Pot stocks in Australia are getting high

There’s a buzz in Australia’s stock market.

Shares of companies involved in the cultivation, production and research of medicinal marijuana have on average soared more than 130 percent in Sydney this year. That’s six times higher than their peers in the U.S. and Canada. The surge was sparked by Australia easing restrictions on imports of cannabis to treat illnesses from epilepsy to cancer.

Australia’s nascent cannabis sector is a sliver compared to the U.S., where more than half of states have legalized medical uses of the plant. While that allows plenty of room for growth, companies with unproven business models and patchy cash flows remain at the mercy of regulators, according to Peak Asset Management. Only Queensland allows specialist medical workers to prescribe pot-related products to people who don’t respond to conventional medicine.

“The market is excited by the potential upside it could bring,” said Niv Dagan, Melbourne-based executive director at Peak Asset Management. Dagan has a small chunk of his more than $76 million fund exposed to Australian pot stocks. “The key risk we see is obviously regulatory risk.”

Investor enthusiasm isn’t abating. The Hydroponics Co., which makes lighting rigs and glasshouses that help grow cannabis plants, is raising money for an initial public offering next month. The share sale is almost three times oversubscribed, according to the company’s chairman Alan Beasley. The stock will list with the ticker THC, shorthand for Tetrahydrocannabinol, the main psychoactive ingredient that gets cannabis users high.

Initial demand for medicinal marijuana in Australia could top $76 million a year, a University of Sydney report estimated. If cannabis-derived pharmaceuticals become more mainstream within the decade, demand could grow to $229 million, the report’s author, Michael Katz, said.