Althea Group has tripled over the past year, as investors warm to the cannabis space (Credit: Share Café)

 

Althea Group (ASX: AGH) is an ASX listed cannabis company which sources and supplies medicinal cannabis around the world. It is one of only a handful of companies that has been licenced to provide medicinal cannabis in Australia. The business recently reached a thousand patients in Australia and has started treating patients in the UK. Both these markets present huge room for growth, and the company will grow as their product becomes more trusted by doctors through word of mouth referrals.

The company is planning to obtain licenses in the US and Europe, a move that would grow their addressable market and could cause the share price to re-rate. The main danger for the company however is increased competition. Medicinal cannabis can be used for a number of different applications, but the industry has a history of innovation being copied, when other companies take the initial idea and use a different approach that they file a separate patent for to get the same results. As such, investors should carefully consider whether medicinal marijuana companies should be priced as pharmaceutical stocks, as management teams would prefer, or low margin, cyclical agriculture businesses.

If you are willing to look internationally however, the more mature cannabis markets in the US and Canada offer more established companies to invest in. Canopy Growth is the largest cannabis stock by market cap, trades on the NYSE and is worth $13.5bn. The business is a medical market leader in spectrum therapeutics and has operations across 12 countries around the world. The company operates across both medical therapies and consumer products that are designed for recreational use. Recreational marijuana has significant upside because there are so few jurisdictions where it has been legalised. Mass legalisation can help the company grow more rapidly than businesses that only sell medicinal marijuana, especially given its existing dominance in the recreational products space and brand recognition.

 

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This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

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August 29, 2019