On 14 October of 2016 the Aussie investing world, well aware of the stunning performance of medical marijuana stocks in the US and Canada, awoke to the news of the Narcotic Drugs Regulation 2016; an act opening the door for the production and licensing of marijuana for scientific and medical purposes here in Australia.
The race to cash in on the “green rush” was on.  Less than one week later an article appearing in the Sydney Morning Herald entitled Pot Stock Soars after Medical Marijuana Legislation reported the 14% rise in the share price of newly listed Creso Pharma (CPH) on its first day of trading.  New entrants flooded the market, with at least 14 “pot stocks” currently trading on the ASX and more on the way. 
Flash forward to 17 March of this year for another “pot stock” article in the SMH; this one entitled “Medical Cannabis Stocks are All the Rage, but It’s Still a Bubble”.  A few days before the article appeared ASX investors were treated to a classic example of bubble investing.
Stem Cell United (SCU), a tiny company working on medicinal treatments extracted from plants, announced its intention to enter the medical marijuana market, appointing a well-known expert in the field as a strategic adviser.  Investors reacted with a buying frenzy bordering on the manic.

The share price shot up from one $0.01 to $0.40, a staggering increase of 3,900%.  Despite its dramatic fall, the current share price of $0.025 remains more than double its pre-announcement price.
The entire ASX marijuana (cannabis) sector is now in full retreat, although most stocks are still trading above their entry price but well off the lofty heights propelled by a stampede of hungry investors.   The following table lists the price action of 14 ASX stocks engaged in some form in the marijuana or cannabis sector. 

Keep in mind that the majority of these companies listed this year. The earliest listing was MMJ Phytotech (MMJ), listing in 2015.  The rapidity and depth of the rise and fall in stock price suggests the possibility some, if not many, investors jumped in based on “hot sector” membership rather than any semblance of due diligence.  While all these companies are members of the newly named cannabis sector, they have widely varying business models.  To sort through the maze, investors need to first pay attention to the problem the company’s product addresses and the size of the target market.  While this may seem obvious, consider the number of investors jumping into a company – Stemcell United – with no qualifying factor other than an “intent” to move into medical marijuana and the addition of a strategic advisor.
The following graph from the US based market research company Grand View Research paints a bullish future for medical marijuana.

Add the increasingly legal sales of recreational marijuana to the mix and the outlook becomes even brighter.  In 2013 retail cannabis sales in U.S. amounted to about US$1.6 billion, with a forecasted rise to a high of US$8.2 billion by 2018, with more than half of the total coming from recreational sales.  Although it may be a long time coming, there is a move afoot to legalise marijuana for recreational use here in Australia.  Some of these companies have operations or expansion plans into the US, where recreational marijuana is already legal in some states; and into Canada, where recreational marijuana may be legalised within a year. 
Several of these companies are incorporating medical cannabis into existing, and sometimes complementary, operations, targeting a variety of medical conditions.  Others are starting fresh focusing on growing and cultivation.  A few are suppliers of growing systems while others are pursuing cosmetic uses.
The largest stock on the ASX by market cap, TPI Enterprises (TPE) is a grower and supplier of Narcotic Raw Material (NRM) for use by the global pharmaceutical industry.  The company listed in 2015 and grew revenues from $2.1 million in that year to $7.2 million in FY 2016 but has yet to show a profit.  In its 29 May Annual General Meeting the company announced its expansion into medicinal cannabis with a licensing application pending and a search for partners in process.
With an initial focus on the lucrative Canadian market, MMJ Phytotech is pursuing a “farm to pharma” business model with its triad of business units.  The company acquired two subsidiaries from Canada’s Harvest One Capital Corp along with a 60% interest in Harvest One’s two existing cannabis brands already in operation.  The subsidiaries provide MMJ with growing facilities through United Greeneries in Canada; and research and development and manufacturing through Satipharm, a developer and manufacturer of cannabis-based health products with distribution partnerships in place. Satipharm has a patented oral delivery system – the Gelpell ® Microgel Capsule.  MMJ also has 100% ownership in an Israeli-based company working on cannabis-based therapeutics for commercial distribution – Phytotech.  MMJ is a stock to watch, with two Phase 2 Clinical Trials underway for pain relief using the Gelpell ® system.
The first pot stock granted a commercial growing license in Australia – Cann Group (CAN) – listed on 4 May and is the best performer in terms of stock price to date, increasing close to 90% since listing.  

