It is not that long ago that the very idea of investing in cannabis would have seemed ridiculous.
It was an illegal recreational drug so there was literally nothing to invest in other than a “stash”.
However, the very fact that recreational cannabis use has been illegal in most Western countries since the 1930’s has meant it has been significantly under-researched by modern pharmacology, causing this flowering herb to suddenly become one of the hottest investment sectors on world markets.
Uses of cannabis
The reason is not too hard to find; cannabis is showing tremendous promise in treating a range of diseases and conditions ranging from appetite enhancement and anti-nausea for patients going through chemotherapy or suffering from HIV all the way through to suppressing or eliminating convulsive or muscle spasm sessions in diseases such as epilepsy, Multiple Sclerosis, strokes and Parkinson’s disease.
Cannabis also shows some promise as a treatment for insomnia, eczema, pain relief, melanoma and even for autism, although many of these claims will obviously need to be backed up with medical trials in which standardised doses of various cannabinoids are compared with current treatments to ensure they are effective.
Cannabis has also shown promise as an ingredient in cosmetics, in nutritional food products, as a biofuel, a renewable fibre and, of course, for its still more controversial use as a recreational drug with psychoactive properties.
In some markets, such as Canada, recreational use of cannabis is in the process of being allowed and is becoming a significant market.
Legal changes in recent times
Interestingly, it was the use of cannabis as an illegal recreational drug that eventually led to significant political pressure around the world from parents of sick children who were forced to effectively become criminals to arrange the supply of cannabis oil to alleviate the symptoms of their children.
That has led to a significant easing of restrictions in researching and supplying medicinal cannabis, particularly in Australia, Canada and many states within the United States but also in Bangladesh, Cambodia, Chile, Colombia, Costa Rica, the Czech Republic, Germany, India, Jamaica, Mexico, the Netherlands, Portugal, South Africa, Spain and Uruguay.
Why was it illegal in the first place?
Cannabis hasn’t always been illegal – it was a key ingredient in many mass produced legal drugs in the early 1900’s but its use was greatly tightened up after the Mexican Revolution as the United States tried to deal with an influx of Mexican immigrants into the southern states – particularly Texas and Louisiana.
While Americans were familiar with cannabis as an ingredient in medicines, the use by Mexicans of “marijuana” was a new thing and soon the fear of these new immigrants was turned into a very successful campaign to stamp out marijuana usage.
It is clear what was happening here – Mexican immigration was being more tightly controlled with marijuana as a key legal excuse and a reason to search, detain and deport Mexican immigrants.
The Marijuana Tax Act of 1937 effectively banned the use and sale of marijuana and cannabis was later placed on the most restricted drug use, Schedule 1, making it very hard to obtain for drug manufacturers and even researchers.
That restrictive drug status spread to most modern Western countries so there was little or no modern pharmacological research into the 500 natural compounds, including 104 cannabinoids, that are found in the cannabis plant.
It is only now that we are finding out in greater detail how these various cannabinoid compounds interact and trigger receptors in the central nervous and immune system to produce effects that may be highly beneficial to human health.
Market size potential/estimates
It is for this reason that the legal cannabis market is so recent, with the medicinal use of cannabis in Australia only getting legislative approval in 2016 with legal importation for medicinal use only arriving this year.
Growing cannabis crops here is still in the early stages of approval, although as with most agricultural exports Australia shows enormous promise.
Unlike many offshore markets which rely on greenhouse growth, Australia has the potential for outdoor cannabis crops and potentially two crops a year in high sunlight areas.
Deloitte estimated that Canada alone would burn through 600,000 kgs of cannabis a year if it fully legalises recreational use in 2018 – an amount that exceeds the country’s growing capacity, even though it has extensive greenhouses cultivating the plants.
The gradual legalisation of cannabis has led to an amazing flurry of activity – much of it on share markets including Canada and Australia – as companies move to address the huge markets for cannabis products.
In the US alone, where cannabis isn’t even legal at a Federal level yet but is legal in many states, sales grew by staggering 30 per cent in 2016 to reach US$6.7 billion. There have been credible estimates that US cannabis sales will reach US$20.2 billion by 2021 and even a staggering US$50 billion by 2026 while world consumption has been put as high as $500 billion by 2029.
