ADVERTISEMENT

Cannabis Craze Comes to China Stocks, Drawing Regulator's Ire

Cannabis Craze Comes to China Stocks, Drawing Regulator's Ire

(Bloomberg) -- A boom in Chinese shares of companies linked to cannabis growing is coming undone after regulators sought to damp what’s been one of the year’s hottest trades.

Shanghai Shunho New Materials Technology Co. and Jilin Zixin Pharmaceutical Industrial Co. both slid more than 6 percent on Thursday after the Shenzhen Stock Exchange told them to warn investors about uncertainties facing their industrial cannabis projects. In written notices, the exchange also asked the companies to submit progress reports on those businesses before April 2. Neither company immediately responded to Bloomberg’s requests for comment.

Cannabis Craze Comes to China Stocks, Drawing Regulator's Ire

Shanghai Shunho -- whose products include cardboard and filament -- had soared 378 percent this year through Wednesday, while Jilin Zixin rose 142 percent, joining the euphoria that’s driven a rally in marijuana-focused stocks elsewhere in the world. Cultivation of industrial cannabis is legal in China but only for use in fiber and seeds, the China National Narcotic Control Committee says. Other uses including for medical purposes are forbidden.

Chinese investors have piled into stocks with the slightest hint of a link to industrial cannabis, ignoring companies’ warnings and a government notice said to urge authorities to tighten approval of hemp-related licenses. Shunho’s issued at least six warnings in the past two months alone reminding investors of risks in hemp.

“It’s still just a concept. We’ve seen huge gains in the near term, so it’s going to be all risks going forward,” said Yu Yingdong, a vice general manager with Shenzhen Yun-Neng Fund Management Co.

Among related stocks, Yunnan Yuntianhua Co. dropped by the 10 percent limit and cigarette package printer Shantou Dongfeng Printing Co. also fell that amount after climbing nearly 60 percent since February, when it said an affiliate was exploring industrial cannabis opportunities. Harbin Pharmaceutical Group Co. escaped with a 6.9 percent gain after saying it has 2 percent interest in a project linked to industrial cannabis.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, ;Jessica Zhou at jzhou75@bloomberg.net, Will Davies, Sarah Wells

©2019 Bloomberg L.P.

With assistance from Bloomberg