Your Next Stock Breakthrough: Legal Cannabis in NZ

Source

Big developments in the Kiwi cannabis scene over the past few weeks. Let’s take a quick bird’s eye overview of the situation and players involved.

At the moment, there are fewer than 10 companies making moves this early. They’re preparing for the referendum in 2020, which will likely result in medicinal cannabis being legalised. A few of these firms hold state-issued licenses, but full-scale operations will have to wait until the law passes.

Let’s start from the top — regulation.

Under the Misuse of Drugs Act 1975, unauthorised possession of any amount of cannabis is illegal in New Zealand.

It’s been a controlled substance since the 1927 Dangerous Drugs Act, even though it was used as a prescription medication for a short period.

Today, if a person is caught with any amount, they can incur up to a three-month imprisonment or a $500 fine. Growers can get up to seven years. Sellers can get up to eight years.

Interestingly, cannabis oil and hashish are separately classified as class-B controlled drugs, which means manufacturers or suppliers can be hit with a 14-year imprisonment.

It’s in the same class as opium, MDMA, or morphine.

As greater research has been conducted on cannabis, the call for it to be legalised…or at least rescheduled…has grown louder.

It’s led up to the Medicinal Cannabis Amendment Act passed last December…and the announcement of a referendum in 2020. The Act allows terminally ill patients to consume the product for medicinal purposes.

And in December, the New Zealand police amended their approach towards cannabis to incorporate greater power of discretion and an emphasis on alternative resolutions over prosecution.

It’s a sign that the state is changing its unofficial stance on the substance…and warming up for an official legalisation next year.

Positive news for the industry.

In terms of providers, there are only a handful companies established this early:

Hikurangi Cannabis — Formed in 2015, this Gisborne-based firm already has a significant hemp operation running. They hold a licence from the Ministry of Health to cultivate and research strains with both high CBD and THC qualities. To date, the company has raised over $5 million in crowd-funded shares…and is planning a second offering in the near future.
Helius Therapeutics — Younger but better funded than Hikurangi, Helius Therapeutics has multiple large facilities in the Auckland area. They plan on focusing on the genetics side of the industry. Rich-lister Guy Haddleton has come on board with a group of local investors for a total of $15 million in investment. Helius holds a Ministry of Health licence to breed medicinal strains.
Cannasouth — Based in Waikato, Cannasouth claims a suite of licences allowing them to possess, extract, process, manufacture, import, and cultivate cannabis for scientific research. The company has been working with the substance since 2002, when it was granted one of New Zealand’s first cultivation licences. The company is planning an IPO on the NZX in April or May of 2019.
Setek Therapeutics — Backed by an all-star board, this Taupo-based company plans to deliver cannabis from ‘seed to shelf’…eventually offering a NZ-grown product in liquid or oil form. On the board is former associate minister of health Peter Dunne, who allowed for the first legal prescription of cannabis for a coma patient in 2015. Setek expects licences to come through in the next couple months.
Nubu Pharmaceuticals — TV presenter and former Newstalk ZB host Mark Dye founded his own firm at the end of 2017. He has already managed to raise $500,000 through seed capital. He plans on focusing on the high-end side of the market, establishing New Zealand as the premium source for high-quality product. Nubu has not yet been granted a licence.
Zeacann — As a partner with the Auckland University of Technology, Zeacann has enjoyed unique access into the research field. According to the founders, the company’s short-term goal is to facilitate a portal for medical professionals to find cannabis products. Eventually, Zeacann will cultivate and harvest cannabis for use in manufacturing oils, gels, and tablets. They opened a $20 million funding round through PwC in October of 2018. Currently unlicenced.
Greenfern — This recent arrival to the scene is based out of Taranaki and offers the unique characteristic of a hydropower-supplied facility. As electricity is a key cost for indoor growers, this clean and potentially unlimited source could offer a market advantage. They’ve raised $1.5 million via a crowdfunding campaign. Currently unlicenced.
THC Global — ASX-listed under ticker symbol [ASX:THC], this company plans to import high-quality goods from overseas into New Zealand as soon as it has Medsafe approval. Its key partnership is with Endoca, which produces a range of non-psychoactive cannabis products. It has a market cap of $68 million.
For investors, you can stake a claim in most of these companies now via their individual crowdfunding offers…and you can actually buy stocks in THC Global today on the ASX. In the next few weeks, we will likely hear more about Cannasouth’s IPO on the NZX.

But the big question is — will the referendum pass in 2020? If not, these companies may not have a leg to stand on.

According to Auckland University, half of New Zealanders aged 15–65 have tried cannabis. Half!

And one-in-six admit to regular use. That represents 1.5 million Kiwis who have dabbled…and nearly half a million who use on a regular basis.

According to the UN, New Zealand is among the top pot-using nations in the world…

In July of 2018, the NZ Drug Foundation conducted a poll and found surprising support for a positive referendum result. Here’s what they found:

    Illegal    Decriminalise    Legal    Decriminalise/legalise

Personal possession                      31%              32%              35%                    67%
Personal growing                          38%             29%              32%                    61%
Growing for friends                      69%             18%               12%                    30%
For pain relief                                13%              17%              70%                    87%
For terminal pain relief               10%              17%              72%                    89%
Selling from a store                      60%                9%              29%                    38%
Data source: NZ Drug Foundation

The NZ Herald recently reported a newer poll, conducted by Horizon Research, that found similar results. When asked if NZ should legalise the personal use of cannabis, 60% said yes, 24% said no, and 16% were undecided.

Those aren’t small numbers. In fact, it seems likely that a referendum would result in cannabis being legalised to some degree. But the extent and structure of that plan will depend on the politicians advancing the legislation. We’ll simply have to wait and see what they come up with.

In the meantime, perhaps you can begin considering your opinion on the matter…and how you’d view cannabis companies as investments. The time for action is on your doorstep — best to be ready.

We’ll discuss possible investment strategies in upcoming issues of Money Morning New Zealand.

---