A report into Australia’s burgeoning medicinal cannabis share market or ‘pot stock’ boom has highlighted eye-popping share price increases and a rush of investor enthusiasm but cautioned prospective investors to watch and wait.
A 2017 Australian Stock Report (ASR) Medical marijuana: Should you buy into these companies?, aimed at share traders and investors, says medicinal cannabis stocks have shot up by more than 130 per cent this year but recommends restraint due to the “relative infancy of medical marijuana on the ASX”.
Millions of dollars have poured into the fledgling industry since it became legal to cultivate, produce and manufacture medicinal cannabis products in Australia on October 30 last year. So far, it can only be used for treating a fairly narrow range of conditions such as severe epilepsy, chronic pain, HIV and chemo-induced nausea.
Investors and speculators are always looking for the next big thing and they seem to have found it in medicinal cannabis as they’ve watched stocks climb and interest explode.
But the ASR warns that medicinal cannabis related stocks could fail to translate capital investments into sustainable profits and that management teams are likely to be inexperienced when dealing with the regulations and consumer demands of an emerging industry.
“This is likely to bring management mistakes as they anticipate supply and demand growth which may or may not occur, leading to inventory disruptions and unanticipated cost,” The ASR says.
New industry players have entered the market as barriers have fallen but this can lead to industry fragmentation and spell lower investment returns.
Companies that have recently listed on the ASX include The Hydroponics Company (THC) in Sydney; AusCann; Zelda Therapeutics; MMJ Phytotech Ltd; Perth company MGC Pharma; Creso Pharma and International Cannabis Corp.
“The overall industry appears to have a bright future with growing evidence pointing to the medical attributes of using marijuana,” said the ASR.
“Despite this growing demand we think the Australian listed entities are too immature at this stage to be considered as a financial investment and we prefer to watch from the side lines to determine which if any can transform into making positive cash flows,” the report concludes.
“Sorry to dampen your enthusiasm but these listed entities are also thinly traded, meaning there is not much stock available to buy or sell. Thinly traded stocks are hard to move in and out of, prices get pushed up as investors secure stock but also drop a lot faster when investors decide to exit.”
The ASR advises investors to take the time to understand a company’s financials and its products before investing.
Industry expert Rhys Cohen has welcomed the growing number of medicinal cannabis companies listing on the ASX but he said we should not lose sight of what is at stake for patients.
“There’s a bit too much hype around the financialisation of this industry that may not be best for the industry or patients,” Mr Cohen said.
“I don’t think anyone is at fault. People are really excited about this – there are a lot of reasons to be excited and I’m not trying to put down people who invest in pot stocks – but it’s distracting people from the realities of the industry, like expanding patient access and investing more in medical research and education.”
While floating companies was a good way for companies to access capital funding he said that some of the hype around pot stock deals had drawn people’s attention from what was really important: the long-term viability of the industry and the well-being of patients.
The two main barriers to industry growth were patient access and domestic drug approval.
To be prescribed medicinal cannabis, patients must first visit their medical practitioner who must then get approval from the state or territory health department and the federal health department to import the drug before they can access it.
“People are really frustrated because they’ve been told it’s legal and available but actually it’s a lot more complex than that. There are a lot of barriers. It requires your medical practitioner to be a real advocate for you.”
At present there is no domestic product and companies must undergo an arduous approval process to be listed on the Australian Register of Therapeutic Goods, prior to approval by the Therapeutic Goods Administration.
But Mr Cohen, who works for the Australian subsidiary of Israeli medicinal cannabis company Cann10, is doing something about building local capacity in the industry with Australia’s first medical cannabis leadership program, which kicks off in Melbourne later this year.
Cann10 will run the 8-week program for 40 participants in partnership with DeakinCo., the commercial arm of Deakin University.
The one-night a week course will cover topics including botany and cultivation; clinical science; agriculture and genetics; extraction and legislation; commerce and R&D and regulation and it is aimed at doctors, nurses, pharmacists and scientists, as well as agricultural, biomedical and technological entrepreneurs.
Mr Cohen said he hoped the course would be a springboard for people to start new ventures, research programs and businesses and would help entrepreneurs to network.
“There’s so much work to be done in learning every part of the medicinal cannabis industry. There are companies that are doing some really exciting, cutting edge medical research and finding new ways of delivering it, such as pills and oils,” he said.
“Really we’re just getting started. This industry didn’t exist pre-1992. It’s only really in the last few years that we’ve been able to do real research on the cannabis plant.”
He said Australia was ideally placed to develop a globally successful medicinal cannabis industry because once up and running the product would be high quality and rigorously regulated with good access to Asian markets.
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