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Analysis: For now, Australia's plans for cannabis market dominance are more smoke than fire

Reuters  |  SYDNEY 

By Packham

SYDNEY (Reuters) - When said this month it would allow of medicinal in a bid to dominate a global market set to be worth $55 billion by 2025, investors scrambled to buy in marijuana companies - pushing several of them, and the sector as a whole, to record highs.

But convoluted and restrictive licensing demands, and a guarded medical profession means even Australia's largest marijuana companies are at least a year away from a commercial crop. And doubts linger about the prospects for smaller entities, belying the government's ambitious plans to be the world's leading exporter.

"There will be more used in and overseas over the next 10, 20 and 50 years but it is not clear that any of the local market can capture that, let alone make money from it," said Scott Phillips, at investment company "Look at the gold rush: sure, some made money, but the biggest winners were the sellers of the shovels."

Australia's medicinal sector, with 12 listed companies, produces a range of products that include and acne creams with extracts of marijuana to aid acne. The businesses acknowledge some barriers to growth but say they are primed to profit from a maturing market.

already produces 50 percent of the world's legal poppies, which are processed into such as morphine and codeine. Last year, it expanded its legal drug market by legalising medicinal marijuana use, a move that spurred a wave of IPOs and backdoor listings on the (ASX).

Contradicting the hype, however, only several hundred patients in have so far been prescribed medical cannabis, data from the country's show, as local doctors remain wary of the benefits of marijuana.

The reluctance of doctors has curtailed the growth of Australia's market. Australian law requires the seven companies licensed to grow medicinal to produce only enough to meet domestic demand.

But when the said it planned to allow medicinal - perhaps within months - the three largest companies, AusCann Group, and immediately looked for ways to expand production.

Cann Group's chief executive, Peter Crock, said the company hopes to complete a new 16,000- to 20,000-square-metre medicinal facility this year, while Hydroponics Company's chief executive, David Radford, said a new to produce enough marijuana for 16,000 patients was "95 percent" complete.

Even once the facilities are built, however, both companies might not be allowed to grow an exportable crop right away. said it will only allow of processed or manufactured products such as oil extracts, which require a

"Obtaining a licence is an exhaustive and complicated process," Crock said. hopes to have full regulatory approval by the time its new facility is ready at the end of 2018.

Only has all required licences. But the company has not yet finalised its production plans, told


Despite licensing issues, Australia's largest medicinal companies say they have secured sufficient capital for expansion.

Analysts warn that capital restraints could hamstring the smaller players as a wave of IPOs, which fuelled the growth of Australia's medicinal industry in the past year, may be threatened by U.S. regulatory uncertainty.

The administration of U.S. has moved to allow federal prosecutors to more aggressively enforce marijuana laws. That throws uncertainty into what is expected to be the world's most lucrative market.

The ASX in December said it would require would-be public marijuana companies to provide evidence that their business could be lawfully carried out in the United States, under both federal and Lawyers said that could deter potential listings.

The newfound resistance to bucks a global trend, as a growing number of countries not only legalise its use but also take aim at the export market.

dominates global production and exports, worth C$6.2 billion in 2015, according to the country's statistics office. But recent moves to legalise recreational could create opportunities for other countries to capitalise.

will join Uruguay, and the in looking to fill the potential shortfall in supply.

With demand skewed toward and Europe, Australia's export supplies will face a freight disadvantage. But like the country's agriculture sector, it is positioning itself as a of a premium

"The Australian market is akin to the wine industry: you'll have your premium, Grange hermitage wines, and then you will have goon bags. We will at the premium end," said Radford, referring to the difference in price between one of the of the world's top vintages and cheap, boxed wine.

(Reporting by Packham; Editing by Gerry Doyle)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sun, January 14 2018. 09:03 IST