2 cannabis stocks that could smoke the ASX

Credit: UK police

Last February the Turnbull government passed legislation to legalise medicinal cannabis in news that provided a significant boost to ASX-listed ‘pot stocks’ like MMJ Phytotech Ltd (ASX: MMJ).

The company plans to cultivate cannabis on a commercial scale for use in various ‘medicinal’ products usually in the form of oral capsules, with a potentially huge global market of patients.

In fact if everything goes to plan for MMJ Phytotech the only thing higher than its share price could be the cannabis users.

However, shares currently sell for just 25 cents and the company has multiple regulatory and licensing hurdles to jump despite getting the green light to potentially distribute its pot product offerings into the Australian market.

It has a ‘farm-to-pharma’ strategy with cultivation facilities in Canada and clinical research facilities in Israel. The goal being to sell cannabis-based oral capsules for patients to take in helping treat a wide variety of medical conditions.

According to MMJ Phytotech treatable conditions include chronic pain, concussion, traumatic injuries or epileptic seizures. It also thinks its cannabis could aid cancer patients in enhancing their appetites.

Although claims as to the medicinal benefits of cannabis may be disputable, it’s indisputable that momentum is behind the legalisation of cannabis amongst Western governments worldwide.

In fact the US medicinal cannabis market has been estimated to be worth around US$2 billion alone.

Although it’s no secret most people use cannabis for recreational rather than medicinal purposes, with the black market for marijuana in the US estimated to be worth some US$50 billion to US$65 billion dollars.

Momentum is also building in the more liberal US states for recreational use to be legalised and this is another reason more cannabis-cultivating businesses are starting up.

Buy low, sell high?

Despite the growth prospects I think you’d have to be high to buy shares in a speculative business like MMJ Phytotech. It’s too speculative and unsurprisingly still has multiple (largely regulatory) obstacles ahead of it before it could possibly be considered a serious investment prospect.

Another Australia-based cannabis company named AusCann has also agreed to a backdoor takeover by ASX-listed TW Holdings Ltd (ASX: TWH). AusCann is also hoping to profit from the momentum behind the legalisation of cannabis, although it also looks far from investment grade.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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