Could ASX cannabis shares be set for a smoking hot rebound?

ASX cannabis stocks could be set for a strong finish to 2024.

| More on:
A man in a horse head mask and suit jumps for joy on a beach.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Cannabis Shares

Man in a cannabis greenhouse looks unhappy and puts his thumb down.
Cannabis Shares

Why are these 2 ASX cannabis stocks sputtering today?

Up 174% in 2023, this ASX cannabis share is giving back some more of its gains today.

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Cannabis Shares

Guess which ASX cannabis share is crashing 36% following an FDA blow

Rookie mistake: This cannabis share just missed out on FDA approval for a simple reason.

Read more »

A Cronos Australia farmer and ASX cannabis shares investor stands in a field of cannabis plants and smiles at the camera
Cannabis Shares

Could ASX cannabis shares be set for a resurgence?

The world's legal and medical fraternities are taking small steps forward in the medicinal cannabis movement.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Cannabis Shares

This ASX cannabis stock is up 160% since June, and it has an FDA ruling coming up!

Investors are very excited about this cannabis stock.

Read more »

two men in formal business clothing closely inspect a bud from a cannabis crop.
Cannabis Shares

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.

Read more »

A hip young man with a beard and manbun sits thoughtfully at his laptop computer in a darkened room, staring at the screen with his chin resting on his hand in thought.
Cannabis Shares

Should I buy Incannex shares while they're at multi-year lows, or steer clear?

Is the cannabis-based pharma company a bargain buy right now?

Read more »

Man in the green house growing medical cannabis
Cannabis Shares

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.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Cannabis Shares

Which ASX cannabis share is surging 27% on record quarterly results?

Althea CEO Josh Fegan has declared "a landmark turning point" for the company.

Read more »