Australian Cannabis Index | Is the US Cannabis Bubble About to Burst?

Although the HMMJ recorded an impressive 91% gain on the month prior, this was a significant decline from the ETF's position earlier in February, when it achieved an 183% gain at the apex of the Reddit-fueled buying frenzy.

As Joe Biden settled into his Presidency—and the Democrats began to assert their congressional control earlier this month—signs have emerged that a cannabis bubble may be on the verge of popping.

The bubble first began to emerge earlier in February, as shares in multiple North American pot stocks suddenly shot up in value. During this period Aurora Cannabis (TSX:ACB) recorded an impressive 97% month-on-month gain, while Canopy Growth (NYSE:CGC) and HEXO Corp (NYSE:HEXO) received a boost of 98% and 154%, respectively.

"This might require a lot of people to head back into work before this play really goes away. It's the people sort of sitting at home with that extra little bit of time able to trade now. This is beyond a bubble, I don't even think bubble is the accurate is the right word for it. It's almost like we're in simulation territory. [A stock] could change 30 per cent and it wouldn't be surprising anymore. They're not tethered to any reality. I think most observers in this space are just looking at it agog right now.Merida Capital Partners Managing Director, Mitch Baruchowitz

This bullishness from the market was partly the result of increased enthusiasm around the cannabis sector, as many believe the newly elected Democratic Majority will soon begin pushing forward cannabis legalization measures which were previously stymied by the Republican-controlled Senate

However, experts are now warning that North American cannabis industry may be on the brink of another sector-wide price implosion.

And some pot stocks have already begun to plummet back to earth, as shares in Aphria (NYSE:APHA) fell by 35% on 11 February and have continued to gradually decline ever since, while Tilray (NASDAQ:TLRY), plummeted by more than 50% on the same day, dropping from 63.91 to 32.16 by close of trading Thursday.

Additionally, much of the attention from retail investors has been focused exclusively on Canadian cannabis producers, which is a worrying sign considering that any US regulatory reform would be unlikely to have a material effect on their operations.  

"Although some of them might have U.S. ambitions and eventually U.S. operations, most of them are not in the position to compete with U.S. operators right now," Purpose Investments Portfolio Manager Nawan Butt said.

This trend was also broadly reflected in the wider market, as the performance of the 'Horizons Marijuana Life Sciences Index ETF' (HMMJ)—which is often viewed as a benchmark for the North American cannabis industry—continued to gradually decline. 

Although the HMMJ still recorded an impressive 91% gain on the month prior, this represents a significant decline from the ETF's position earlier in February, when it achieved an 183% gain at the apex of the Reddit-fueled buying frenzy.

The Australian Cannabis Index also experienced a slight downward trend last week, while outperforming the S&P 500 and Australia's All Ordinaries by 10%, as the latter indices remained relatively stable despite experiencing minor fluctuations.    

Keeping this in mind, let's examine some of the ASX-listed shares that drove the Australian market forward last week.

MGC Pharmaceuticals

Stock in the Australian bio-Pharma developer, MGC Pharmaceuticals (ASX:MXC), received a 38% boost on Monday last week, after the company announced that its ongoing pre-clinical research program into Glioblastoma Multiforme (GBM) will now begin using nanotechnology as a treatment delivery system.

This was big news, as the study was previously focused exclusively on testing cannabinoid formulations as a method for treating fresh glioblastoma tumor tissues, with the end goal of determining the optimal cannabinoid preparation.

Importantly, we are now moving forward with our next stage research which will now incorporate a new and innovative drug delivery systems. This is a very significant step for our research program and IP, as we look to transform and advance the way brain tumors are treated.MGC Pharma Co-founder and Managing Director, Roby Zomer

However, these parameters have now been broadened to include the testing of both CBD and CBG when applied via a nanoparticle delivery system to tumor cells.

If the outcome of the trial is successful this could also have huge implications for the future of brain cancer treatment, as it could significantly lessen the need for more invasive medical procedures.

Additionally, delivering the medication via an oral delivery vector is currently believed to significantly improve bioavailability and blood to brain absorption, as the particles are optimised as an SNEDD (Self Nano-Emulsifying Drug).

"The publication of our research in such a prestigious medical journal such as MDPI is a great achievement and validates our findings of using cannabinoids on GBM," MGC Pharma Managing Director Roby Zomer said.

"Prior to its publication, all research is required to undergo a peer review process where other medical researchers scrutinise the research procedures and subsequent findings."

MGC Pharma's research team has also reported—for the first time during the clinical trial—that increased concentrations of CBG are capable of inducing the "cascade of biological processes" that lead to the death of GBM stem cells, potentially opening new adjuvant therapy avenues.

Data from the study was also recently the subject of an independent peer review, before being published in the Multidisciplinary Digital Publishing Institute (MDPI) Medical Journal, lending further credibility and legitimization to MGC Pharmaceutical's cannabinoid formulation.

Disclaimer: Past performance is not an indicator of future performance.

