Australia Cannabis Investing: What You Need to Know

Australia Cannabis Investing: What You Need to Know

INN breaks down everything you need to know about Australia cannabis investing and how you can enter this emerging market down under.

Since the legalisation of medical cannabis in 2016, Australia has been steadily developing its marijuana industry — and it’s been attracting attention from international players and investors.

With a quickly growing population of over 25 million people and a robust agricultural industry, the country is positioned to mould itself into a major force in the international cannabis space.

Here the Investing News Network takes a look at how the cannabis industry in Australia has been shaping up since legalisation and what these developments could mean for investors. Read on to see what you need to know about investing in cannabis down under.

Australia cannabis investing: Market overview

As mentioned, Australia’s parliament passed legislation to allow the cultivation of cannabis for medicinal and research purposes in 2016 by amending the Narcotic Drugs Act 1967. Cannabis companies have been cropping up in the country in the years since then.

While the cannabis industry is still young, Australia’s agricultural sector is well established. According to the Australian Bureau of Agricultural and Resource Economics and Sciences, the nation’s agriculture output is valued at AU$61 billion and is one of the largest contributors to GDP. The country’s agriculture export prowess means it may be able to capitalise on the trend of moving medical marijuana products internationally.

Recreational cannabis use isn’t legal in most parts of Australia. The exception is the Australian Capital Territory, which in early 2020 made it legal to possess and personally use small amounts of cannabis. That said, according to the Australian Institute of Health and Welfare (AIHW), cannabis is the most widely used illicit drug in the country. In a report, the AIHW notes that 85 percent of Australians now favour cannabis use for medical purposes, up from 69 percent in 2013.

Medical cannabis in the country is overseen by the Office of Drug Control, which issues three types of licences: research, manufacturing of a drug or product and cultivation or production of medical cannabis. As of November 2020, a total of 13 research licences, 29 cannabis cultivation or production licences and 33 manufacturing licences were held by medical cannabis companies in Australia.

Medical cannabis users do face a bit of difficulty accessing the drug. Patients can only receive medicinal cannabis products via a specialist and then may have to wait up to a month for government approval.

Some of the largest names in Canada’s cannabis landscape, such as Aurora Cannabis (NYSE:ACB,TSX:ACB) and Canopy Growth (NYSE:CGC,TSX:WEED), have substantial stakes in Australian companies. In 2018, Canopy launched Spectrum Cannabis Australia, a medical cannabis company.

In early 2019, Spectrum received its first shipment of medical cannabidiol (CBD) oil and began sales. Its goal is to support patients through imports until domestic facilities are working at full capacity.

Australia cannabis investing: How to invest

Since the country’s cannabis space is still in its early stages, the Australian market hasn’t yet reached its peak. However, more cannabis stocks are expected to list on the Australian Securities Exchange (ASX) in the future, which means more investment opportunities.

Elixinol Global (ASX:EXL) was formed in 2018, when Colorado-based Elixinol partnered up with Hemp Food Australia to form an international brand and launch an initial public offering.

While Hemp Food Australia manufactures and distributes hemp food and skincare products, Elixinol is a retail provider on the CBD side of things, with dietary supplements and topical cannabis products. Elixinol has focused on building a solid global footprint with operations in the Americas, Europe and Asia.

In its Q3 2020 quarterly report, Elixinol said that revenues across its business units increased by 18 percent over the previous quarter, with 25 percent of the company’s global sales coming from e-commerce and 65 percent of global sales associated with higher-margin products.

Another big player in the Australian space is Cann Group (ASX:CAN,OTC Pink:CNGGF). Established in 2014, Cann Group was the first cannabis company to be issued a cannabis research licence and the first to be issued a medical cannabis cultivation licence by the Australian government.

It’s since worked to develop and supply cannabis, cannabis resin and medical cannabis products to patients for everything from multiple sclerosis to chronic pain.

In an agreement announced in November 2020, Cann Group secured a AU$50 million loan from National Australia Bank to fund a first stage expansion of its new Mildura growing facility in Victoria. Once completed, Cann Group will have the capacity to produce 12,500 kilograms per year of dry cannabis flower for international and domestic medical cannabis markets. This move puts Cann Group ahead in terms of production in a market that is still largely driven by imports.

There is also Althea Group (ASX:AGH), a producer, supplier and exporter of pharmaceutical-grade medicinal marijuana; it received its licence to cultivate medical cannabis in 2018. Currently, the company operates in regulated medical cannabis markets, including Australia and the UK.

In late 2020, the company received approval to sell cannabis products in Germany. The approval made Althea Germany’s first commercial supplier of made-in-Australia medical cannabis products. The German medical cannabis market is expected to be worth approximately AU$2.4 billion by 2025, as per the Market Herald.

Althea has made outreach an important part of its business model, as shown by its Althea Concierge platform, a free online service that allows healthcare professionals to access treatment plans with information about specific Althea marijuana products.

Australia cannabis investing: Future outlook

In 2019, the medical cannabis industry in Australia was valued at a slight US$171.7 million, but a forecast from Prohibition Partners, a market consultancy for the cannabis sector, projects huge growth in value over the next five years. By 2024, the total legal cannabis market in Australia is expected to hit US$1.23 billion.

Australia’s domestic market may be “somewhat capped by the region’s population.” However, Prohibition Partners points out that “overseas exports represent an opportunity for the region to significantly increase its value and establish a strong presence in the global market.”

Alongside the legalisation of medical cannabis was the legalisation of overseas exports in 2018, and Australia has big plans for the growth of its international presence. “We’d like to be potentially the world’s number one supplier,” said Australian Health Minister Greg Hunt on a local radio station.

Because of its proximity to the region, Australia is also well positioned to break into the burgeoning Asian market, which has become more attractive since the legalisation of medical marijuana in South Korea and Thailand. In response, some companies in Australia, such as Cann Group, have already made investments towards building larger facilities to meet the demand.

There’s also been talk about the legalisation of cannabis for recreational use in response to growing support for complete cannabis legalisation across the country. As noted, the Australian Capital Territory recently became the country’s first state to make it legal to grow or possess cannabis for personal use.

Overall, while recreational marijuana is still illegal in Australia, the growth of the country’s medical cannabis industry — and the Australian marijuana companies that exist within it — is a growing opportunity.

This is an updated version of an article first published by the Investing News Network in 2019.

Don’t forget to follow us @INN_Australia for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

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