Advertisement
Advertisement
Food and agriculture
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
A group of workers harvest hemp at a farm near Beijing. Photo: Alamy

Mania for China’s hemp-related companies prompts stock regulator to crack down

  • Hemp-related companies listed in Shanghai, Shenzhen and Hong Kong have enjoyed a stellar rise so far this year, but can it last?
  • China is the world’s largest hemp producing country and the biggest exporter of hemp paper and textiles

Chinese cannabis-related stocks have been getting way too high this year for Beijing’s taste, prompting a crackdown to control the investor mania.

Marijuana growth and consumption is illegal in China, but cultivation of hemp is allowed in the southern province of Yunnan and in the northern province of Heilongjiang, which legalised the trade in 2010 and 2017 respectively.

Though tightly controlled, China is the world’s largest hemp producing country and the biggest exporter of hemp paper and textiles, according to official figures. Hemp contains just a trace of psychoactive component THC, and is used industrially in things like clothing, paper and seed products.

The Shenzhen-listed shares of Shanghai Shunho and Jilin Zixin Pharmaceutical were among those that have rocketed this year as investors sought out companies with cannabis ties.

Mainland investors are “very focused on that turf,” said Kenny Tang Sing-hing, chief executive of China Hong Kong Capital Asset. “It is short term speculative trading.”

Tang cautioned that the sector remains just a “concept” in Hong Kong, with only a few listed companies related to hemp.

Shanghai Shunho, which holds a licence to grow hemp in Yunnan province, has risen 433 per cent so far this year. Last week its stock price hit a record high, capping the third straight month of gains.

Jilin Zixin Pharmaceutical, has soared 201 per cent in the year to date. Its current 14-day relative strength index sits at 80. A reading above 70 indicates a stock is overbought, while a reading below 30 indicates oversold.

Any news of companies developing or investing in hemp or medicinal marijuana sparks an influx of trading, said Tang.

For example, reports of potential legalisation of industrial hemp cultivation in Jilin sent stocks surging on February 18. Shanghai Shunho rose by the 10 per cent daily limit in Shenzhen.

“Investors should be very careful on these stocks as we don’t know the policies of mainland China, and it is at a preliminary stage,” Tang said.

On March 27 China’s National Anti-Drug Committee announced it was tightening controls on industrial cannabis licenses. It also said Beijing has never approved industrial cannabis for medicine and food additives, according to the China Securities Journal.

The news was seen as negative for companies seeking to establish a foothold in the emerging sector.

Kunming Longjin Pharmaceutical, which produces and markets natural botanicals in China, and Galaxy Biomedical Investment, a China-based company mainly involved in the biomedical business, retreated in the wake of the announcement, their shares tumbling 15 per cent and 22.6 per cent respectively from the time of the announcement and the close of trading on April 4.

Investors must be aware of high risks and volatility as the sector is in its early days, said Tang.

On March 28 the shares of several cannabis-related companies experienced a sudden sell-off after the Shenzhen Stock Exchange issued letters to four companies seeking clarification on risks and regulatory issues.

Hunan Er-Kang Pharmaceutical, which had risen 80 per cent this year, was asked to provide details relating to its statement that the company had agreed to buy a stake in a hemp-growing company.

Shanghai Shunho, meanwhile, was asked to clarify risks related to its hemp projects. Its shares were knocked for a 6.6 per cent drop in Shenzhen trade following the announcement.

As Chinese authorities stepped up attempts to curb speculation, several companies issued statements last Monday to clarify the nature of their business operations.

Shenzhen-listed Zhuhai Rundu Pharmaceutical told investors that although the company was developing technology for cannabinoid extraction, it has no related products for sale.

Extraction can be for cannabidiol, or CBD, a strand of the plant used for medicine. Medicinal marijuana is legal in 34 countries but remains prohibited in China.

But as the government encourages development in the medical and drug sector, investors think the long-term outlook is positive, said Tang.

Hong Kong-listed Meilleure Health, which sells anti-ageing health products, has risen 292 per cent this year.

In February, it issued 312 million new shares to private Chinese company Hemp Investment Group for about HK$109 million (US$13.92 million).

The companies will explore medical uses for cannabis in China.

The week before, Meilleure Health agreed to acquire 20 per cent of Hansu Biotechnology, a hemp product processor in Yunnan, for 60 million yuan (US$9.4 million).

On Tuesday the company surged by as much as 16 per cent after announcing it was placing 360 million new shares to raise HK$326 million for expansion into the industrial hemp sector.

On Thursday, the final day of trade during the holiday-shortened week, the share leapt 24.2 per cent to HK$1.49.

This article appeared in the South China Morning Post print edition as: Caution urged over hemp stocks
Post