Pot stocks have spent most of 2017 smoking the ASX as investors pile into the medical cannabis sector to send the likes of MMJ Phytotech Ltd (ASX: MMJ), Creso Pharma Ltd (ASX: CPH) and Auscann Group Holdings Ltd (ASX: AC8) up between 60% and more than 100% over the 2017.
But you won't get high on these companies' profits. Because they don't have any.
That's why serious investors looking to profit from the growth of the medical cannabis space should look to companies that are already posting substantial revenues and profits, with wide distribution networks.
I have flagged a couple of times over the course of 2017 that vitamin maker Blackmores is likely to move into the medical cannabis sector and this week it confirmed that it is to "partner with the leaders in the research and cultivation of medicinal cannabis". The likely outcome being commercial agreements to manufacture and sell cannabis-related products that could be popular with consumers.
More specifically the company plans to "seek authorisation to launch medical cannabis products through general practitioners and medical specialists" via its fast-growing Bioceuticals alternative and herbal therapies healthcare business.
For medicinal cannabis the vitamins maker has pinpointed the areas of palliative care, brain tumours and chronic pain as areas for clinical trials in an attempt to show the benefits of medical cannabis products.
Buy low, sell high?
The group is cycling off an especially strong FY 2016 in Australia that has seen group profits slump for the first nine-months of FY 2017, which has sent the share price into a prolonged downtrend.
However, its overseas and Bioceuticals businesses are still growing strongly and Blackmores looks a business with some long-term growth levers to pull.
Whether the medical cannabis ambitions can ever add meaningfully to earnings is hard to know, but given its strong track record and outlook I would not bet against Blackmores beating the market over the five years ahead.
