Green shoots or just weeds? The outlook for ASX cannabis shares in FY23

Are cannabis stocks set to rise along with the broader industry in the new financial year?

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An older farmer wearing a checkered shirt and a straw hat stands in a green field of cannabis plants growing up to waist level as he smiles while thinking about the outlook for ASX cannabis shares in FY23

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Key points

  • ASX cannabis shares had a difficult time in FY22, but this could be shifting 
  • Research on the industry points to a potential growth period, which may or may not eventuate amid the current climate
  • Any gains on the charts would provide welcome relief for holders of some ASX cannabis shares in FY23

The ASX cannabis sector had its growth clipped in FY22 with plenty of shares declining in the financial year.

Turning to FY23, the outlook is choppy. Investors are continuing to navigate the prospects of higher inflation and/or potential economic recession, putting growth at risk.

These trends have spilled over into the new financial year. On the charts, ASX cannabis shares are taking an absolute hammering.

Let's take a look.

All growing puns aside, Australia's cannabis sector has been poised to grow by more than 80% year over year in CY22.

This growth could generate sales of more than $420 million, according to research conducted by FreshLeaf analytics, which has been researching Australia's cannabis industry since 2017.

The report, not freely available, said consumer trends are shifting to acceptance of medicinal cannabis use. Access is also improving for patients.

It also said that "psychedelics are a big part of a new future growth narrative," adding that government support will continue to play a large role through "down-scheduling".

Meanwhile, the Australian legal cannabis market was sized at $75 million in 2021.

The market is expected to grow at a compound annual growth rate (CAGR) of 30% from 2022 to 2030, according to Grand View Research.

"Increased use of marijuana, mostly for medical purposes, is boosting total market growth as customers migrate from traditional treatment methods to cannabis-based treatment," the report noted.

With growth potential on the horizon, this could weigh positively for several beaten-down ASX cannabis shares. These include Incannex Healthcare Ltd (ASX: IHL), Emyria Ltd (ASX: EMD) and Cronos Australia Ltd (ASX: CAU).

The returns of these ASX shares are shown below

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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