Incannex Healthcare

Shares in the Australia pharmaceutical developer, Incannex Healthcare (ASX:IHL), climbed by almost 18% earlier this week—eventually reaching a 5-year high of 0.29—after the company published further positive results from its IHL-675A Inflammatory Bowel Disease trial.

According to the company, the drug was originally developed as a "candidate for the prevention and treatment of inflammatory lung conditions", such as sepsis-associate acute respiratory distress syndrome, bronchitis, asthma, and even chronic obstructive pulmonary disease.

We know that CBD has been the focus of academic studies in relation to inflammation for some time. After a variety of our own pre-clinical studies, our proprietary IHL-675A combination CBD and HCQ drug may have the potential to be clinically relevant to a large variety of conditions, including those for which CBD has previously been a research target molecule for their treatment.Incannex CEO and Managing Director Joel Latham

However, after conducting further research Incannex realized that the synergistic anti-inflammatory properties generated by cannabidiol (CBD) and hydroxychloroquine (HCQ) had the potential to treat other inflammatory conditions.

Earlier this month the share price for Incannex also spiked after reports surfaced that an Austrian hospital had begun using medicinal cannabis to treat inflammation symptoms in COVID-19 patients.

The trial has supposedly shown promising results, with the patients demonstrating rapid recovery times and significantly reduced inflammation.

"We have seen that the inflammation parameters in the blood go down, and people leave the hospital faster than the comparison group. CBD supports the immune system," Klagenfurt Clinic Head of Intensive Care, Dr Rudolf Likar.

And this was good news for shareholders in Incannex, as its lead drug candidate, IHL-675A, was specifically developed as a treatment for sepsis-associated acute respiratory distress syndrome (SAARDS), which is the biggest cause of death in COVID-19 patients.

"While it is encouraging that the Austrian data showed that CBD may be a useful drug at reducing the progression of COVID sepsis to a full-blown cytokine storm, in our preclinical study, we found a significant synergistic effect when the CBD was combined with hydroxychloroquine," Incannex Healthcare CMO Dr Sud Agarwal said.

"It would be anticipated that IHL-675A would be significantly more efficacious than CBD alone."

Disclaimer: Past performance is not an indicator of future performance.

Little Green Pharma

Little Green Pharma (ASX:LGP) experienced a moderate boost to its share price after the company announced that it had been selected as the exclusive supplier for the an initiative known as the  Quality of Life Evaluation Study (QUEST).

The study aims to be one of the world's largest longitudinal studies investigating the quality of life and health outcomes of chronic disease patients prescribed with medicinal cannabis. 

Medicinal cannabis has been studied in a broad range of chronic conditions and diseases but quality-of-life studies are limited. The QUEST study is unique in its approach, emphasizing both health economic and quality of life measures, rather than effectiveness for a specific symptom or condition. By taking this approach, The QUEST Initiative may be able to provide future critical insights into the health of a patient over time and help us better understand whether the introduction of medicinal cannabis delivers cost-effective improvements to a patient's wellbeing.University of Sydney Associate Professor, Claudia Rutherford

Under the agreement, LGP will exclusively supply medicinal cannabis oil products to enrolled patients, while also providing funding to assist with the cost of the study.

The study will be conducted by researchers at the University of Sydney—with the potential to expand internationally—and is currently set to run for a two-year period with the aim of recruiting at least 2,100 patients by 30 June 2021.

"The QUEST Initiative represents a significant Australian contribution to the global need for reliable, objective and clinically-relevant quality of life data for patients accessing medicinal cannabis treatments for a broad range of chronic conditions," Federal Minister for Health Greg Hunt said.

"It is also commendable to see an entirely home-grown Australian study supported by a leading Australian higher educational institution, advocacy groups and industry participants."

"I would like to congratulate the University of Sydney and study supporters on making such an important clinical contribution and helping to drive increased understanding around medicinal."

The QUEST study is also expected to accommodate a large cohort of patients with a broad range of "chronic conditions and diseases" being eligible to qualify, including chronic pain, cancer pain, neuropathic pain, insomnia, anxiety, multiple sclerosis, and epilepsy.

Additionally, the study will be overseen by an advisory group, and has the endorsement of a range of national health organizations, such as Arthritis Australia, Chronic Pain Australia, MS Research Australia, Epilepsy Action Australia and Health Insurance Fund of Australia (HIF).

News of the agreement also led to a mild boost for stock in investment firm FastForward Innovations Limited (LON:FFWD), which became an institutional investor in the company after participating in a share placement program earlier this month.

"Little Green Pharma is one of our newest investments in the medical cannabis space and we are delighted that it is already delivering such strong news flow," FastForward CEO Ed McDermott said.

"The QUEST Initiative aims to have at least 2,100 patients by 30 June 2021, which is a very significant number, and it is excellent to hear that Little Green Pharma is involved with the exclusive supply of medical cannabis oil products as well as providing funding for study costs."

Disclaimer: Past performance is not an indicator of future performance.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.