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INN takes a look at the growth of CBD stocks on the ASX and some players investors may want to keep their eye on in the sector.

The increased popularity of cannabidiol (CBD) has allowed markets for the extract to pop up across the globe, and Australia is no exception.

CBD, a derivative found in the cannabis plant, is now used in everything from pain relief medication to topical face creams, creating a lucrative investing space for marijuana stocks on the Australian Securities Exchange (ASX) as companies attempt to cash in on both national and international financial opportunities for the drug.

Here the Investing News Network (INN) takes a look at the projected growth of CBD stocks on the ASX and some of the players investors may want to keep their eye on as CBD takes root in the country.

What are the pros and cons of investing in ASX-listed CBD stocks?

The global cannabis sector was hit hard during the summer of 2020, and Australia marijuana stocks faced the same sharp decline in value as their international counterparts. Cann Group (ASX:CAN), for example, took a serious hit to its stock price, dropping 72.5 percent from 2019 to 2020, mostly due to the pandemic. The company’s stock has still not recovered to its pre-pandemic price.

Another issue for the market is the relatively small size and young age of the cannabis market in Australia.

Like any new industry, the CBD market in Australia has faced volatility and setbacks. Notably, the government of Australia strongly regulates the production and purchase of cannabis. As of right now, only medical marijuana is legal in Australia at the federal level; recreational use of the drug is illegal. The exception to this is the capital city, Canberra, which became the first and currently only city where recreational cultivation and possession of cannabis is decriminalized.

Still, there have been some positive signs for the industry. In February of 2021, Australia’s Therapeutic Goods Administration (TGA) announced that CBD products would be down-scheduled from a Schedule 4 (prescription only) to Schedule 3 (over the counter) substances. However, an over-the-counter CBD product is yet to be available, as this requires submission to the TGA with proof of safety and efficacy.

While many believe that it’s only a matter of time before a CBD product comes along that is approved as a Schedule 3 substance in Australia, the strict TGA standards are likely to cause delays.

According to Freshleaf Analytics, the number of active patients for CBD products increased dramatically from 2019 to Q3 2021. In fact, from Q1 2021 to Q3 2021 alone, the number of active patients approved for cannabis use by their doctors increased 50 percent, from 45,000 to 70,000. This led to an increase in the Australian medical cannabis market’s value and revenue.

What are the top CBD stocks on the ASX?

As CBD continues to be more widely accepted as a medicinal treatment, locally and internationally, several Australian players have come to the fore to grab a piece of the market while it's still in its early days.

One crucial cannabis play listed on Australia's stock exchange has a particularly strong presence in the hemp industry: EcoFibre (ASX:EOF).

The Queensland-based biotech stock boasts a market capitalisation of AU$123.89 million and produces and sells hemp-derived products across the four parts of its business portfolio: Ananda Hemp, Ananda Food, Hemp Black,and Ananda Professional. Ananda Professional products are the first fully-compliant and legal hemp-derived CBD oil offerings that target the needs of independent pharmacies and healthcare professionals, according to EcoFibre.

EcoFibre's business also extends to markets outside of Australia through its operations in Kentucky, California and Pennsylvania. In 2020, EcoFibre acquired TexInnovate, a manufacturer in North Carolina.

The wide variety of EcoFibre's offerings, from pharmaceutical hemp extracts and hemp textiles to hemp food products such as hemp flour and protein powder, has made it a key player in Australia's CBD industry.

There’s also Cronos Australia (ASX:CAU), a domestic firm with a portfolio holding a variety of CBD brands. It has a stake in Cannadoc Health in Australia, and continues to pursue health and wellness ventures in the Asia Pacific region.

In its 2021 report to shareholders, Chairman Shane Tanner and CEO Rodney Cocks said that the COVID-19 pandemic caused the cannabis industry at large to suffer, including in some way, the Cronos Australia business. However, the company still made significant progress in 2021, developing a portfolio of proprietary CBD brands, five of which hold fifteen different products and services being sold in Australia, Japan, and Hong Kong.

In its latest quarterly activities report, Cronos Australia described itself as the ‘only profitable pure-play medicinal cannabis company’ on the ASX, having earned AU$18 million in the quarter ended March 31, 2022.

Another big player in the CBD space in Australia is Botanix Pharmaceuticals (ASX:BOT), a clinical stage CBD exploration company with a market cap of AU$77.8 million.

Botanix is another of the biotech stocks with ties to the cannabis sector as it seeks to find treatments for skin diseases including acne, atopic dermatitis and rosacea using the antimicrobial effects of synthetic CBD. The company is in the process of preparing a canine atopic dermatitis program, set to finish enrolment by the end of the quarter. A clinical study for its BTX 1801 antimicrobial program is planned for the end of the quarter, with the preclinical work having been completed.

Investor takeaway

CBD in Australia will continue to offer an impressive investment opportunity to individuals looking to get in on a budding industry. As the global CBD market is projected to reach a value of US$16 billion in 2025, it’s likely that marijuana companies in Australia will begin to position themselves to take on market share, encouraged by an increasing global adoption of CBD for medicinal purposes.

This is an updated version of an article first published by the Investing News Network in 2020.

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

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

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