Investors in ASX cannabis shares have had a bumpy ride in 2020. Share prices were impacted by global oversupply issues in late 2019 then plunged in the March 2020 market downturn.
But the Australian medical marijuana industry is building momentum, continuing its growth trajectory in 2020 despite the impacts of COVID-19. According to Freshleaf analytics, the market tripled in size over 2020 with 30,000 active patients and $95 million in annual revenue.
As the industry matures, competition is increasing. The number of available products has doubled in the last year to 150, putting pressure on prices. Prices have trended downward, and are now on par with more mature markets such as Canada. With price decreases, patient doses have increased, while average spend remains static.
The industry got a boost in September when the TGA down-scheduled cannabidiol (CBD). This will allow Australian patients to purchase CBD products from a pharmacist, without needing a prescription.
But in New Zealand, voters were against a proposal for greater legalisation and decriminalisation of recreational cannabis floated in October, albeit by a narrow margin. This will be a blow to the industry which may have hoped for a potential widening in customer base.
In more positive news, the UN voted to remove cannabis and cannabis-related substances from Schedule IV of the international treaty governing narcotic drugs in early December.
ASX cannabis shares saw mixed results over 2020. While some outperformed the broader market, others lagged. By comparison, the S&P/ASX 200 Index (ASX: XJO) is up around 1% over the year.
Let's take a look at how 5 of the best ASX cannabis shares have performed in 2020.
| Company name | 1-year share price return | Share Price | Market Cap |
|---|---|---|---|
| Zelira Therapeutics Ltd (ASX: ZLD) | 67% | $0.09 | $113.8 million |
| Althea Group Holdings Ltd (ASX: AGH) | 14% | $0.40 | $102 million |
| Ecofibre Ltd (ASX: EOF) | -30% | $1.9 | $287.5 million |
| Auscann Group Holdings Ltd (ASX: AC8) | -26% | $0.17 | $55.48 million |
| Cann Group Ltd (ASX: CAN) | 5.3% | $0.49 | $136.3 million |
1. Zelira Therapeutics
Small cap Zelira outperformed following its merger with US-based medicinal cannabis product developer Ilera in late 2019. The merger provided Zelira with direct access to the US market where revenue is being generated by the recently launched HOPE brand of cannabis formulations. Zelira entered into a licensing agreement in December to allow for distribution in the Washington DC market.
Zelira has previously licenced HOPE in Pennsylvania and Louisiana and remains focused on expanding distribution across approved markets in the US. With its sights firmly set on becoming a profit generating pharma company, Zelira completed a $4.58 million capital raise earlier this year to fund the launch of multiple products into global markets.
2. Althea Group
Althea had a bumper year of share price growth compared to some pot sticks. The company is in the product distribution game, connecting patients and prescribers via its Althea Concierge app.
Active in Australia and the UK, and Althea recently started distributing to Germany. The company has also entered the manufacturing sector with its Peak Processing Solutions facility in Canada, which is capable of processing cannabis infused edibles and nutraceuticals.
In December, Althea reported 11,841 Australian patients, up from 3688 a year earlier. The aim is to have 30,000 patients by 2021. With 810 healthcare professionals prescribing Althea products in Australia, revenue is growing – it was up 48% month-on-month in November to $110,378. This has been reflected in an increase in the Althea share price over 2020.
3. Cann Group
The Cann Group share price, on the other hand, is finishing 2020 largely flat. A July capital raise was conducted at a 50% discount to the (then) share price of 82 cents, causing the price to plummet. Key stakeholder Aurora Cannabis then sold its 11.84% shareholding in the company in October in off-market trades to undisclosed buyers.
In more positive news, the company finally executed debt documentation in December. This will provide funding of $50 million to complete construction of the first stage of the company's production site near Mildura.
A staged approach to construction of the facility was adopted in response to the global oversupply of cannabis late last year. Cann Group is choosing to initially focus on meeting Australian domestic demand while reducing operating expenses as it seeks to transition to profitability.
4. Ecofibre
Ecofibre saw its share price decline over the full year as investors shied away from the hemp products producer. The company listed on the ASX in March 2019 at $1 per share and was trading above $3 in late 2019.
The share price has since, however, retraced its steps. Ecofibre's US based Ananda Health business has been significantly impacted by COVID-19, lawlessness in key US markets, and industry changes in the US CBD market. Revenue for the first quarter of 2021 was significantly down on the prior corresponding period. Ecofibre has advised the best it can expect is a breakeven profit result in FY21.
5. Auscann Group
The Auscann share price spent most of 2020 in the mid teens but spiked in early December following the UN's vote on cannabis. Auscann's CEO commented, "the change in scheduling has the potential to vitalise research into medicinal cannabis, removing some of the deterrents to activity in this space."
Nonetheless the share price remains well down from all time highs. The company launched its hard shell capsules in 2020 and says sales have initially been slower than hoped but are building. From a low base, sales are currently increasing 50% month on month.
The Australian medical marijuana industry has undergone a reckoning with reality over the last couple of years. This has resulted in more realistic valuations than in the early, exuberant days post legalisation.
As the sector moves toward maturity, 2021 could mark a turning point in discovering what a healthy medical marijuana industry looks like in Australia.