In addition to the growers license the company has two cannabis research permits for breeding and cultivation research program in conjunction with the federal government’s CSIRO (Commonwealth Scientific and Industrial Research).  To further boost investor confidence Cann Group has attracted the interest of Canadian medical marijuana producer and distributor, Aurora Cannabis Inc., with that company acquiring a 19.9% interest in the Cann Group.
Another 2015 listing, Medlab Clinical (MDC), is a bio-therapeutic medical research and development company with 31 products already on the market; many of them nutraceuticals, which are treatments extracted from natural sources such as Omega acids and probiotics.  The company has turned its attention to medical marijuana, ideally suited to Medlab’s NanoCelle™ Medicine Delivery Platform.  On 22 February of this year the company announced it was nearing completion of the required steps to begin Australia’s first clinical trial incorporating cannabis into the company’s delivery system to use for pain relief in oncology patients.  With federal approvals in place, Medlab is awaiting clearance from Canadian authorities to receive the cannabis needed for the trial from that country.  
Medlab is generating revenues but has yet to show a profit.  The company has no plans to grow, cultivate, or research new applications.  On 19 June Medlab received HREC (Human Research Ethics Committee) approval to begin the trials with two different medicines.  The Medlab treatments, if successful, will be classified as clinical medicines, not medical cannabis treatments.
Auscann Group Holdings (AC8) has a Canadian partner – Canopy Growth with an 11% stake – from whom Auscann will import Canopy’s existing pain relief product line for distribution in Australia while the company pursues development of its own pain relief treatments.  The company also has a joint venture partnership arrangement with Chilean marijuana grower Daya Cann.  With cultivation licenses already in place in Tasmania and Western Australia, at the beginning of August the Office of Drug Control awarded Auscann a licence to manufacture medicinal cannabis products in Australia.
Creso Pharma (CPH) differs from the other pot stocks in that it focuses on animal treatments in addition to its plant-based (hemp) nutraceuticals – and cannabis based treatments for the treatment of anxiety, epilepsy, chronic pain, osteoarthritis, and osteoporosis in humans.  The company has a development agreement in place with Domaco, a Swiss based food and pharma development company.
Zelda Therapeutics (ZLD) is a bio-technology company formed for the purpose of studying the uses of medicinal cannabis to treat a variety of ailments, with pre-clinical trials underway for breast, brain and pancreatic cancers and clinical trials on sleep disorders, insomnia, eczema and other dermatologic conditions.
Three of the remaining companies – MGC Pharmaceuticals (MXC), Botanix Pharmaceuticals (BOT), and BOD Australia (BDA) – are expanding their focus on skin care and dermatology products to include cannabis based treatments.
The Hydroponics Company (THC) and Roto-Gro International (RGI) both offer hydroponic growing systems for marijuana cultivation.  The share price of both companies has fallen below the first day trading price.

The last and smallest pot stock in the table is Israeli-based Esense-Lab (ESE) that might best be described as a technology company focusing on pharmaceuticals.  The self-description found on the company’s website claims its purpose is Reverse Engineering Mother Nature to create natural plant-based products that heal and delight.
Esense-Lab’s complex technology extracts “terpenes” from plants for use in medicinal products, with cannabis medical treatments as its first target.  The stock has not performed well, perhaps due to complexities of its manufacturing process.  In essence, the company can make a cannabis treatment which contains no cannabis.  It does this by extracting terpenes from a cannabis plant, or any plant for that matter, and reverse engineering a plant profile with the resultant flavour, fragrance, and other characteristics 99.9% similar to the original plant.  After a hot start, investors may have awoken to the challenges facing this potentially disruptive technology entering a brutally competitive market.

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