This year, investors have watched their capital go up in smoke with cannabis stocks – they have performed poorly, with falls of up to 50% or more. Looking at 21 of the largest cannabis stocks, only three have made a gain in 2022, including Cronos Australia Ltd (ASX:CAU) up 70%, Botanix Pharmaceuticals Ltd (ASX:BOT) up 41%, and Hygrovest Ltd (ASX:HGV) up 22%.
The other 18 stocks have all fallen between 7 and 72% with the average loss around 45%.
When analysing the stocks, it is easy to see why this industry is struggling. Of the 21 stocks I looked at, two represent 83% of the total market capitalisation, which include Zelira Therapeutics Ltd and Cann Global Ltd (ASX:CGB) and currently these stocks are down 72% and 63% respectively in 2022.
The total value of shares traded in Zelira during July was around $1.6 million, while for Cann Global it was under $150,000. If you are looking for liquid stocks to buy, this is definitely not the place to be.
Right now, the cannabis industry in Australia is very immature, which makes these investments highly speculative. Investors need to be very selective with what they choose to buy in this sector.
On July 30, research company BMC released the Cannabis Medicine Survey 2020 (CAMS-20) and its findings on medical use of cannabis were interesting. The median age of those using cannabis for medical purposes was 46, however, only 13.3% were consuming prescribed cannabis products, while 62% were using illicit products.
Of those using prescribed cannabis, around 50% of the use was for pain management, while around 30% was for mental health. No doubt, this industry will expand and thrive given that 95% of participants in the survey reported improvements in their health conditions.
So, what is delaying this industry from reaching its tipping point? According to the survey, nearly half reported the prescribed products were too expensive, while others reported that it was difficult finding doctors that prescribed cannabis. In addition, 25% of doctors have been unwilling to prescribe this product.
As the industry matures, however, these issues will become a thing of the past – all new industries experience challenges in their early days. I suspect we will see a consolidation in this industry over the next few years and we will reach a point where we have a few major players that eventually become great investments.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate YourWealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au