ASX pot stocks have been skyrocketing in December

Recent global events have caused the share prices of many ASX pot stocks to skyrocket. Let's take a closer look.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Marijuana companies – or "pot stocks" to those who prefer brevity – were all the rage back in late 2017 and early 2018.

California, America's most populous state and the fifth largest economy in the world, was legalising the recreational use of cannabis, and Canada had announced it would be doing the same. A new, potential multi-billion-dollar global industry in recreational cannabis was basically being invented overnight.

But jump forward a couple of years and the winds have gone out of the sales of most pot stocks. Take AusCann Group Holdings Ltd (ASX:AC8) as an example. In January 2018, it seemed like AusCann could grow into the leading medical marijuana company in Australia, and excitement around its prospects had pushed its share price up towards $2. But since then its share price has trended steadily downwards. Its shares are now valued at just $0.215 and its total market cap has dipped under $70 million.

The share price charts of other once promising companies, like Cann Group Ltd (ASX:CAN) and THC Global Group Ltd (ASX:THC) tell a similar story. Despite all the hype around legalisation, it seemed like market saturation meant that only those few major players at the very top could actually turn a profit. In the US state of Oregon, one of the first states in the country to legalise the recreational use of marijuana, new sellers flooded the market, driving pot prices down.  

However, something curious has been happening over the last month. The share price of Cann Group has doubled in just a few weeks, while that of fellow small-cap Creso Pharma Limited (ASX:CPH) is up an astounding 650% since early November.

What is driving the gains?

A couple of key global events have been behind the surge in ASX pot stock valuations. Firstly, in early December, following recommendations from the World Health Organisation, the UN removed medical marijuana from its list of Schedule IV narcotics. Schedule IV contains harmful and highly addictive drugs like heroin and other opioids.

Many governments look towards these UN schedules for guidance on how to classify drugs, and so this downgrade could potentially lead to further global acceptance of medical marijuana.

The second key event was the passing of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act by the US House of Representatives. While many US states have legalised cannabis, it still remains illegal under federal law. The MORE Act aims to decriminalise weed at the federal level and erase non-violent federal marijuana convictions.AC8

The MORE Act is unlikely to pass a Republican-controlled Senate, but it is still a demonstration of continually changing attitudes towards marijuana in America. And it has ramifications on a global scale, with many investors now renewing their interest in local Australian cannabis companies.

However, the same problems of market saturation and high competition still remain, meaning picking winners in this race is still an incredibly risky enterprise.

Motley Fool contributor Rhys Brock owns shares of Creso Pharma Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Gainers

A woman's hand draws a stylised 'Top Ten' on a projected surface.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a sobering end to the week's trading this Friday.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Share Gainers

How a $9k investment in this ASX All Ords stock ballooned to $35,234 in just 3 years!

Shares in the ASX All Ords stock have rocketed even as it’s paid out market-beating dividends.

Read more »

Two colleagues at work looking at a tablet and smiling at a rising share price.
Share Gainers

Why AIC Mines, Bendigo and Adelaide Bank, Patriot Battery Metals, and Vulcan Energy are racing higher today

These shares are ending the week in a positive fashion.

Read more »

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.
Share Gainers

Guess which ASX lithium share just leapt 13% on major financing news!

Investors are bidding up the ASX lithium share on the back of major financing news.

Read more »

A neon sign says 'Top Ten'.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX 200 was on fire today, with almost every sector surging.

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Share Gainers

Why Aristocrat Leisure, Graincorp, Incitec Pivot, and Patriot Battery Metals shares are rising today

These shares are having stronger-than-average sessions on Thursday. But why? 

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Share Gainers

Guess which ASX healthcare stock just exploded 63% on Federal budget funding news!

Investors are bidding up the ASX healthcare stock amid extra funding in the Federal budget.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to the races for ASX shares this Wednesday.

Read more »