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Why the Auscann Group Holdings Ltd share price has gone nuts today

The Auscann Group Holdings Ltd (ASX: AC8) share price has skyrocketed this morning after emerging from a trading halt.

In early trade the pot stock is up a massive 22% to 71 cents.

What happened?

As I mentioned yesterday, AusCann’s shares went into a trading halt pending an update on its Australian operations.

This morning the company released its update advising that it has been granted a licence to cultivate medicinal cannabis in Australia by the Office of Drug Control, making AusCann one of only a few companies to be granted a licence.

This means AusCann can now undertake cultivation of medicinal cannabis at its Western Australia site, putting it in a strong position to deliver on its aim of becoming a leading producer and supplier of high quality medicinal cannabis to Australian patients.

Should you invest?

Whilst this is undoubtedly great news and a huge step forward for AusCann, let’s not forget that there is still a long way to go and an investment in the company does carry high risks.

There is an awful lot of future growth potential built into its share price at the moment and eventually the company will have to deliver on it. Failure to do so could result in a sharp drop in its share price.

Thankfully for the company it does have an experienced management team and the shared expertise of C$1.5 billion medicinal cannabis producer Canopy Growth Corp to help it on its way.

The next step for the company will be to educate doctors on the benefits of medicinal cannabis. To do this the company has initiated a medical education program and will bring in leading doctors in the field to present seminars to Australian doctors later this month.

While things certainly do look very promising for the company and the industry as a whole, I would suggest investors keep Auscann and its peers Zelda Therapeutics Ltd (ASX: ZLD) and CANN GROUP FPO (ASX: CAN) on their watch list for now.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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