Why ASX cannabis shares just jumped back into the spotlight

ASX cannabis shares operate in a nation where medical marijuana is legal but recreational use remains broadly forbidden.

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ASX cannabis shares have had a tough year.

That's despite the fact that the cannabis stocks operate in a country where medicinal marijuana is technically legal. That's enabled them to provide valuable health services to many thousands of Australians.

In Victoria alone, around 65,000 people were reported to have medicinal cannabis prescriptions in March this year.

But that hasn't helped lift the fortunes of ASX cannabis shares like Incannex Healthcare Ltd (ASX: IHL), Little Green Pharma Ltd (ASX: LGP), and Cann Group Ltd (ASX: CAN).

Here's how these three ASX cannabis shares have performed over the past 12 months:

  • Little Green Pharma shares are down 37%
  • Cann Group shares are down 48%
  • Incannex Healthcare shares are down 53%

Now these are obviously not the kind of returns any investor wants to see.

But the longer-term outlook for ASX cannabis shares may have just gotten a bit brighter.

Could this help boost ASX cannabis shares?

Medicinal marijuana was legalised in Australia in 2016.

But, with the exception of the ACT, recreational use remains verboten. That's seen police pursue more than 700,000 pot-related offences since 2010 across the nation.

Now, in a move that could boost ASX cannabis shares longer-term, the Legalise Cannabis party has introduced bills to legalise marijuana for personal use as well as medical reasons.

The bills were tabled yesterday to three state parliaments: Western Australia, Victoria, and New South Wales. The Legalise Cannabis party noted this is the first time the same bill has been simultaneously introduced in three states.

It will, however, be some time before ASX cannabis shares might directly benefit from the proposed bills, all called the Regulation of Personal Adult Use of Cannabis Bill 2023.

While the move has broad support from the Liberal Democrats and Greens, it will need some support from the major parties to pass.

Victorian premier Daniel Andrews has already flagged his opposition. "My position is the law as it stands now," he said.

But then laws can and do change all of the time.

What changes are being proposed?

In a nutshell, the new bill would allow adults (18+) to possess modest quantities of marijuana and grow up to six plants at their homes. This is largely in line with the new laws that came into effect in the ACT in 2020.

In itself, this is unlikely to have any short-term material impact on ASX cannabis shares, as it won't directly open up any larger market opportunities.

Commenting on the proposed bill, New South Wales upper house MP Jeremy Buckingham said (quoted by ABC News), "This is a historic move by the Legalise Cannabis Party across Australia to bring a coordinated reform for cannabis legalisation."

Victorian MP David Ettershank added:

The majority of Victorians support the regulation of cannabis, and a huge number of Victorians … regularly consume cannabis. There's a lot of politicians, again from both sides of the house, who use cannabis…

Cannabis needs to be taken out of the world of crime and regulated intelligently.

Now, here's where ASX cannabis shares could potentially receive some major tailwinds over the longer term.

According to police estimates, Australians spend some $8 billion a year on marijuana. And all of that goes straight into the black market.

The next planned step of the legalisation process was highlighted by Legalise Cannabis Party upper house member Brian Walker, a former GP.

Walker said his party is aiming for a regulated, legal cannabis market.

"We want to move further and actually take it to the stage of actually being taxable so we can get some revenue as a government for that," he said.

Not only would the government be dipping in for its tax take if this succeeds, but ASX cannabis shares would find a much larger market for their products.

Motley Fool contributor Bernd Struben 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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