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Is cannabis the next big ASX opportunity?

27 September 2019 |Insights
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Is cannabis the next big ASX opportunity?

27 September 2019 |Insights

Cannabis or (marijuana) has become a hot topic across the globe, capturing the attention of companies and investors alike.

The Australian Stock Exchange (ASX) has seen many organisations enter the sector in different capacities, from cultivation and study, to innovation, manufacturing and production.

As research into the benefits of marijuana increases, commercial opportunities are expected to grow.

So, is it an opportune time to invest into the cannabis business sector now?

Cannabis market potential in Australia

According to New Frontier Data, the estimated annual Total Addressable Market in Oceania, which includes Australia and New Zealand, is a substantial USD$5 billion (over $7 billion AUD), with approximately 2.8 million cannabis consumers in the region1.

Another recent report by Global View Research2 estimated that the worldwide legal marijuana market would reach an incredible USD$146.4 billion by 2025.

Given these figures, it’s no surprise that businesses are showing interest in the sector.

A significant number of small-cap stocks have entered the ASX from both domestic and international companies looking to capitalise on predicted market potential.

Botanix Pharmaceuticals, a skin health company, is focused on developing cannabinoid-based topical treatments for acne, psoriasis, atopic dermatitis and other skin conditions.

Digital health provider, Lifespot Health, owns smart vaporiser technology for cannabis oils, and Cannabis technology company, Roto-Gro International, is focused on the cultivation of legal cannabis.

Hemp Foods Australia is a manufacturer and distributor of hemp food products and skincare, and Elixinol LLC is a provider of hemp-based cannabidiol dietary supplements and topical products.

The market potential abroad

Legal restrictions around cannabis use in Australia is the main reason why the domestic market is still in its early stages.

However, in overseas markets such as the U.S., where ten states have already legalised cannabis for recreational use and 33 have legalised it for medical use, there is a lot more investment potential to be found.

In fact, investment in the North American legal cannabis industry was $10.1 billion only last year. The industry is now predicted to grow to a worth of $26.3 billion by 2025, involving over 500,000 jobs3.

Increasing uses of cannabis

The driving force behind the expansion of the cannabis sector lies in its current and potential uses.

Investigations into cannabis-based treatments are showing a lot of potential in the management of a multitude of illnesses, diseases and conditions4.

Industrial hemp, which is made from the cannabis plant, is also growing rapidly in popularity across a whole range of uses including food, textiles, thermal insulation, paper, skincare products and even construction5.

Interested in diversifying your portfolio?

While the cannabis industry is in its early stages, and appears to be showing hallmarks of a growing investment sector, it is considered speculative and so may carry additional risk. Before making any investment decisions, we recommend that you speak to your financial advisor.

While Leveraged does not currently offer lending values against stocks named in this article, if you’re interested in investing in the cannabis sector you can use the funds available in your loan account to invest into these ASX listed companies’ shares.

To find out more, please contact your Relationship Manager or Leveraged on 1300 307 807.

This information is correct as at 27 September 2019.

Source:

1 Examining the Oceania Cannabis Market. New Frontier Data.

2 Legal Marijuana Market Worth $66.3 Billion By 2025 – May 2019. Grand View Research.

3 2018 Cannabis Highlights. New Frontier Data.

4 What is medicinal cannabis and why is it important? The University of Sydney.

5 Cannabis stocks on the ASX: The Ultimate Guide. Small Caps.

Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.

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