Two years ago, the cannabis stocks sector was so hot one company went up over 3000 per cent in a day just because they said they were interested in entering it. Those days are over.
On March 24, 2017, biotech Stemcell United (ASX: SCU) told investors it had appointed a medical cannabis expert to look at opportunities in the medical cannabis sector. The stock rose from 1 cent to 19 cents.
Of course that was a long time ago now. These days, it’s the ‘buy now pay later’ sector that has investors addicted to companies to the point of sending them up several times just because of the industry.
Some would argue Stemcell’s decline back below 2 cents is symbolic of the cannabis sector overall.
But the success of some cannabis stocks would show it is not the entire cannabis industry that has dropped off, it’s just the companies that have not been able to exploit the opportunity by setting up a mature operation.
The sector has moved beyond being a hype industry where any company will grow just by being in the sector.
Now, like any other industry, the cannabis sector will be one where companies are judged by their financial and operational performances.
Pot is hot
When one thinks of cannabis, i’ts easy for recreational smoking to spring to mind.
But these stocks sell medical cannabis and while it is derived from the same plant, scientists are investigating its potential to treat various medical problems from diabetes to epilepsy.
The key to the industry taking off is legalisation of cannabis for medical purposes. This has happened in Australia, but every jurisdiction is different. Even where it is legal, there is a regulatory system to ensure it is only used for medical purposes.
The top ‘pot stocks’ grow the cannabis plants themselves and manufacture medical products which they intend to commercialise.
Star Investing analysis has found over 30 stocks in the cannabis sector.
The best performing stocks are deservingly ahead of their peers. They have key control of their distribution networks, in growing their own cannabis and producing the products.
Furthermore, they have either begun to distribute their products or are ready to and while they may not be profitable yet, they have a clear strategy to do so.
The best performing stock CropLogic (ASX: CLI) has a cannabis farm in Oregon which they have expanded this year. They have raised capital and indicated their hemp biomass (a cannabis variety high on fibre) can be very profitable costing US$5-7 ($AU7.20-10.10) per pound to produce but selling for US$35-45 per pound.
They also sell crop-tracking technologies and these have been popular with clients. They have been especially helped by partnering with a European financier, GRENKE, allowing farmers to purchase now and pay over time.
The next two highest performers were ironically the only two cannabis firms to list last year, Elixonol Global (ASX: EXL) and Althea (ASX: AGH). These firms are fully at the ‘selling stage’.
Elixinol are well ahead, making US$37 million in the last financial year. While they are better known for their dietary supplements, they do sell hemp seeds and are seeking to grow their own cannabis in Australia. They bought a site in the New South Wales’ Northern Rivers region last February.
Althena is only being used with patients in clinics and hospitals and don’t produce cannabis directly – they import from overseas. However the number of users has been steadily growing in recent months – they recently surpassed 650.
While none of these have spiked 3000 per cent like Stemcell United did, there is no doubting who is further ahead now. Stemcell United are still trying to enter but to date have not.
If you want to invest in cannabis, you should look for stocks aren’t just saying they want to enter the sector, but are taking steps for this purpose. If they have side-businesses and licenses, then it’s an even better proposition.
|Code||Name||Price (15 May 2019)||Market Cap||Return YTD (%)|
|AGH||ALTHEA GROUP HOLDINGS LTD||0.54||$109.1M||120|
|EXL||ELIXINOL GLOBAL LTD||4.86||$609.1M||94|
|MXC||MGC PHARMACEUTICALS LTD||0.064||$72.8M||60|
|BOT||BOTANIX PHARMACEUTICALS LTD||0.105||$76.5M||50|
|IHL||IMPRESSION HEALTHCARE LTD||0.022||$12.8M||37.5|
|CP1||CANNPAL ANIMAL THERAPEUTICS||0.145||$14.0M||16|
|MDC||MEDLAB CLINICAL LTD||0.415||$88.6M||12|
|CAN||CANN GROUP LTD||2.25||$302.0M||10|
|IDT||IDT AUSTRALIA LTD||0.155||$35.5M||7|
|LSH||LIFESPOT HEALTH LTD||0.063||$4.8M||5|
|TPE||TPI ENTERPRISES LTD||1.2||$97.3M||4|
|THC||THC GLOBAL GROUP LTD||0.47||$59.3M||1|
|WOA||WIDE OPEN AGRICULTURE LTD||0.12||$9.2M||0|
|MMJ||MMJ GROUP HOLDINGS LTD||0.225||$49.5M||-4|
|CPH||CRESO PHARMA LTD||0.465||$62.2M||-5|
|ZLD||ZELDA THERAPEUTICS LTD||0.048||$34.7M||-8|
|EVE||EVE INVESTMENTS LTD||0.0055||$11.9M||-8|
|SCU||STEMCELL UNITED LTD||0.017||$10.6M||-11|
|SUD||SUDA PHARMACEUTICALS LTD||0.0045||$9.0M||-25|
|ROO||ROOTS SUSTAINABLE AGRICU-CDI||0.074||$5.4M||-26|
|DTZ||DOTZ NANO LTD||0.06||$13.1M||-28|
|BDA||BOD AUSTRALIA LTD||0.255||$18.4M||-35|
|CAE||CANNINDAH RESOURCES LTD||0.015||$2.7M||-35|
|AC8||AUSCANN GROUP HOLDINGS LTD||0.37||$111.3M||-36|
|RGI||ROTO-GRO INTERNATIONAL LTD||0.17||$22.7M||-48|
|YPB||YPB GROUP LTD||0.008||$7.3M||-53|
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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