Why are investors expecting a high return from Australian medicinal cannabis companies?

Medicinal cannabis is only now beginning to hit its stride in Australia. Revenue from the industry is forecast to double year-on-year in 2021 and to continue to climb in the years ahead as Australia looks set to take its place as a world leader in medicinal cannabis production.

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Like any budding industry, a growing number of ASX-listed cannabis manufacturers and suppliers are offering appealing opportunities for investment.


 

Normalising medicinal cannabis

 

The beginnings of Australia's medicinal cannabis market were slow-moving, hindered by government regulation, strict approval criteria and barriers including social stigma and inexperienced doctors. However, key landmark legal decisions in 2016 and 2020 have accelerated investment & development in the industry.

In 2020, the Therapeutic Goods Administration (TGA), responsible for approving medicinal cannabis products and prescriptions in Australia, downgraded low dose cannabinoids (CBD) from a Schedule 4 (Prescription Medicine) to a Schedule 3 (Pharmacist Only Medicine) substance. This has allowed medicinal cannabis to be sold over the counter (OTC) in Australia for the first time. However, access to medicinal cannabis for consumers remains a long and complicated process, with no products yet passed through the approvals process required to be made available OTC. 

Despite the shortcomings of the process for consumer access, the number of prescriptions and products has roughly doubled each year as awareness and acceptance have grown among doctors and patients alike. Notwithstanding the delays on the patient side, Australia is fast catching up to the global competition in establishing itself as a competitive location for production and manufacturing. Production and manufacturing of medicinal cannabis were legalised in Australia in 2016 with amendments to the Narcotics Drugs Act. 

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US$1.5bn market by 2025

 

Improving awareness, access and demand translate to growing revenue for producers and suppliers. Medicinal cannabis industry researcher FreshLeaf estimates that revenue could reach $200m this year, twice revenue in 2020.

Looking forward, revenue from medical prescriptions will be supplemented by sales from pharmacies and other sources. The pharmacist market alone is expected to reach $250m at its maturity and research consultants Prohibition Partners predicts that the wider Australian cannabis market could reach US$1.5bn by 2025 if legislation continues to relax.


 

World-leading potential

 

The global medicinal cannabis market is set to grow by around 25% each year and to reach US$67bn by 2028. As medicinal marijuana becomes more socially and legally accepted worldwide, Australia has the potential to become the leading supplier to international markets, thanks to its strict and trusted regulatory standards and high quality of products.

Medicinal cannabis is increasingly considered to be a safe and affordable therapy for a range of conditions, including relief from chronic pain and helping to manage symptoms of glaucoma and multiple sclerosis, among other conditions. Research is ongoing into its benefits for further areas, such as concussion and insomnia.


 

Investing in medicinal cannabis stocks

 

The growth of the medicinal cannabis market also benefits investors looking for stocks with steady growth potential. ASX-listed stocks that have exposure to the emerging market range from direct manufacturers to associated suppliers, research and development and pharmaceutical companies, giving investors a broad range of options.


 

Epsilon Healthcare Limited (ASX:EPN)

Barclay Pearce Capital client Epsilon Healthcare (ASX:EPN) is a diversified global healthcare and pharmaceuticals company that owns a number of medicinal cannabis assets.

Epsilon Healthcare (EPN)

These assets include the Tetra Health clinic, the largest cannabis manufacturing facility in the Southern Hemisphere, and the Medimar Platform, an end-to-end eCommerce solution for cannabis and nutraceuticals.

Epsilon Healthcare also operates a turnkey cannabis cultivation solutions provider in Vancouver, Canada.

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