It has been a little more than a year since Aussie investors rushed to jump into the “next big thing” following the approval of the Narcotic Drugs Regulation 2016.  The “big thing” was cannabis, or marijuana is it is more commonly known.  
Humans have long been cultivating cannabis, marijuana, and hemp – all members of the plant species, Cannabis Sativa. In the late 19th century, marijuana was used in medicinal preparations and sold in pharmacies.  All that changed in the early 20th century, as evidenced by the cult classic American film, Reefer Madness.
The cultural pendulum is swinging back as medical uses for marijuana are increasing around the world as is its recreational use.  Canada appears to be on the verge of becoming the first country in the Group of Seven to legalise recreational use of marijuana.  Several states in the US have legalised the drug with speculation more will follow.
With visions of “ten-baggers” nestled in their heads, investors stampeded into anything with even the remotest connection to marijuana, with little regard for product, promotion, or financing. By March 2017 the Sydney Morning Herald featured an article entitled “Medical Cannabis Stocks are All the Rage, but It’s Still a Bubble”, sounding the warning bells, which most investors gleefully ignored as pot stocks continued to rise. However, within a month, share prices across the board started to falter.
By September this year stock after stock fell dramatically from former highs. But just recently, investors are returning to some of these companies with a vengeance.  As evidence, consider the share price movements of two of the hottest ASX pot stocks right now – AusCann Group Holdings (AC8) and Creso Pharma (CPH).

In the early days of the mad rush to marijuana stocks, two stocks stood out as direct evidence investors were piling into stocks with any connection to the marijuana sector.
The first is Stem Cell United (SCU), a company using stem cell technology on plant cells to replicate natural plants used medicinally, largely in Chinese medicine.  The company announce the addition of a “strategic advisor” to consider the potential application of the plant technology with medical marijuana.  The stock skyrocketed but has returned to earth, as some momentum traders took their money and ran while others may have finally gotten around to visiting the Stem Cell website where not a single mention of the marijuana potential can be found.
The second is a junior bauxite and gold miner that has yet to generate a single dime in revenue, Queensland Bauxite (QBL).  In March the company took majority ownership of privately owned Medical Cannabis Limited.  That company’s claim to fame is a growing license.  While investors are fleeing Stem Cell, they are hanging on to Queensland Bauxite. 

In the early days of marijuana madness, many investors seemed to ignore basic investing principles, such as:  What is the market the company intends to serve – marijuana treatments for chronic pain or cosmetic and other health related uses? Will the company cultivate its own cannabis or rely on others?  How will the company distribute its products, once available?  Is the company’s business model solid enough to attract reputable partnerships?  Is the company accumulating debt at levels threatening future development?
At least one of those issues – major partners – got a game-changing boost on 31 October, when the third largest beer, wine, and spirits manufacturer and distributor in the US – Constellation Brands (NYSE: STZ) – took a 9.9% stake in Canada’s Canopy Growth Corporation (TSX: WEED) at a cost of C$245 million.  
Constellation’s CEO is anticipating the US will legalise marijuana nationwide and plans to work with Canopy to develop and market marijuana infused beverages. For investors looking for confirmation of the validity of the sector, this was it.  A global leader in a seemingly unrelated industry sees added profit potential in marijuana.
There are “best of breed” pot stocks in addition to Auscann showing real progress on other fundamental issues like product development and marketing and distribution.  Three of the best as of this moment are included in the table.  Their progress suggests the best of breed are not bubbles at all; they are real.

Note that all three companies have low or no debt and cash on hand that appears adequate.  The Current Ratio is a rough measure of a company’s ability to meet its financial obligations and all three appear on solid ground here as well.
Cann Group (CAN) and AusCann Group Holdings (AC8) both listed on the ASX in 2017, with CAN being the most recent, coming on in May.  Creso Pharma (CPH) listed in October of 2016.
All three of these companies have attracted partner interest from businesses in related fields.  The significance of the Constellation investment that drove stock prices up was interest from a company interested in developing new uses for marijuana.
Cann Group has the distinction of being the first company in Australia to get both research and cultivation licenses. Cann Group has been granted two breeding and cultivation research permits for programs in development with the CSIRO.
In addition, Canada’s Aurora Cannabis Inc. (TSXV: ACB) took a 19.9% stake in Cann Group during its Initial Public Offering (IPO).  Aurora Cannabis is a producer and distributor of medical marijuana.
Cann group could be considered a “high-tech” marijuana stock in that the company’s business model extends beyond cultivation into plant genetics and breeding. Cann will operate as a supplier of medicinal cannabis, first in Australia and then internationally.  
The latest positive milestone for the company was announced on 27 October with the news the Office of Drug Control (ODC) of the Australian Government’s Department of Health awarded the company a licence to import and/or export both cannabis genetics and medicinal cannabis products.
In addition to its impressive Canadian connections, Auscann Group Holdings (AC8) has a joint venture partnership with Daya Cann, the only licenced medical marijuana producer in Chile. Auscann received its Australian licence to manufacture medical marijuana products back in August. 
The share price got a big boost from positive news from its joint partner, Daya Cann.  The government of Chile awards cultivation licences on a yearly basis, and Daya Cann just extended its streak of four successive years as Chile’s only medical marijuana producer with another extension.
Auscann’s business model extends beyond cultivation to include medical marijuana products for the treatment of neuropathic and chronic pain.  
Creso Pharma (CPH) is unique amongst the many ASX pot stocks in that the company is not only developing marijuana based treatments for a variety of human conditions – anxiety, epilepsy, chronic pain, osteoarthritis, and osteoporosis – but also targets animal health.  In addition, the company is developing hemp-based nutraceutical treatments. Creso already has two product lines in place – the cannaQIX® line of human health products and the anibidiol® line of animal health products.  The company has multiple development and distribution agreements in place, beginning with Swiss based Cannapharm and later with another Swiss company, Domaco, a leading European producer of innovative products for global pharmaceutical and food companies.  The agreements call for the development and commercialisation of both human and animal nutraceutical products.
The latest news propelling the share price came on 20 November with the announcement Creso was expanding into China.  The company has reached a strategic partnership and commercial distribution agreement with Hong Kong listed Zhejiang Kingdom Creative, a major hemp producer.  The agreement calls for Zhejiang Kingdom to work with Creso to introduce its human and animal health products into China.  Creso further announced the opening of four sales and marketing offices in China to support a local distribution network.
Not all ASX pot stocks have laid the foundation for revenue generation and ultimately profitability.  Even the best of breed remain speculative investments.

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