Last year was a bear market for cannabis stocks globally. During 2019, the excitement that had followed the legalisation of marijuana in many jurisdictions was replaced by cautio as investors realised early forecasts weren’t necessarily matching reality.
We take a look at what 2020 holds for 4 ASX cannabis shares.
State of play
There are now more than 30 shares on the ASX that are wholly or partly involved in the cannabis business. Research firm New Frontier Data suggests the Australian cannabis market, both legal and illegal, is worth between $4.6 billion and $6.3 billion, with an estimated 2 million users consuming nearly 400,000 kilos of cannabis per year. Europe-based firm Prohibition Partners has estimated Australia’s recreational marijuana market could be worth up to $8.8 billion per annum in a decade if it is legalised soon. In September, the ACT legalised the possession and cultivation of small amounts of cannabis for personal use. The legislation, however, conflicts with Commonwealth laws that prohibit the possession of cannabis.
What’s in store in 2020?
Interest in the cannabis sector dwindled over 2019 as investor sentiment waned. ASX-listed cannabis companies are generally relatively young businesses making their way in a new industry. Those with ties to relatively more mature United States and Canadian companies stand to benefit from their deeper market knowledge.
In Australia, access to medical cannabis remains constrained; doctors must make an application to the Therapeutic Goods Administration’s Special Access Scheme including clinical justification for a prescription for cannabis. Medical cannabis is not subsidised under the Pharmaceutical Benefits Scheme (PBS) so can be expensive, costing users around $200 to $600 per month.
Increasing clinical evidence of the efficacy of medical cannabis should facilitate medical and social acceptance of its use. This may also increase pressure for some medicinal cannabis products to be listed on the PBS, especially where these products can replace more expensive or riskier drugs. Increased medical and societal acceptance of the use of medical cannabis over time should assist in increasing the uptake of medical cannabis users. More favourable legislation including legalisation of recreational cannabis use would also give these ASX shares a boost.
Althea Group Holdings Ltd (ASX: AGH)
Althea established a UK subsidiary, Althea MMJ UK Ltd, in early 2019. The UK has a population of 66 million, implying potential to treat up to 2.9 million people with medicinal cannabis (according to Althea’s estimates). In July the first UK clinic (in London) was established, followed by the Bristol clinic. The first patient to be prescribed Althea’s medicinal cannabis in the UK received their product on 31 July.
In late 2019, Althea entered a memorandum of understanding with nimbus health GmbH to supply Althea products for sale and distribution in Germany. Nimbus is a wholesale pharmaceutical license holder, which estimates it has access to 25% of German cannabis patients through its pharmacy network. According to Althea, the German market consists of approximately 60,000 patients currently and is expected to grow to 1 million by 2024.
In December, Althea announced 3,688 patients had now been treated with its medicinal cannabis products in Australia. An average of 35 patients were added each business day in the first half of December, up 46% from November. Althea’s immediate focus is on rapidly building its prescriber base. The goal is to reach 10,000 patients in Australia in 2020, while adding new products to the range and continuing expansion in the UK and Germany.
Auscann Group Holdings (ASX: AC8)
Auscann released its cannabinoid-based hard shell capsules for clinical evaluation in December. Auscann’s capsules are designed to address stability, consistency, and dosing problems that exist with current oil-based cannabinoid medicines. Dose-controlled capsules are easy to administer and allow for consistent monitoring of health outcomes. Following positive test results, Auscann will be in a position to progress on an accelerated path to commercialisation. The company aims to have the capsules available for doctors to prescribe in the first half of calendar the year 2020.
Auscann is also in the final stages of constructing a product development facility in Perth. This will enable Auscann to build a product pipeline to accompany and improve their capsules. Construction is anticipated to be completed this quarter.
Botanix Pharmaceuticals Ltd (ASX: BOT)
Botanix received ethics approval to conduct a Phase 1b study into the treatment of papulopustular rosacea in the fourth quarter of 2019. In the same quarter, Botanix began a study into the use of cannabidiol as an antibiotic effective against staph and golden staph. Top line results from Botanix’s Phase 2 atopic dermatitis study are due to be reported in the first quarter of 2020, with the atopic dermatitis market estimated to be worth US$25 billion by 2027.
Botanix is moving forward with preparation for Phase 3 clinical trials into its cannabidiol acne solution in 2020. Phase 2 clinical studies in 2019 did not show statistically significant results using the solution in US sites, but did show statistically significant results in Australian sites. Efficacy results in Australian sites were in line with leading topical acne prescription products.
Cann Group Ltd (ASX: CAN)
Cann Group plans to split the construction of its third grow facility (located in Mildura) into 3 stages. Staged construction is expected to ensure production capacity more closely matches anticipated growth in demand for medicinal cannabis. The first stage is expected to provide for a production capacity of 25,000 kilograms of dried flower with target commissioning in late 2020. The timetable for stages 2 and 3 will be determined based on ongoing product demand.
Cann Group’s first medicinal cannabis product produced from its Australian cultivation operations was packed by IDT in December and is undergoing stability testing. Dried flower was packed into 10 gram bottles with testing data due to be available at the end of January. This will allow for commercial launch to Australian patients in early 2020. Patients can access the product under the Special Access Scheme, with product distributed to pharmacies and hospitals by Symbion Health under their distribution agreement.
This year will be an interesting one for cannabis stocks. The euphoria associated with the early days of legalisation has worn off as investors look hard at the realities of operating in the emerging industry. As the Australian industry takes tentative steps towards maturity we will look for companies growing customer numbers and revenues, and producing positive clinical study results.
Motley Fool contributor Kate O'Brien has no position in any of the 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 Scott Phillips.
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