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Australian Cannabis Stocks Go Haywire Amid Secretive License Grants

Investors in Australian medical cannabis have been riding a rollercoaster this month. Stocks across the board took heavy hits at the beginning of last week, with shares of some industry upstarts, like small-cap Stemcell United (ASX: SCU), falling as much as 20%. By the close of trading on Friday afternoon, however, a few cannabis companies had turned it around in a big way.

What’s behind the volatility? It may come down to cultivation and manufacturing licenses—specifically, who has them and who doesn’t.

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Although the national Office of Drug Control doesn’t publicly disclose license holders, AusCann Group Holdings (ASX: AC8) announced on Friday, after a trading halt, that it had secured one such license. Its stock surged from $0.58 to $0.68 on the back of that news, even though the company hasn’t announced whether it’s secured a permit needed to actually grow cannabis. Until it does, the company will have to import medicines from its Canadian partner, Canopy Growth Corp.

AusCann is one of two Aussie companies to have announced that their license bids were successful. The other—the first to obtain such a license—is Cann Group Limited (ASX: CAN), which listed Thursday at just $0.30 a share. By the time markets closed Friday, the share price had more than doubled, to $0.66. Like AusCann, Cann Group will still need a permit to grow cannabis, which it hasn’t yet applied for.

While these two stocks came out strong at the end of the week, it was a different story for MMJ Phytotech (ASX: MMJ), which closed at $0.41 a share, down from a 52-week high of $0.77, which it hit at the end of March.

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How important is licensing to the success of an Australian cannabis company? How many licences have been granted? The Office of Drug Control began accepting applications for licences to cultivate, produce, research, and/or manufacture cannabis products in November 2016. Earlier this week, the office released some statistics about those applications:

  • As of April 30, 2017, the office has received 63 total applications among all three license types. Of those, seven have been approved and roughly a quarter were subsequently withdrawn. The remainder are under assessment.
  • Four medicinal cannabis licenses have been issued. These allow a license holder to cultivate cannabis for medicinal use in human clinical trials or as a prescribed medicine through the Special Access Scheme or Authorised Prescriber Scheme, programs that allow qualified patients to obtain medical cannabis.
  • Two cannabis research licenses have been issued. Thes authorize the cultivation and production of cannabis for medical research purposes.
  • One manufacturing license has been issued, authorizing the licence holder to manufacture medicinal cannabis products.
  • One permit has been issued to a medicinal cannabis license holder, authorizing them to plant cannabis seeds.
  • Two permit applications are likely to be finalized in the coming days. These will dictate the size and type of crops the license holders are permitted to grow

Investors considering a plunge into the volatile cannabis market should consider that having a license to cultivate cannabis is just the first step on a long road toward actually turning a profit. The Office of Drug Control expects that domestic supply come online by mid to late 2017, although some in the industry have called that goal optimistic, noting that licensed businesses build facilities, secure permits, and manufacture pharmaceutical-grade products.

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In the meantime, the Office of Drug Control recently announced that the first bulk shipment of medical cannabis product has arrived in Australia this month. Two suppliers, Canadian licensed producer Tilray and local pharmacy Health House International, are importing product into the country. (Editor’s note: Tilray and Leafly are both owned by Privateer Holdings.)