Big companies getting involved
Cannabis is going mainstream too – Constellation Brands, the parent company behind Corona, Modelo, Svedka, and many other alcoholic drinks recently bought a 9.9 per cent stake in leading Canadian cannabis company Canopy Growth for US$191 million and is going to experiment with cannabis infused drinks.
It is an understandable business decision as alcohol sales continue to fall and cannabis sales are rising fast.
On the medical side, cannabis trials are aiming to address diseases in which treatments are measured in the many billions of dollars each year.
While you wouldn’t expect cannabis based medications to dominate any of those markets, even small percentages could be worth big money.
For example, Australian cannabis company AusCann is researching a drug to treat chronic and neuropathic pain – a market that is greater than $5 billion a year in Australia alone.
It is not hard to envisage several blockbuster cannabis based drugs reaching massive global sales in markets such as pain, nausea, appetite and convulsion or muscle spasm reduction – with the caveat that it will take many years of clinical trials to ensure uniform dosing, identify the right mix of compounds and prove drug efficacy.
The market for more peripheral cannabis products such as cosmetics, food supplements, edible, oil and smoking recreational drug use and to provide fibre and biofuel may become a more immediate market than as a medicinal drug, given the shorter path to market.
Now we will take a look at the individual cannabis stocks on the ASX.
Cannabis stocks on the ASX
Cannabis is here to stay and will play an increasing role in the future of various industries.
So let’s take a closer look at the numerous cannabis listed stocks on the ASX.
MGC Pharmaceuticals (ASX: MXC)
MGC Pharmaceuticals has the advantage of being very fast to market with a medicinal cannabis treatment set to be available to drug resistant Australian epilepsy patients in early 2018 with specialist drug distributor HL Pharma.
Beginning with adult epilepsy, MGC Pharma’s orally-administered CannEpil treatment will be available to Australian patients with an authorised doctor’s prescription at a cheaper price than competing products.
HL Pharma will manage approvals and distribution to hospitals and pharmacies across Australia and the move has the backing of Epilepsy Action Australia (EEA), with an initial group of five doctors and a starting pool of more than 50 patients.
The deal will add significant revenue even from a small initial patient pool and obviously has the potential to increase rapidly if the treatment proves a popular option.
MGC has also announced a $40 million deal to supply 15,000 kg a month of cannabidiol cosmetic products to Korean cosmetics manufacturer Varm Cosmo.
Production of the first batch of CannEpil to fulfil the initial order of 170 bottles was underway at MGC’s Czech Republic headquarters.
An earlier agreement with European pharma Lenis will distribute CannEpil through central and eastern Europe — as well as an anti-inflammatory topical cream — following EU registration.
MGC’s pharmaceutical, cosmetic and medical cannabis cultivation is centred on a 1100 square metre glasshouse facility in the Czech Republic and an open field farm in Slovenia.
Creso Pharma (ASX: CPH)
Creso Pharma has been very active recently, completing due diligence on a large medicinal cannabis growing facility Mernova Medicinal in Nova Scotia, Canada.
Creso claims this acquisition will keep it ahead of other players because it will have full ownership and the ability to cultivate, extract and manufacture its own human and animal therapeutic products in Canada for local and export use.
Creso has also signed a construction contract for a new production facility capable of producing up to 4000 kilograms of cannabis a year and has plenty of spare land so it has the option to continue expanding production to meet demand as the recreational market opens up in Canada.
Creso also has plans to enter the edible medicinal cannabis market for anxiety and stress through its cannaQIX® and cannapeal® product ranges.
MMJ Phytotech (ASX: MMJ)
MMJ Phytotech is based in Perth and is aiming to commercialise medicinal cannabis and high value cannabis-based therapeutics to the growing number of countries that have regulated medical cannabis laws.
Canada is one of those prime markets and MMJ is licensed by Health Canada to produce medical cannabis and also expects to participate in the emerging recreational market there.
MMJ owns 60 per cent of Canada’s Harvest One which is expanding through Canadian recreational producer United Greeneries and international medicinal producer Satipharm, which majors on oral delivery capsules.
MMJ also fully owns Israeli biopharmaceutical company Phytotech Therapeutics which has a pipeline of cannabis based drugs, including two undergoing clinical trials.
Cann Group (ASX: CAN)
One of just two Australian companies with a growing and research licence, Cann Group is in a strong position to become a leading agribusiness producer of cannabis for Australian consumption.
