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Can these ASX pot stocks deliver growth in 2019?

Talking about pot stocks seems so 2018. Just like the mysterious crypto boom, it feels like the market excitement generated by cannabis stocks was just a flash in the pan. Over the last 12 months, the share prices of all the major local pot stocks have trended way down – and I mean way down.

Cann Group Limited (ASX: CAN) and THC Global Group Limited (ASX: THC) have both shed about 40% of their market caps, while shares in Auscann Group Holdings Ltd (ASX: AC8), MMJ Group Holdings Limited (ASX: MMJ) and Creso Pharma Limited (ASX: CPH) are all down over 50%. Suffice to say, this makes for pretty unpleasant reading for investors, like myself, who thought 2018 was going to be a banner year for the global cannabis industry.

And 2018 certainly did start out with a bang. New Year’s Day 2018 marked the official start date for the legal sale of the drug for recreational consumption in California, and local pot stocks surged higher. Investors flocked to Auscann in particular, and its share price doubled during the first week of January.

But since those heady days the industry has really come off the boil. The legalisation date for recreational weed in Canada came and went in October, to extremely limited fanfare in Australia. A lot of us were expecting big things when the first of the G7 nations enacted legislation to legalise the recreational consumption of cannabis, and the lukewarm response on local markets was especially disappointing.

So what can we expect from the global cannabis industry in 2019?

A new more liberal US Congress in 2019 may mean that marijuana laws will continue to be relaxed across America. This could pave the way for new states to be added to a growing list of those that have already legalised weed and which already includes California, Alaska, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington.

All this is to say that there is still a lot of growth potential in the global cannabis industry. According to an article by the Associated Press, legal marijuana was a US$ 10 billion industry in the US in 2018 and this should only increase in 2019, especially if more states legalise weed. Plus the Canadian market is still only in its infancy and should also continue to grow.

Many of the ASX listed pot stocks come with North American exposure. For example, small cap MMJ is a listed investment company that manages a portfolio of holdings in global cannabis companies. In addition to Australian-based Cannabis Access Clinics and Martha Jane Medical, its investments also include many Canadian companies like Harvest One and Weed Me.

And, of particular relevance for Australian medicinal cannabis companies, countries in the Asia Pacific region are also beginning to adopt more progressive drug policies: both Thailand and South Korea recently legalised medicinal marijuana. This could boost the export potential of the bigger, more established local players like Auscann and Cann Group.

Foolish takeaway:

Despite the fact that some of the wind has gone out of the sails of ASX pot stocks over the last year, I’m still reasonably bullish on the longer-term prospects for the global cannabis industry. It’s particularly exciting that Australian trading partners in the Asia Pacific region are enacting progressive drug policies.

One important thing to note is that, apart from Auscann and Cann Group, most of the other ASX listed cannabis companies are pretty small players with market caps under $100 million. This makes them risky investments, particularly at a time when equity markets are becoming more volatile. As such, if you have an interest in the cannabis industry it might be better to add them to your watch lists to see how they perform over the medium-term before committing to purchasing shares.

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

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