Investors in China are reportedly now buying hemp-related stocks in large quantities, driving the price through the roof. The sudden rise of these cannabis-related stocks has caused Beijing's regulators to crack down on the frenzied buying in an attempt to control speculative trading.
In the past few months, hemp-related companies listed in stock exchanges in Hong Kong, Shanghai, and Shenzhen have drastically risen following a growing interest in the industry. While marijuana production and consumption is illegal in the country, hemp as an industrial material is allowed.
The cultivation of the plant has significantly grown over the past few years, with major plantations now found in the province of Yunnan and the northern province of Heilongjiang.
According to official figures, China has now become the largest producer and global exporter of hemp papers and textiles. While hemp does still contain trace amounts of the psychoactive chemical THC, its use in industrial applications such as clothing, paper, and some drugs has made it invaluable.
Among the hemp-related companies that experience massive price jumps over the past months include Shenzhen-listed Shanghai Shunho and Jilin Zixin Pharmaceutical. Shanghai Shunho stock prices had risen by as much as 433 percent in the first quarter of this year, reaching a record high just last week. Meanwhile, Jilin Zixin Pharmaceuticals soared to more than 200 percent in the year to date.
Market analysts have mentioned that the recent spike in interest in hemp-related stocks may just be short-term speculative trading that may not last.
Any new hemp-related companies that appear on the exchanges immediately get attention, with traders betting on it getting big as more of the county legalizes its cultivation.
Analysts have warned speculative investors to steer clear of these kinds of trades as the industry is still relatively new and regulations could change without warning.
In response to the sudden spikes, China's National Anti-Drug Committee announced that it will now be tightening its control over its issuance of industrial cannabis licenses.
Other Chinese regulators followed suit and issue their own letters to companies to clarify their current business operations.
The Shenzhen Stock Exchange issued letters to four major hemp-related companies, asking them to clarify their operations. Shanghai Shunho was asked to clarify risks involved with its hemp projects, while Hunan Er-Kang Pharmaceuticals was asked to detail its recent purchase of a large stake in a new hemp-growing firm.
Following the probe on the various hemp-related firms, stock prices immediately dipped as some investors sold off their shares in fear of a possible crackdown.
In response, various companies had released their own statements clarifying their business operations and reiterating that they are in no way violating any national laws in their day-to-day operations.