Cann has also produced its first crop in Victoria and has a services agreement with 19.9 per cent shareholder and Canada’s second largest player, Aurora Cannabis, and a deal with a vaporiser company Cannakorp for medicinal delivery of cannabis pods.
It is currently scaling up production capacity, is well capitalised and has a highly experienced agribusiness board.
AusCann (ASX: AC8)
Based in Perth, AusCann is also fully licenced for growing and research and has a strong relationship with Canada’s largest player, Canopy Growth, which holds AusCann shares.
That relationship will allow AusCann to import medications from Canada and supply them to Australian patients even before its first crops are grown and formulated.
AusCann also has some other important relationships with Chilean grower Fundacion Daya, opium poppy exporter Tasmanian Alkaloids, Phytoplant Research, Zelda Theraputics and Curtin University.
These partners mean that AusCann has detailed help in many aspects from getting the right cultivars to grow right through to marketing, clinical testing and drug formulation.
Local production is being ramped up near Perth with the usual caveat that the location of the production sites remains fairly secret.
Medlab Clinical (ASX: MDC)
Medlab Clinical is literally a world leader in its field because it is importing cannabis products from Canadian partner Aphria Ltd to use in a trial at Royal North Shore Hospital in Sydney for cancer patients in intractable pain.
Medlab uses a special atomising spray delivery system, Nanocelle, and will be testing the two main active ingredients in cannabis, THC and CBD.
Medlab has a variety of other products on the boil, including drugs to treat depression and obesity and the use of Nanocelle as a more efficient delivery system for a variety of off-patent medications including statins.
Algae.Tec (ASX: AEB)
A little more diversified than some of the other players here, Algae.Tec is aiming to use waste carbon dioxide to produce plant products commercially – medicinal grade cannabis, algae based nutraceuticals, biofuels and animal feed and aquaculture.
It has extensive expertise in sealed system plant production using carbon dioxide and limited amounts of water and is aiming to bring this expertise to bear in the efficient production of cannabis.
It has plans to produce a wide range of algae and cannabis products.
Queensland Bauxite (ASX: QBL)
No, that is not a misprint, Queensland Bauxite has indeed added a 55 per cent stake in Australian unlisted company Medical Cannabis Limited (MCL) to its existing businesses of mining the aluminium precursor bauxite.
And it has really helped to kick along the company’s share price.
A New York based institutional investor was attracted by the deal and the ultimate aim is to float MCL on the share market as a separate entity.
MCL aims to be a leading cannabis manufacturing company in Australia.
Stem Cell United (ASX: SCU)
Another fairly left field entrant in this list is Stem Cell United, which is aiming to buy a stake in Israeli cannabis company iCAN Israel.
While the company claims its expertise in plant stem cells makes the cannabis market a natural extension, there have been questions from the ASX about whether the company will need to get the backing of shareholder and perhaps make other changes to comply with listing rules, which has been a problem for several companies trying to change their business into cannabis.
Zelda Therapeutics (ASX: ZLD)
Zelda Therapeutics is developing a range of cannabinoid-based formulations to treat medical conditions with perhaps the most exciting an observation autism trial in Chile.
That trial demonstrated successful results for treating the core symptoms of autism with a medicinal cannabis extracts that Zelda is planning on taking into full scale clinical trials.
Results showed that in a cohort of 21 patients, cannabis extracts were significantly more effective than conventional medicines used, including atypical antipsychotics, and these extracts were well tolerated by the patients overall.
The Hydroponics Company (ASX: THC)
With the highly appropriate ticker THC (the main psychoactive ingredient in cannabis), The Hydroponics Company has been granted a Medicinal Cannabis Licence by the Office of Drug Control through subsidiary, Canndeo Ltd.
The licence authorises the cultivation and growth of cannabis plants in Australia for medicinal purposes and Canndeo has applied for a manufacturing licence and is awaiting approval.
Canndeo operates under a pharmaceutical model with a focus on the end-to-end supply of medicinal cannabis products.
It plans to meet demand through local Australian supply and by importing products from its Canadian subsidiaries.
It also plans to supply recreational cannabis in Canada through subsidiary Crystal Mountain Dragon Vision.
