so if one person is using multiple products, they have to apply separately for each. Some people are approved, but are turned off at the final hurdle by the high price of medical cannabis products, which can range from $300 for a month’s supply of cannabis oil to $1200 for a 10ml vial of Sativex.

While Australian authorities say there is no predetermined list of conditions that cannabis can be prescribed for, guidance documents by the TGA endorse chemotherapy-induced nausea and vomiting, epilepsy, multiple sclerosis, chronic non-cancer pain and palliative care.

Another pathway to market has been the Authorised Prescriber where authorised medical practitioners can supply therapeutic goods (such as medicines, medical devices or biologicals) that are not included in the Australian Register of Therapeutic Goods (ARTG) to a class of patients with a particular medical condition.

According to Freshleaf Analytics, this too has grown in recent months with just 29 in December 2019, 179 by December 2020 and 341 by July 2021.

 

Licensing: what you need to know

Equally important from a regulatory perspective, is the licences and permits needed to grow, manufacture and research cannabis in Australia well before products can be prescribed.

A licence enables a company to start preparing a growing, research or manufacturing site. A permit, which stipulates constraints such as strains and the number and weight of its plants, allows them to start work.

The federal government’s Office of Drug Control (ODC) has issued an ever-increasing number of licences that allow companies to grow cannabis for commercial purposes, grow cannabis for research, manufacture cannabis-based products, and import and export marijuana.

In October 2018, the ODC gained Cabinet-level approval to hire more staff after being swamped by licence applications: they expected 18 a year but at one point were trying to wade through about 190. It takes between 18 months and two years to go from submitting an application to receiving a permit for a cultivation site.

The ODC listed 44 licence holders on its website – up from 31 when this guide was last updated in August 2020.

The ODC website list of authorised producers of medical cannabis only includes a handful of ASX stocks such as Althea (ASX:AGH), Little Green Pharma (ASX:LGP) and AusCann (ASX:AC8).

But other ASX companies are able to piggyback off other companies’ import and supply licences.

 

Finding the proof: the biotech route to market

The difficulty is, however, that while “everybody knows” cannabis causes drowsiness or increases appetite, there are vanishingly few completed clinical trials that can back that information up and give doctors a basis on which to prescribe.

In Australia, a handful of cannabis companies are taking treatments through clinical trials or have imminent plans to do so.

Clinical trials are generally divided into three phases. Phase 1 focuses on safety, Phase 2 tests for effectiveness and Phase 3 examines whether the new drug is an improvement on existing treatment. Sometimes trials are further divided into parts A and B, where a B stage is generally more rigorous.

Two examples include Zelira Therapeutics (ASX:ZLD), which is trialing its medical cannabis formulations for insomnia, chronic pain and opioid use reduction, and Medlab Clinical (ASX:MDC) which is looking at cancer-induced bone pain and chemotherapy-caused nausea and vomiting.

 

What should we expect from ASX cannabis stocks and the broader sector in the months ahead?

As the list of ASX Cannabis stocks shows, many have not been reflecting the growth in the sector.

 

Unfortunately Freshleaf’s Cassandra Hunt warns investors might have to wait a while to see some of the CBD products hit the shelves.

But that’s not to say investors will be sitting around twiddling their thumbs for the next several months.

“With the growth we’re seeing in the industry and exposure of the market internationally we are continuing to see new players come into the space,” Hunt said.

“That’s great but with a small market it makes it hyper-competitive. The product is still highly commoditised, there are a lot of companies who have had fairly big capital investment in setting up infrastructure – for manufacturing and cultivation.

“And so a highly competitive industry where prices are continuing to drop puts a lot of pressure on these organisations and so we are expecting to see some consolidation in the market in response to some of these dynamics.”

Will this be existing smaller companies merging or potentially offshore companies entering Australia’s space?

“I think it could be a bit of both – there’s been a fair bit already over the last 12 months,” she said.

“As the market continues to grow there may be people offshore that might decide they want to participate so I think we’ll see a combination of both.”

At Stockhead, we tell it like it is. While Creso Pharma, MGC Pharmaceuticals, ECS Botanics and Incannex are Stockhead advertisers, they did not sponsor this article.