Oh my, check this out. I’ve been banging the drum about cannabis stocks lately.
Now the Federal Minister for Health, Greg Hunt, says the Australian government is going to make it easy for companies to get going.
The Herald Sun quotes him as saying:
‘Cutting red tape and streamlining processes will strengthen this important and evolving industry, and ensure medicinal cannabis is available to Australian patients under proper medical supervision.’
This is a good thing.
Multiple companies have held back investment because they simply couldn’t get their hands on the required government paper — at a time when people complain businesses aren’t investing!
We still need to see the most change of all: Increased access to prescriptions for Australian patients in pain.
There seems to be good signs here, too…
That’s not all. I’ve tried to emphasise lately that part of the appeal of the cannabis stocks is their global market.
However, the last quarter was not kind to some of the overseas firms.
Canopy Growth founder Bruce Linton was terminated after key shareholders and board members lost faith in his business strategy.
One other firm found its CEO had been acting illegally and another got embroiled with the FDA.
Suffice to say, the bloom was off the rose as far as investors were concerned. But things could be about to turn around.
Aphria [NYSE:APHA] is a big stock in this space. It just took everyone by surprise.
Big news out of Canada last night
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The company’s earnings announcement just came out. It posted its first profitable quarter. Net revenue was up 75% on the previous three months.
Perhaps the key insight was this: The strength in these results was partly from the Canadian recreational results — but importantly from the German pharmaceutical market.
I’ve made the case in the past that the next big market for cannabis to win is Europe.
The early period of sky-high stock prices we all heard about stemmed from the action in North America.
The slightly odd thing about all this is how the Australian cannabis names have been trading countercyclically to the North American ones.
The Aussie ones started perking up last quarter, just as the North American ones went down.
Any renewed and ongoing strength from the European and North American markets bolster my case for mergers, deals and takeovers to happen to the cannabis stocks here in Australia.
You may not know this, but a good chunk of them have existing deals and agreements in place with bigger firms in the US and Canada.
These deals are important. The one thing most of the cannabis stocks here don’t have a lot of is cash.
Bigger firms can supply either the money or supply agreements that give some surety to their future cashflows.
You should be excited by these developments if you’re actively investing on the share market.
The cannabis industry is one of the few big growth markets we can access right here on the ASX.
Do yourself a favour and check out my comprehensive report on the whole space.
Don’t think you can just park your money in the big four banks like yesteryear.
Pressure still on the Aussie big four
Back on 3 July, I wrote that the pressure was about to hit the Aussie banks. You can check out that call here.
It was no surprise to me (or you, hopefully) when I read The Australian Financial Review this morning.
Two of the investment banks have come out and downgraded the Commonwealth Bank of Australia [ASX:CBA] from a ‘buy’ to a ‘sell’.
This is not to say we should automatically listen to these guys. But reports like this still carry influence in the market.
The downgrades are coming thanks to the same reasons I’ve flagged before.
One is New Zealand’s upcoming, insanely high capital requirements for the banks’ NZ subsidiaries.
That’s a huge demand on their money. The other is Australia’s low credit growth, plus falling interest rates. None of these things are good for banks.
Granted, they can sell assets and try to cut costs as much as possible to offset some of these factors. But it’s just not a recipe for great capital growth.
This is why the price of iron ore is so important. It’s the one thing flooding the big miners with cash and bolstering the Aussie index.
I can’t say how durable this iron ore boom is. I have a lot more confidence in the demand for cannabis in a myriad of different ways, in a myriad of different countries.
Perhaps the most amazing thing is how little you read in the mainstream media about the developments happening here.
This is an informational edge you can exploit — while it lasts.