CNGGF - Australia Cannabis Investing: What You Need to Know

Since the legalization of medical cannabis in 2016, Australia has been steadily developing its marijuana industry — and it’s been attracting attention from international players and investors.

With a quickly growing population of over 25 million people and a robust agriculture industry, the country is positioned to mould itself into a major force in the international cannabis space.

Here the Investing News Network takes a look at how the cannabis industry in Australia has been shaping up since legalization and what these developments could mean for investors. Read on to see what you need to know about investing in cannabis down under.

Australia cannabis investing: Market overview

As mentioned, Australia’s parliament passed legislation to allow the cultivation of cannabis for medicinal and research purposes in 2016 by amending the Narcotic Drugs Act 1967. Cannabis companies have been cropping up in the country since then.

While the cannabis industry is still young, Australia’s agriculture sector is well established. According to the Australian Bureau of Agricultural and Resource Economics and Sciences, agriculture production is valued at AU$58 billion and is one of the largest contributors to the nation’s GDP. The country’s agriculture export prowess means that it may be able to capitalize on the trend of moving medical marijuana products internationally.

Recreational cannabis use isn’t legal in Australia, but according to the Australian Institute of Health and Welfare (AIHW), cannabis is the most widely used illicit drug in the country. In a report, AIHW notes that 85 percent of Australians now favour cannabis use for medical purposes, up from 69 percent in 2013.

Medical cannabis in the country is overseen by the Office of Drug Control, which issues three types of licences: research, manufacturing of a drug or product and cultivation or production of medical cannabis. As of June 2019, the office had given out a total of 17 research licences, 24 manufacturing licences and 27 cannabis cultivation or production licences.

Medical cannabis users do face a bit of difficulty accessing the drug. Patients can only receive pharmaceutical marijuana products via a specialist appointment and then may have to wait up to a month for government approval.

Some of the largest names in Canada’s cannabis landscape, such as Aurora Cannabis (NYSE:ACB,TSX:ACB) and Canopy Growth (NYSE:CGC,TSX:WEED), have substantial stakes in Australian companies. In 2018, Canopy launched Spectrum Cannabis Australia, a medical cannabis company.

Earlier in 2019, Spectrum received its first shipment of medical cannabidiol (CBD) oil and began sales. It intends to support patients through imports until domestic facilities are working at full capacity.

Australia cannabis investing: How to invest

Since the country’s cannabis space is still in its early stages, the Australian market hasn’t yet reached its peak. However, more cannabis stocks are expected to list on the Australian Securities Exchange (ASX) this year, which means more investment opportunities.

Elixinol Global (ASX:EXL) is one of the largest Australian cannabis stocks, with a market cap of AU$537.79 million. The company was formed in 2018 when Colorado-based Elixinol partnered up with Hemp Food Australia to form an international brand and launch an initial public offering. 

While Hemp Food Australia manufactures and distributes hemp food and skincare products, Elixinol is a retail provider on the CBD side of things, with dietary supplements and topical cannabis products. In its 2018 annual report, Elixinol said that group revenues increased by 121 percent over pro forma full year numbers for 2017. The report also states that Elixinol plans on becoming a “top five CBD business in Europe” and intends to grow CBD export markets in Asia this year.

Another big player in the Australian space is Cann Group (ASX:CAN,OTC Pink:CNGGF) with a market cap of AU$311.97 million. Established in 2014, Cann Group was the first company to be issued a cannabis research licence and the first to be issued a medical cannabis cultivation licence by the Australian government in 2017.

It’s since worked to develop and supply cannabis, cannabis resin and medical cannabis products to patients for everything from multiple sclerosis to chronic pain. Aurora Cannabis is the company’s largest shareholder, with a stake of 22.9 percent.

In an agreement announced earlier this year, Cann Group said that it would begin the construction of a new growing facility in Victoria to produce medical cannabis for international and domestic markets with an expected yield of about 50,000 kilograms of dry cannabis flower per year. This move puts Cann Group ahead in terms of production in a market that is still largely driven by imports.

There is also Althea Group (ASX:AGH), which currently has a market cap of AU$242.96 million. Althea is a producer, supplier and exporter of pharmaceutical-grade medical marijuana and received its licence to cultivate medical cannabis in 2018. Currently, the company operates in regulated medical cannabis markets including Australia and the UK.

In 2018, the company partnered with Canadian cannabis player Aphria (TSX:APHA,NYSE:APHA), which earned a 25 percent interest in Althea via a AU$2.5 million investment. However, the Canadian firm split off from this endeavour in October 2019, selling nearly 37 million common shares of Althea.

Althea has made outreach an important part of its business model. The company launched the Althea Concierge platform, a free online service that allows healthcare professionals to access treatment plans with information about specific Althea marijuana products.

Australia cannabis investing: Future outlook

In 2018, the medical cannabis industry in Australia was valued at a slight AU$17.7 million, but a forecast from Prohibition Partners, a market consultancy for the cannabis sector, projects huge growth in value over the next 10 years.

By 2028, the medical cannabis market in Australia is expected to hit AU$3.04 billion, and the recreational market is expected to be valued at AU$7.89 billion in the event that recreational use is legalized.

The Prohibition Partners report also notes that, while the country is developing its own marijuana cultivation, Australia is still heavily dependent on Canadian imports for product.

Alongside the legalization of medical cannabis was the legalization of overseas exports in 2018, and Australia has big plans for the growth of its international presence. “We’d like to be potentially the world’s number one supplier,” said Australian Health Minister Greg Hunt on a local radio station.

In response, some companies in Australia, such as Cann Group, have already made investments towards building larger facilities to meet the demand.

There’s also been talk about the legalization of cannabis for recreational use. One of Australia’s internal territories, the Australian Capital Territory, may become one of the first states in the country to make it legal to grow or possess cannabis for personal use. New parliamentary rules may delay the passing of the bill, but there has been growing support for complete cannabis legalization across the country.

Because of its proximity to the region, Australia is also well positioned to break into the burgeoning Asian market, which has become more attractive since the recent legalization of medical marijuana in South Korea and Thailand.

Overall, while recreational marijuana is still illegal in Australia, the growth of the country’s medical cannabis industry — and the Australian marijuana companies that exist within it — will continue to grow investment opportunities.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.