A $3k investment in ASX cannabis stock Incannex 5 years ago is now worth $15,000. Here's why

This medicinal cannabis company has been a rare winner in its field.

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Man in the green house growing medical cannabis

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Key points

  • ASX cannabis stock Incannex has not met the same fate as many of its peers in the medical marijuana space
  • An investment into Incannex shares would have turned $3,000 into $15,000 over the past five years
  • This success can be put down to the company's ASX 300 inclusion, acquisitions and a new psilocybin drug

It's been a while since ASX cannabis stocks have been popular with ASX investors. They were all the rage a few years ago with many cannabis shares recording triple-digit gains over 2020 and 2021.

But the hype has decidedly died down over 2022 and 2023 so far. Yet that doesn't mean ASX cannabis stocks like Incannex Healthcare Ltd (ASX: IHL) haven't been worth owning.

In fact, Incannex shares have been one of the best investments on the ASX in recent years. Five years ago, this cannabis stock was going for just 2 cents a share. Today, the Incannex share price is sitting at 10 cents a share, up a whopping 425% from where it was back in May 2018.

We won't dwell on the fact that back in March last year, Incannex was going for as much as 60 cents a share though. Yep, between May 2018 and March 2022, investors enjoyed a 2,900% return:

Even so, 425% is a stonking return for five years of waiting. It means that an investor who put just $3,000 into Incannex shares back in May 2018 would be looking after a $15,000 investment today.

So what's been the secret behind the success of this ASX cannabis stock?

Why has ASX cannabis stock Incannex shot the lights out?

Well, it's difficult to pinpoint why investors have lit up Incannex shares over the past five years. The company undoubtedly rode the ASX cannabis stock mania over 2021 and into 2022. Sentiment regarding ASX cannabis stocks may have dimmed but Incannex has still made some positive developments that have probably helped it to stay at the forefront of investors' minds.

Last year, Incannex shares got a major boost when the company was selected for inclusion into the S&P/ASX 300 Index (ASX: XKO). The ASX 300 is one of the major stock market indexes on the ASX and is tracked by exchange-traded funds (ETFs) like the Vanguard Australian Shares Index ETF (ASX: VAS).

Mushrooms and the ASX 300

When a share is included in an index like the ASX 300, the ETFs that track it have to buy that share. This can lead to an increase in trading and liquidity, and a boost in valuation. That's probably why we saw the Inannex share price rise by 20% in the lead-up to its ASX 300 initiation last year.

2022 also saw Incannex make some big moves in its own space too, which might have gotten more investors on board with the company's vision. Incannex finalised the acquisition of APIRx Pharmaceuticals in August last year.

This enabled the company to add 22 clinical and pre-clinical projects to its books. Following the acquisition, Incannex declared that it now had the "world's largest portfolio of patented medicinal cannabinoid drug formulations and psychedelic treatment protocols".

And it was only back in March this year that Incannex announced that it would be developing and manufacturing its own psilocybin-based drug for clinical trials. Psilocybin is the active chemical in 'magic mushrooms'. Incannex hopes that its drug will help patients suffering from anxiety disorders.

So it looks like Incannex's success over the past five years can be put down to a combination of all of these factors. No doubt long-term investors in this ASX cannabis stock will be pleased with its share price growth over this period. But let's see how the company fares going forward.

At the current Incannex share price, this ASX cannabis stock has a market capitalisation of around $160 million.

Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. 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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