With a few notable exceptions, ASX cannabis shares widely underperformed again over the last year.
That's a far cry from the heady days of 2019 and 2020 when ASX cannabis shares joined their American-listed peers in setting investors' portfolios ablaze.
That boom came amid the early excitement over marijuana legalisation in Canada along with multiple US states.
But like their global peers, Aussie-listed pot stocks have mostly trended lower since then.
And the past year, which saw the All Ordinaries Index (ASX: XAO) gain 4.1%, is no exception.
Here's how these four leading ASX cannabis shares have performed over the 12 months:
- Botanix Pharmaceuticals Ltd (ASX: BOT) shares have soared 144.4%
- Little Green Pharma Ltd (ASX: LGP) shares are down 18.8%
- Ecofibre Ltd (ASX: EOF) shares are down 65.6%
- Cann Group Ltd (ASX: CAN) shares are down 61.3%*
(*Cann Group shares remain suspended as of 1 March.)
With the exception of Botanix, that's some pretty poor returns from the sector.
But ASX cannabis shares could be set for some fresh tailwinds thanks to none other than the US Drug Enforcement Administration (DEA).
Here's what could set ASX cannabis shares alight
For 50 years now marijuana has been classified as a Schedule I substance in the US. That's the same rating given to drugs like heroin, cocaine and LSD, substances considered to have no acceptable medicinal uses and that are prone to abuse.
But the DEA has been reviewing that classification in recent months. And yesterday (overnight Aussie time), news broke that the agency was moving to reclassify cannabis to a lesser category.
That caused some major excitement in American markets.
Shares in Canadian-listed Canopy Growth Corp (TSE: WEED), for example, rocketed 80%.
So far the reaction among ASX cannabis shares is mixed. While Little Green Pharma and Botanix shares are just about flat today, Ecofibre shares are up 13.3% at the time of writing.
How would the DEA's reclassification change market dynamics?
Moving cannabis to a less onerous drug classification would lower taxes on pot stocks and could also encourage more US states to legalise it, offering a growing legal market.
It would also help cannabis companies in the US to access banking services.
Dan Ahrens, managing director of Advisorshares Investments said (quoted by Bloomberg), "There's been a lot of rumours coming out in the last few days, but this looks official… I think it makes it easier for the House and Senate to act on SAFER Banking."
And, as Jefferies analyst Owen Bennett notes, a reclassification by the DEA could see more institutional investment flow into the sector.
While that would likely be more beneficial to American listed stocks, ASX cannabis shares could enjoy some welcome tailwinds from this shift.
"The major reason current multiples are depressed is lack of institutional ownership," Bennett said.
He added that the DEA's move:
Would hugely improve the prospects of full federal legalisation within the next five years, with a critical piece of this move making it easier to study cannabis and thereby fill in the data gaps where there may be concerns around its widespread use among the population.
