The suspense is over. We now have a strong clue about which way New Zealanders voted on the Cannabis Legalisation and Control Bill.

Early results for the national referendum were released today — and they show that 46.1% of respondents voted for legalised cannabis, as opposed to 53.1% who voted against.

The market reaction was swift and bearish. Investors engaged in a vicious sell-off for two Kiwi medicinal cannabis companies:

  • Cannasouth Ltd [NZX:CBD] experienced a share price tumble of over 15%.
  • Rua Bioscience Ltd [NZX:RUA] saw its share price slide by over 8%.

Together, both Cannasouth and Rua have a combined market cap of around $200m.

 

Where could [NZX:CBD] and [NZX:RUA] go from here?

 

The issue of cannabis legalisation in New Zealand has been beset by controversy from the start.

According to the referendum’s website:

The Bill sets out a way for the Government to control and regulate cannabis. It proposes rules for growing, selling, buying, and consuming cannabis.

Effectively, this would allow anyone above the age of 20 to grow, use, and distribute cannabis without criminal prosecution.

At first glance, the NO vote in this referendum might appear to kill off any possibility of legislative reform for cannabis.

However, there are several important factors to note here:

  • Up to 480,000 votes in the referendum (17% of the total) are still to be counted — with the final result not announced until November 6. There remains a possibility, no matter how slim, that a YES vote might still prevail.
  • Even if the final result is NO, the referendum is ultimately non-binding. This means that the government may still choose to pursue legalisation by another route at a later date.

At the moment, medicinal cannabis is already legal in New Zealand. It has been administered by the Medicinal Cannabis Scheme since 1 April 2020. This allows to doctors to prescribe cannabis under controlled guidelines for conditions such as cancer, chronic pain, and multiple sclerosis.

This gives some scope for companies like Cannasouth and Rua to carry on with the research, cultivation, and sale of cannabinoid therapeutics. For those who use cannabis to relieve pain, the upshot of this may well be that they turn to cannabinoid therapeutics instead.

However, Cannasouth and Rua remain small-cap stocks with significant risk profiles. Neither have been profitable to date — and today’s result adds more uncertainty, which is always a bitter pill for investors. The future for these stocks may still look hazy.

Discerning investors should exercise caution.

 

Regards,

John Ling,
Analyst, Wealth Morning

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