The start of 2018 saw a lot of hype and speculation around ASX cannabis shares, but has the high ended for companies like Cann Group Ltd (ASX: CAN) and Auscann Group Holdings Ltd (ASX: AC8)?
About Cann and Auscann
Cann and Auscann have similar names and similar business models. Both companies are licensed to cultivate medicinal cannabis and manufacture cannabinoid medicines. Cann claims the position of the leading Australian medicinal cannabis company and is the larger of the two companies, with a market capitalization of $320 million, compared to Auscann’s market cap of $115 million.
The Rise and Fall of Cannabis Shares
In late 2017 and early 2018, a huge surge in cannabis share prices began. Cann Group went from $0.50 per share to $4.00 at its highest point, while the Auscann share price went from $0.01 to $1.85. Let that sink in for a minute. Since listing, the share price is up 9800%.
This rise came around the time of legislation changes in some US states legalising recreational cannabis and similar regulatory changes in Canada. At the same time, the call for the legalisation of medicinal cannabis in Australia was becoming louder.
Looking at the last 12 months though, the Auscann share price is down 77.5% and Cann is down 35%. Neither company makes a profit, and they haven’t really seen much growth.
Of the two companies, Cann seems more promising. Revenue in 2017 was just $8,000 but increased to $1.5 million in 2018. However, with that increase in revenue, net loss doubled from $2.58 million to $4.7 million.
Looking at the statement of financial position, it seems Cann has been saving their money for a rainy day. In 2018, they held nearly $50 million in cash and cash equivalents and another $30 million in term deposits. To me, this seems like they have money but no way to spend it until regulations change and allow their operations to expand.
Legislation Could Be Key
These two cannabis companies might just be ahead of the times. While medicinal cannabis has many reported benefits, it is not widely used or allowed in Australia, and it doesn’t look like recreational cannabis will be allowed any time soon.
Personally, I don’t want to be invested in a company that holds that much cash and has nothing to do with it.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.