Analyst: Australian Cannabis Sector Offers “Smoke Without Fire”

Australia’s market slump has caused Canaccord’s Australian Cannabis Index to drop almost 40 percent over the past four months.

Australia’s cannabis space has become an attractive area for investors since medical marijuana was legalized in 2016, but a new report warns that the market is still in its early stages.

In a co-authored industry note to investors sent out on Tuesday (November 12), Canaccord Genuity Australian equity analysts Cameron Bell and Matthijs Smith said it’s a case of “smoke without fire” when it comes to Australia’s current budding landscape for cannabis.

The update notes that the Australian market is struggling along with the global cannabis sector, causing a drop of about 40 percent in Canaccord’s Australian Cannabis Index over the past four months.

The struggle is being felt by cannabis markets across the world, including Canada and the US, as excitement about the space yields high expectations but is met with less-than-impressive results.

It isn’t all bad news for Australia, however. The analysts wrote that there have been marked improvements when it comes to growing patient numbers.

“Although we note the early stage of the sector in Australia and the associated volatility of a nascent industry, over the same period patient numbers domestically have continued to soar,” the note reads.

In October, the Therapeutics Goods Association (TGA), the regulator of medical cannabis in the country, approved 3,594 applications from patients seeking access to medical cannabis under Special Access Scheme-B, marking a 23 percent increase in approvals since September.

The TGA has now approved a total of 20,300 Special Access Scheme-B applications, and the two analysts said a majority of the approvals — 92 percent — have happened within the last year. That puts Australia on track to have 25,000 approvals by the end of 2019.

Medical cannabis continues to gain foothold in Australia

The swift rise in patient approvals could be driven by the state of New South Wales, which has loosened the requirements for prescribing medical marijuana, according to the Canaccord analyst pair. It has removed the need for state approval for medical cannabis applications in most cases.

New South Wales is joined by Western Australia, which on Tuesday announced will also make it easier for patients to get access to medical cannabis. Now general practitioners in the state can prescribe medical cannabis without having to refer to a specialist, unless the patient is under 16 years old or has a history of drug abuse.

In a statement, Western Australia Health Minister Roger Cook noted the benefits of offering a variety of options to patients.

“It is important for the Commonwealth to have a flexible system that expedites affordable access to new and emerging healthcare treatments,” said Cook.

The shift towards a more accessible system for medical cannabis across the country also follows the legalization of recreational cannabis in the Australian Capital Territory in September.

The new legislation, set to come into effect in January 2020, will allow people 18 years and older to possess up to 50 grams of dried flower and cultivate a maximum of four marijuana plants in their home.

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

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