Why Auscann Group Holdings Ltd shares stormed higher today

In morning trade the Auscann Group Holdings Ltd (ASX: AC8) share price has bounced back strongly from Friday’s sizeable decline with a 7% jump higher to $1.71.

This extends the medicinal cannabis company’s year-to-date share price gain to a whopping 113%.

What happened?

This morning AusCann announced that it has entered into a heads of agreement with Australian Pharmaceutical Industries Ltd (ASX: API) to form a wholesale agreement for the distribution of AusCann’s cannabinoid medicines throughout Australia.

According to the release, the collaboration between AusCann and Australian Pharmaceutical Industries aligns the competencies of AusCann and its expertise in the medical cannabis industry and Australia’s leading wholesale distributor of pharmaceutical products.

Management believes that the agreement will help establish strong distribution channels for the supply of its medications to Australian patients.

To begin with, AusCann will distribute imported cannabinoid medicines from its Canadian partner, Canopy Growth Corporation, before it establishes its own local supply of medications in the near future.

Should you invest?

Although at this stage it is difficult to know what will become of the medicinal cannabis industry both here and overseas, I do believe that if it grows as expected in Australia then AusCann has the potential to be one of the big players in the industry.

An agreement with Australian Pharmaceutical Industries, operator of the Priceline pharmacy chain, is certainly a major step towards achieving this.

A lot will now depend upon the success of its outreach and education program and whether it can convince prescribing doctors to recommend medicinal cannabis to patients. If it can then AusCann could prove to be an excellent investment.

But it is of course early days and there is an awful lot of future growth built into its share price at this point. This would make it largely unsuitable for investors with a low tolerance for risk.

So if AusCann is too high risk for you, then check out these top blue-chip shares which have been tipped to shine in 2018.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Australian Pharmaceutical Industries Limited. 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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