How to Invest in CBD Stocks on the ASX

What are the pros and cons of investing in ASX-listed CBD stocks?

Australia's CBD sector is still in its infancy, which means those who get in now could potentially see high growth in their investments. However, this novelty also means CBD stocks can be volatile.

For example, Incannex Healthcare (ASX:IHL,NASDAQ:IXHL) has taken a big share price hit since reaching a 2022 high of AU$0.64 on March 25 — it was down at AU$0.12 one year later. Cann Group (ASX:CAN,OTC Pink:CNGGF) is another company that has struggled in recent years, experiencing a serious share price fall at the end of 2019 and again during the summer of 2020. The company has still not recovered to its pre-pandemic share price level.

Another issue for the market is the relatively small size and young age of the cannabis market in Australia.

As it stands, the government of Australia strongly regulates the production and purchase of cannabis. Right now, only medical marijuana is legal in Australia at the federal level; recreational use of the drug is illegal. The exception to this is the capital city, Canberra, which became the first and currently only city where recreational cultivation and possession of cannabis is decriminalised. As a result, Australia's legal cannabis market remains small.

Still, there have been some positive signs for the industry. In February 2021, Australia’s Therapeutic Goods Administration (TGA) announced that CBD products would be down-scheduled from Schedule 4 (prescription only) to Schedule 3 (over-the-counter) substances. However, an over-the-counter CBD product is yet to be available, as this requires submission to the TGA with proof of safety and efficacy.

While many believe that it’s only a matter of time before a CBD product comes along that is approved as a Schedule 3 substance in Australia, the strict TGA standards are likely to cause delays.

What are the top CBD stocks on the ASX?

As CBD becomes more widely accepted as a medicinal treatment both locally and internationally, several Australian players have come to the fore to grab a piece of the market while it's still in its early days.

One crucial cannabis play listed on the ASX has a particularly strong presence in the hemp industry: EcoFibre (ASX:EOF).

The Queensland-based biotech stock produces and sells hemp-derived products across the three parts of its business portfolio: Ananda Food, Hemp Black and Ananda Professional. Ananda Professional products are the first fully compliant and legal hemp-derived CBD oil offerings that target the needs of independent pharmacies and healthcare professionals, according to EcoFibre.

EcoFibre's business also extends to markets outside of Australia through its operations in the US states of Kentucky, California and Pennsylvania. In 2020, EcoFibre acquired TexInnovate, a manufacturer in North Carolina, US.

The wide variety of EcoFibre's offerings, from pharmaceutical hemp extracts and hemp textiles to hemp food products such as hemp flour and protein powder, has made it a key player in Australia's CBD industry.

There’s also Vitura Health (ASX:VIT), previously Cronos Australia. Vitura Health is a domestic firm whose portfolio includes a variety of CBD brands. It has a stake in Cannadoc Health in Australia and continues to pursue health and wellness ventures in the Asia Pacific region. In its December 2022 half-year report, the company reported a consolidated profit of AU$7.66 million after income tax, an increase of 127 percent from the previous period.

Another big player in the CBD space in Australia is Botanix Pharmaceuticals (ASX:BOT), a clinical-stage dermatology company with a market cap above AU$100 million as of the end of 2023's first quarter.

Botanix is another biotech stock with ties to the cannabis sector. It is seeking to find treatments for skin diseases such as acne, atopic dermatitis and rosacea using the antimicrobial effects of synthetic CBD. In Q4 2022, the company completed a Phase 1b/2 clinical study for the use of its CBD formulation BTX 1702 to treat rosacea with positive results.