EVE Investments (ASX: EVE)
EVE Investments backs entrepreneurs and is promoting the health and medicinal benefits of Manuka honey, which is produced by bees working largely on tea tree flowers.
So far the results are encouraging with flavonoids in the honey acting as antioxidants with anti-inflammatory and immune system benefits.
Eve is hoping to show that if tea tree honey has strong medicinal benefits, perhaps honey produced by bees foraging on hemp flowers could also have different helpful health benefits.
Chapmans Limited (ASX: CHP)
Chapmans Limited is an investment company that has entered into an agreement to make a strategic investment of US$500,000 in the medical cannabis holding company MJ Life Sciences Pty Ltd (MJLS).
The investment would give it a half share in MJLS which is an Australian special-purpose company established with the aim of becoming a leading global medicinal cannabis holding and investment company.
MJLS is a direct investor in Caziwell Inc., owner of the North American medicinal cannabis brand Aunt Zelda’s and is owned by three of the leading figures in the Australian medicinal cannabis scene, Harry Karelis, Jason Peterson and Dr Stewart Washer.
Bod Australia (ASX: BDA)
Bod Australia is working with the Swiss herbal extract company Linnea to extract a full spectrum of compounds from cannabis plants, which it thinks will be more effective and reliable in treating patients than current extraction methods.
Botanix Pharmaceuticals (ASX: BOT)
Botanix is a skin care company and is conducting trials on a synthetic version of the cannabis compound BTX 1503 which is thought to be excellent at treating acne in teenagers.
So far there have been few side effects from the treatment and a phase two trial is planned to ensure the claimed benefits of controlling oil production in the sebaceous gland tissue and acting as an anti-inflammatory are statistically valid.
BTX 1503 contains no psychotropic ingredients and its development is timely, given a range of negative side effects with some other acne treatments.
eSense-Lab (ASX: ESE)
eSense-Lab has entered into a deal with US cannabis concentrate producer, Wild Rogue Extracts to supply cannabis concentrates and essential oils.
The companies are collaborating on the development and marketing of a new line of cannabidiol (CBD) based products including vapors and vape pens (oils and concentrates), tinctures, salves and other topical applications and concentrates.
eSense-Lab is based in Israel and has proprietary plant profiling technology that can reconstruct the terpene profile of plants, using alternate natural sources.
Lifespot Health (ASX: LSH)
Lifespot Health is in a joint venture with Seng Vital Germany to integrate that company’s Cannamed vaporizer into Lifespot’s BodyTel platform.
Bodytel would enable advanced medical diagnostic and dosage monitoring and fingerprint scanning, which is seen as an important part of developing the medicinal cannabis industry.
Inhalation of vaporised cannabis products is seen as having far fewer health risks than combustion or smoking of the drug.
Roto-Gro International (ASX: RGI)
Roto-Gro International is a Canadian cannabis-tech company now listed on the ASX.
Roto-Gro has a fully automated rotary hydroponic system that can grow up to 420 cannabis plants without using any soil.
Roto-Gro is also looking to sell its growing system into the Canadian market and others as well as legal cannabis production spreads.
CannPal Animal Therapeutics (ASX: CP1)
CannPal Animal Therapeutics is an interesting addition to this list with plans to develop cannabis based therapies for veterinary use.
The aim is to produce a drug to ease cancer related pain in animals.
Animal health drugs have a faster route to market and with dogs and cats now living longer, more of them are dying of cancer.
Pet owners are eager to help their animals and existing pain treatments come with a range of unwanted side effects, leaving plenty of potential for an animal cannabis treatment if it is found to be effective.
Atlas Pearls and Perfumes (ASX: ATP)
Atlas Pearls and Perfumes subsidiary Essential Oils of Tasmania has a 50 per cent investment in seeking a medicinal cannabis licence to grow cannabis in Tasmania with LeafCann.
The idea is that each partner will bring skills to the deal, with Atlas obviously already expert at growing perfumes and oils in Tasmania.
Capital Mining (ASX: CMY)
You won’t be able to buy Capital Mining shares for a while and existing shareholders must be crossing their fingers after the company’s plans to form a new company Capital Cannabis hit serious trouble.
The stock has been suspended from trading since August 14 after the ASX scrutinised its decision to change from an exploration company the cannabis and since then the only news has been a statement that the cannabis investment is now at risk of not going ahead.