The week in Small Caps: new financial year set to start with a bang, cannabis gets nod from FDA and US Senate

EOFY new financial year cannabis FDA US Senate
WEEKLY MARKET REPORT

Well another financial year is done and dusted and a new one has begun.

The first week of any month is usually a big one but the first trading week of a new financial year can be particularly busy as fund managers who have been holding back on new investments begin to buy.

Final trade on the ASX on Friday was fairly muted but it is interesting to see which sectors ended the year strongest, with energy stocks the absolute standout as oil prices added a significant spurt.

Energy stocks the clear winners

At the final bell for the financial year energy stocks were up an impressive 36.51 per cent for the year using Commsec numbers.

Other winning sectors included IT (27.36 per cent), materials (23.57 per cent), health care (22.87 per cent) and consumer staples (22.87 per cent).

The picture was not nearly as pretty for consumer discretionary stocks (up 8.91 per cent), industrials (up just 0.86 per cent), financials (down 5.17 per cent) and utilities (down 7.54 per cent).

Avoiding telcos was key to good performance

One sector was by far the most important to avoid – you guessed it – telcos, losing a thumping 36 per cent for the year with a terrible performance by market leader Telstra the most important recent contributor.

All of which shows the importance of choosing stocks and sectors very carefully if you are a selective stock picker or going with the overall index if you are more of a passive investor.

In retrospect you would need to have been a brave investor to buy up energy and mining stocks with a side serve of health care and IT last year or to have entirely avoided the banks, telcos and utilities.

It will no doubt be a similar picture for this financial year with some of this year’s stars fading away while some of this year’s underperformers suddenly coming good.

Small cap action this week

Stock indices maintained their upward momentum this week despite the geopolitical angst brewing across the world in faraway places like China and the US and the spectre of soaring oil prices which tend to weigh on stocks, especially in the US from which the ASX takes its queue.

The ASX index closed the week at 6,194 a fraction lower over the week but still soundly up around 7% over the course of June. The small ordinaries index was also marginally lower this week, closing 1.1% lower at 2,859 points.

The star of the show this week was undoubtedly the cannabis sativa plant – with several small-cap companies benefiting from internal progress and continued improvement in the cannabis market landscape.

ClearVue Technologies (ASX: CPV)

ClearVue widened its addressable market by developing a frame-independent Insulated Glass Unit (IGU) to support its glass technology. The news means that ClearVue could potentially see greater commercial traction in the coming months as its products become more attractive to a greater number of customers.

Gooroo Ventures (ASX: GOO)

Rapid technological progress and widespread automation have made the labour market more challenging and competitive but people analytics company Gooroo Ventures provided a potentially viable solution this week.

The company is set to launch an AI learning platform in collaboration with Microsoft.

LatAm Autos (ASX: LAA)

LatAm Autos told the market it’s on course to break into positive cash flow by the end of this year.

The declaration came following strong growth in unit sales volumes as part of a broader shift from a pure online auto classifieds platform to a car transaction marketplace that provides similar services as CarSales in Australia and AutoTrader in the UK.

King River Copper (ASX: KRC)

King River Copper reported a further round of high-grade gold exploration results from the Trudi Vein prospect at its Mt Remarkable project in Western Australia, with visible mineralisation present.

With continued drilling underway and further assay results set to come out in due course, investors will be keeping an eye out on upcoming results from Mt Remarkable.

Cannabis progress

The growth of medical cannabis as a legitimate and proven medicine reached a significant milestone this week after the FDA approved America’s first cannabis-based drug.

Epidiolex has been designed to treat severe epilepsy and despite passing FDA trials with flying colours which indicates cannabis-based medicines could soon be a regular occurrence – the regulator admitted that severe side-effects are also forthcoming on the back of the synthetic opioid.

Green light for Industrial Hemp

The US Senate gave the go-ahead for the US to restart its once-prominent hemp industry that that produced building materials, plastics, composite materials, clothing, nutritional supplements, food, fibres, rope and even biofuels.

That was before the petrochemical industry rolled in to steal its thunder. But now that cannabis has been sprung from government dungeons, even industrial hemp could soon be back on its way to store shelves and commercial allure, even for Aussie companies.

AusCann Group (ASX: AC8)

AusCann Group revealed plans to accelerate its cultivation in both Canada and Australia this week via an agreement signed with Jade Cannabis to undertake research and development work at its Canadian facility for the next 3 years.

Creso Pharma (ASX: CPH)

It would seem that cannabis liberation (and commercialisation) is reaching rather unprecedented levels on the back of the FDA and the US Senate.

Not one to stay behind the 8-ball, this week Creso Pharma announced the imminent launch of a range of hemp-based beers and adult soft drinks that are underpinned by hemp derived from the cannabis sativa plant.

Cann Group (ASX: CAN)

The rapid growth of Australia’s ‘pot stocks’ sector continues with Cann Group signing a deal with Australia Pacific Airports Melbourne to secure the site of Cann’s proposed stage three medicinal cannabis cultivation and manufacturing facility. Making it the largest of its kind in the country.

The Hydroponics Company (ASX: THC)

Joining the cannabis party this week was The Hydroponics Company which signed a potentially lucrative agreement with Canada’s Ascent Industries to share both cannabis product and knowledge to collaboratively grow their respective businesses.

The growing emergence of both Australian and Canadian firms on the back of softening legislation towards cannabis in both countries is quite remarkable considering the drug was entirely banned in recent times.

CannPal Animal Therapeutics (ASX: CP1)

If all the cannabis-related news wasn’t enough, CannPal added further commercial allure to the Australian medicinal cannabis sector with plans to harness cannabis (and the CSIRO) to help man’s best friend.

YPB Group (ASX: YPB)

The emergence of medical cannabis as a viable commercial market requires several key caveats such as product quality and quantity – but there is an additional aspect that remains key: authenticity.

YPB Group stepped up to provide just that this week, by announcing a three-year deal with Namaste Technologies, an emergent cannabis producer in Canada.

The week ahead

Fuelling the busy trading to start the financial year will be a forest of new data in Australia and offshore.

On Monday CoreLogic is releasing the June data on home prices which is likely to show a fall in mainland capital city prices.

ANZ’s job advertisements is also released on Monday while manufacturing survey results from AiGroup and Commonwealth Bank are out.

On Tuesday the Reserve Bank Board meets and is almost certain to leave official interest rates steady for the 23rd month, leaving any wording changes in the statement as the only items of interest.

Consumer confidence numbers will also be out from Roy Morgan and ANZ, along with data on building approvals.

Other data for the week include services sector purchasing manager surveys, car sales, retail trade and international trade and the Head of Economic Analysis at the Reserve Bank, Alexandra Heath, will be delivering a speech on Thursday.

Overseas there is a similar flurry of information including US numbers on the manufacturing, services and construction sectors with other figures on car sales, and jobs.

The most influential data comes on Friday with the non-farm payrolls or monthly employment report, which includes numbers on job creation, unemployment and average hourly earnings.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.