Why ASX Cannabis Stocks are Down — Should You Invest?

It’s been a tough year for ASX cannabis stocks with many companies shedding value over a 12-month window.

Here are one-year returns for a selection of these stocks:

  • Cann Group Limited [ASX:CAN]: -80.80%
  • AusCann Group Holdings Ltd [ASX:AC8]: -72.17%
  • Elixinol Global Limited [ASX:EXL]: -55.48%
  • Bod Australia Limited [ASX:BDA]: -42.57%
  • Althea Group Holdings Limited [ASX:AGH]: 48.75

As you can see, only Althea has emerged from the last year with a gain to show for it.

It’s worth taking a look at this chart again to see what’s happening to cannabis stocks globally:

ASX Cannabis Stocks - Price Chart Trend Global

Source: tradingview.com

This is the ETFMG Alternative Harvest ETF [MJ], which tracks a range of global cannabis companies.

You can see their top 10 holdings below:

Cannabis ETF - Top 10 Stock Holdings

Source: https://etfmg.com/

So these big companies have been hit hard and it seems that the hype has come out of the market.

In a brand-new report titled ‘Top Three Pot Stocks for 2020’, Sam Volkering reveals three Aussie pot players which could dominate the legal marijuana market in 2020 and beyond.

Global trends impacting the Aussie cannabis market

And ASX cannabis companies have felt the pinch, too.

Turns out that the wait for profits from these companies may have become to long for investors.

Let alone sizeable revenues.

The companies have had to go after European (UK included) markets, the US, Canada etc.

Basically, countries where they can actually sell significant amounts of their product.

The Australian market is still in its infancy. The companies that are having success with the medicinal products are seeing steady growth in patient numbers, but this hasn’t led to earnings, yet.

And the windfall for investors expected from a major regulatory development hasn’t materialised since the heady days of early 2018.

So what’s the plan from here on out?

Our editor, Sam Volkering makes a great case for rethinking the cannabis market before 2020.

It may come down to something as simple as patience.

I’d hazard a guess that the age profile of many retail investors in ASX cannabis companies would be younger.

So they may be able to wait it out.

Consolidation phase for ASX cannabis companies as hype fades…

In the meantime, I expect there to be a consolidation phase for these companies, where some of the smaller players will be acquired.

Some businesses may fail as well.

There’s only so many times you can go for a capital raise to grow a struggling company.

As a result, it may not be wise to try and pick the bottom of this market.

Wait for the early signs of a momentum shift and be savvy.

Look for significant revenue and high margins.

One final thought.

This is the Gartner Hype Cycle:

Gartner Hype Cycle - Cannabis Stocks

Source: gartner.com

It is usually applied to technology innovations but it’s also relevant to the global cannabis market.

It would also match up well with the recent history of ASX cannabis companies.

A ‘peak of inflated expectations’ around early 2018, followed by a trough.

Whether we have seen the bottom of that trough yet is hard to say.

In the short-term there may be more pain to come.

But keep your eyes peeled for that shift — it may come sooner than you think.

Regards,

Lachlann Tierney,

For Money Morning

PS: Learn about the three most exciting pot stocks on the ASX right now. The top pick actually has significant revenue already. Download.


Lachlann Tierney is a writer for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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