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Why I think Auscann Group Holdings Ltd is the best pot stock to buy

Australian pot stocks ridden a wave of positive global sentiment following news that California has officially legalised recreational cannabis, and that similar legislation seems just around the corner in Canada.  

Developments at home have also helped buoy stock prices: earlier this month the Federal Government announced that it would allow Australian companies to export cannabis-based medicines, lending legitimacy to an industry many in the investment community had not taken seriously.  

Health Minister Greg Hunt even went so far as to say that the government would like Australia to one day be “the world’s number one medicinal cannabis supplier”. 

With pronouncements like that – from the Federal Government no less – it’s no wonder local investors have been desperate to put their money into Australia’s pot stocks.  

But before you throw your life-savings away it’s important to remember that, despite the skyrocketing share prices, most of these companies are still in their infancy, are yet to generate any substantive revenue, and are very high risk investments.

It’s probable that not all of them will survive the next few years – let alone ever turn a profit. 

However, I believe Auscann Group Holdings Ltd (ASX: AC8) can be a success, and that’s why I’ve invested in it myself. 

Auscann’s board is led by founding Chairman Dr Mal Washer, a medical doctor and former member of the Australian House of Representatives, and also includes Hon Cheryl Edwardes, the former Attorney-General for Western Australia and former Minister for the Environment.  

I call out these two board members in particular because a key requirement for success in this developing industry will be navigating the bureaucracy of the political system. And the proof is in the pudding: through its partnership with Tasmanian Alkaloids, Auscann is currently the only ASX-listed company to have secured all the required licences to cultivate, harvest, manufacture and distribute final dose form cannabinoid medicines. 

Tasmanian Alkaloids is the largest opium poppy processing company in Tasmania, so no doubt its experience securing licences to grow controlled substances was an aid to Auscann as well. Plus, Auscann can leverage Tasmanian Alkaloids’ existing connections in the global pharmaceuticals industry. 

Being in possession of all these licences allows Auscann to pursue its business model of full integration across the medicinal cannabis supply chain – starting from plant genetics and continuing through crop cultivation, manufacture of pharmaceuticals, testing, analysis and ending with its in-house medical outreach programs. 

Along with Cann Group Ltd (ASX: CAN), Auscann is one of the only two ASX-listed cannabis companies actively developing its domestic Australian operations.

Other companies in the cannabis space, like MMJ Phytotech Ltd (ASX: MMJ) and Creso Pharma Ltd (ASX: CPH), which I wrote about recently, are mostly concentrating on their overseas operations, targeting Canada in particular. This means that Auscann and Cann Group might end up being the only two key Australian exporters of medicinal cannabis products in the short-term. 

And finally, if it is overseas exposure you’re after, Auscann’s largest shareholder is Canopy Growth Corporation, the biggest producer of medical cannabis in North America. Canopy’s CEO, Bruce Linton, is a non-executive director of Auscann, and can provide guidance on the full cannabis supply chain – including export. 

Foolish takeaway

An investment in any small cap stock is risky, and you would have to consider your own risk appetite before jumping into the cannabis space.  

But of all the pot stocks currently listed on the ASX, in my mind Auscann seems to possess the leadership team and strategic partnerships to capitalise on the Australian Federal Government’s relaxation of export restrictions. 

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Motley Fool contributor Rhys Brock owns shares of AUSCANN FPO, MMJ Phytotech and Creso Pharma. 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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