Australia’s largest cannabis company is a small cap by the name of Elixinol Global Ltd (ASX: EXL), a company which covers both traditional marijuana and hemp. The stock is worth half a billion dollars, and burns $19.3m a quarter in cash, a figure which has increased from the previous period. Unlike Ecofibre, it does not have as clear a route to profitability and is likely to suffer in a market downturn as a pre-revenue business, but this is common when investing in new industries.
Companies exposed to the cannabis trend have been growing rapidly over the past year, since legalisation in a number of jurisdictions around the world present attractive growth opportunities. What was once the domain of speculators and gamblers is now an industry that is shaping up to grow at 24%p.a. between now and 2025 (Grand View Research), which would put the medicinal marijuana market at $US$66.3bn. The illicit cannabis market is over $340bn and, while we would never condone investing here, legalisation presents huge upside for cannabis stocks.
The company has 43 hemp products, which provide a huge growth opportunity for the business. Hemp based foods are increasingly popular with consumers and have recently been legalised both in Australia and the United States. Hemp is a strain of marijuana but with less than one percent of the psychoactive ingredient that causes the “high” associated with the recreational drug. While the end uses of the two plants are very different, investors who are interested in the recreational or medicinal marijuana space are often drawn to hemp businesses because of the biological link between the two plants.
If you are willing to look internationally however, the more mature cannabis markets in the US and Canada offer more established companies to invest in. Canopy Growth is the largest cannabis stock by market cap, trades on the NYSE and is worth $13.5bn. The business is a medical market leader in spectrum therapeutics and has operations across 12 countries around the world. The company operates across both medical therapies and consumer products that are designed for recreational use. Recreational marijuana has significant upside because there are so few jurisdictions where it has been legalised. Mass legalisation can help the company grow more rapidly than businesses that only sell medicinal marijuana, especially given its existing dominance in the recreational products space and brand recognition.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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