ASX cannabis shares haven't exactly been smoking hot this year.
That's partly because similar headwinds facing cannabis stocks worldwide have hit the sector.
Firstly, there's rocketing interest rates. Higher rates have hit growth shares particularly hard as investor risk appetite has waned. Secondly, there's the slowing pace of legalised markets across the world.
Legislation in the United States, the world's largest economy, is being closely watched. But the future of the legal marijuana market in the highly influential nation remains uncertain.
ASX cannabis shares under pressure
So how have these headwinds impacted ASX cannabis shares?
Well, so far in 2022:
- Incannex Healthcare Ltd (ASX: IHL) shares are down 64%
- Creso Pharma Ltd (ASX: CPH) shares are down 65%
- Bod Australia Ltd (ASX: BOD) shares are down 60%
With the US markets having a big impact here in Australia, investors would do well to keep an eye on the midterm election results. The election is being held tomorrow, 8 November, with results expected over the coming days.
Why the US midterm elections matter to investors Down Under
If you're looking at buying ASX cannabis shares, here's what's a stake in the midterm elections.
First, US President Joe Biden has expressed a desire to legalise marijuana on a Federal level. Currently, it remains illegal federally, despite a growing number of states having given recreational and medicinal use the green light.
As you may recall, on 7 October, Biden said he was pardoning everyone convicted of simple marijuana possession under federal law.
US cannabis shares broadly rallied, as did several on the ASX.
Incannex Healthcare shares leapt 11% over two days from the closing bell on 11 October through the end of trade on 13 October.
Bod Australia also shot 11% higher on 11 October.
Creso Pharma went the other direction. The ASX cannabis share lost 25%. Though it should be noted that came after the company announced a shakeup to its board and a potentially unwanted name and branding change proposal.
Now, if the Republicans retake control of either the House or Senate, it's unlikely that marijuana will be legalised on a federal level anytime soon. And, according to most polls, it's likely the Democrats will lose at least one of those chambers of Congress.
But let's not forget how unreliable polls have been in recent years.
The second thing to watch that could have a knock-on effect on ASX cannabis shares is the referendums taking place on a state level.
Voters in five US states – Maryland, Arkansas, Missouri, North Dakota and South Dakota – will decide whether their state joins the legal bandwagon or maintains the status quo.
Maryland is one to pay particularly close attention to.
According to Bloomberg Intelligence analyst Kenneth Shea, "If four or five approve, it would probably be deemed a positive, but if Maryland does not approve, that would definitely be deemed a negative."
Stay tuned.
