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ASX-listed pot stocks reviewed

So-called pot stocks have been popular on the ASX since the start of 2017, with a number seeing their share prices rocket up.

Stemcell United Ltd (ASX: SCU) saw its share price climb nearly 3,000% in one day in March after announcing that it had appointed the industry-acclaimed “King of Cannabis” Nevil Schoenmakers as a strategic adviser.

A portfolio of the following 14 ASX companies involved in the marijuana sector has rallied 278% since the start of this year.

The largest, TPI Enterprises Limited (ASX: TPE) has a market cap of $137 million according to Commsec. Medlab Clinical Ltd (ASX: MDC) has a market cap of $84 million says Google Finance, followed by MMJ Phytotech Ltd (ASX: MMJ) with $71 million and then Auscann Group Holdings Ltd (ASX: AC8) which is valued at $57.5 million.

MGC Pharmaceuticals Ltd (ASX: MXC) is valued at $48.3 million, closely followed by Cann Group Ltd (ASX: CAN) at $47 million. Creso Pharma Ltd (ASX: CPH) is valued at $33 million and Zelda Therapeutics Ltd (ASX: ZLD) on $31 million.

Then we have the minnows, including Stemcell United, Botanix Pharmaceuticals Ltd (ASX: BOT), Hydroponics Company Ltd (ASX: THC), Queensland Bauxite Ltd (ASX: QBL), Esense-Lab (ASX: ESE) and BOD Australia Ltd (ASX: BDA).

However, there are big differences in what each of the companies do along the marijuana supply chain.

Here’s a brief summary of some of the major players in the sector.

TPI Enterprises mostly produces narcotic raw material (NRM) from poppies but is moving into producing medicinal cannabis. In the 2016 financial year (FY16), TPI produced a loss before tax of $14 million, despite sales of $7.6 million. Those sales are mostly from NRM, not medicinal cannabis.

Medlab Clinical is a speculative biotechnology company that is starting human trials of different cannabis-based therapies. There’s no certainty that the trials will be successful, but Medlab is focused on other medicines as well as nutraceuticals. So far, that hasn’t lead to profits, with the biotech reporting a $1.8 million loss for the six months to the end of December 2016.

MMJ Phytotech is more a holding company, with a ~60% interest in Canadian corporation Harvest One Cannabis Inc (market cap of ~C$49 million) and its wholly-owned Israeli subsidiary, research and development company Phytotech Therapeutics Ltd. Harvest One is diversified too, with a horticultural arm named United Greeneries and medical business Satipharm AG. Phytotech Therapeutics is conducting medical trials with medicinal cannabis-based therapies. MMJ Phytotech had no revenues in the last six months, producing a first-half loss of $4.5 million.

Auscann aims to become a producer of medicinal cannabis in Australia, but has already completed its first harvest (of more than 300kgs) in Chile in April 2017. The company currently imports cannabis medicines into Australia, which will be used until its own product becomes available. Auscann even supplies Zelda Therapeutics for clinical trials. So far Auscann hasn’t generated any revenues, and we’ll have to wait for their June quarter report to find out if any progress has been made.

MGC Pharmaceuticals produces and distributes medicinal cannabis from a number of sites in Europe, and has a 51% interest in MGC Derma, a cosmetics and dermatological products company. MGC is also conducting clinical trials on a number of cannabis formulations for treatment of diseases such as epilepsy. In the March 2017 quarter, MGC saw $51,000 in sales from customers, which should ramp up over the next quarters.

Cann Group is a grower and licenced producer of marijuana as well as holding two cannabis research permits. First plants are expected to be harvested in early August 2017, so the company has yet to see much in the way of sales revenue. Canada’s second-largest listed medicinal marijuana company Aurora Cannabis Inc holds a 19.9% stake in Cann Group.

Creso Pharma has two divisions, with Creso Switzerland focused on development and commercialisation of medicinal cannabis both for humans and animals. The second division, Hemp Industries focuses on cultivating and producing hemp-based health products. Creso should see substantial sales flowing in the next few months with the imminent release of a number of products.

Zelda Therapeutics is focused on developing medicinal cannabis therapies and running clinical trials for insomnia, eczema and autism, as well as several pre-clinical cancer studies.

I won’t cover the smaller companies here – that’s for another post.

Foolish takeaway

It’s hard to tell which of these medicinal cannabis companies will be the successful ones at such an early stage in their life. Investors might want to view most (if not all) of these stocks as highly speculative and should, therefore, have limited exposure to them as a sector. Most investors portfolios should be chock-a-block full of stocks like the ones highlighted below.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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