Pot stocks could be about to smoke the ASX

Credit: UK police

Today will see medicinal cannabis company Zelda Therapeutics Ltd (ASX: ZLD) hit the ASX boards following its successful reverse takeover of Gleneagle Gold.

According to its prospectus the company aimed to raise $4 million from the listing that will be used to fund initial phase 2 clinical trials. Management has its eyes on the potentially lucrative sleep disorder, wound care, breast cancer, and skin disorder treatment markets.

Zelda Therapeutics joins a growing list of “pot stocks” on the ASX including Creso Pharma Ltd (ASX: CPH) and MMJ Phytotech Ltd (ASX: MMJ), with more set to follow after the Turnbull government legalised medicinal cannabis.

Another upcoming listing will be AusCann via a reverse takeover of TW Holdings. AusCann is expected to hit the ASX boards early in December and I believe there will be strong interest in the company.

As well as having a partnership with Zelda Therapeutics, AusCann has significant ties with the largest North American producer –  Canopy Growth Corp.

Not only is the CAD$1.7 billion industry giant a major shareholder, but it also provides AusCann with access to Canopy’s expertise and intellectual property in the cultivation, manufacture, and supply of high-quality medicinal cannabis products.

I believe this strategic partnership is invaluable and will give the company a real edge over its competitors.

Speaking of which, although the industry may appear crowded it is worth noting that AusCann and Zelda Therapeutics are targeting different areas of the market.

AusCann is targeting palliative care symptoms, chemotherapy-induced nausea, treatment-resistant childhood epilepsy, and chronic pain. The Australian chronic pain market alone has been estimated by AusCann to be worth upwards of $5.8 billion a year.

I believe this shows just how big a market opportunity the company has ahead of it and why it could prove to be a great buy and hold investment when it lists. Albeit, restricted to a just a small part of your portfolio.

In my opinion the medicinal cannabis industry has enormous potential here in Australia. But investors should remember that not all shares in the industry are of the same quality.

Zelda and AusCann both have experienced management teams and strong strategic partnerships which I believe gives them an edge. But if I were to pick one I would suggest investors wait for AusCann to list in December.

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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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