The UK capital city of London appears to be embarking on a cannabis revolution. With regulations easing, cannabis stocks can begin listing publicly on the London Stock Exchange.
British MS treatment company and cannabis stock GW Pharmaceuticals (NASDAQ: GWPH) was a pioneer in this regard. But it is delisting from AIM and the high profile $7 billion takeover by Jazz Pharmaceuticals PLC. (NASDAQ: JAZZ) has essentially removed its prominence in the UK.
This does, however, illustrate how larger institutions across the pharmaceuticals industry are recognising the validity of the sector. And demand for UK cannabis stocks is now mounting both from retailers and institutional investors.
Kanabo Group share price surges on IPO
Israeli company Kanabo Group (LON:KNB) listed on the FTSE AIM index via initial public offering (IPO) on Tuesday, February 17, 2021. Its share price rocketed over 170% on the day and continued to rise over 120% the next day. The Kanabo share price has soared from an issue price of 6.5p to over 50p at the time of writing.
Avihu Tamir, chief executive of Kanabo stated:
“There’s no doubt that this is a huge industry, there’s no doubt that it’s bringing a lot of jobs and taxes… Now the question is if the UK has an opportunity to lead the path in Europe? I think the answer here is easy as well. There’s no leader for medical cannabis in Europe. The potential is huge.”
Kanabo’s IPO success shows UK is ready for Cannabis stocks
In 2018, Cannabis was legalised for medical use in the UK. But last year, the UK’s Financial Conduct Authority (FCA) agreed medical marijuana companies could publicly list in the UK. This created an instant change in investor attitudes to the stocks.
When Kanabo CEO, Tamir, met with investors last month he was astounded to discover the turnaround in attitude towards the sector.
“The roadshow was amazing. We came out to raise £3m or £4m because we have over £1m in the cash shell. And we had demand for almost £12m — 300% oversubscription. We ended up taking £6m and still scaling back everyone by 50%.”
“I didn’t believe that a change of the FCA would be so dramatic in the eyes of even decision makers, not only investors. Banks, big institutions, strategic partners — that are approaching us actively because they do prefer to work with a cannabis company that is transparent and is a listed company.”
Kanabo’s products include vaporised marijuana pods and inhalers for medicinal use. Along with CBD products for the “wellness” market.
Kanabo intends to use the proceeds from its IPO to begin clinical trials of its medical products. It then intends to roll them out later in the year.
While Kanabo was the first cannabis stock to IPO in London, Australia’s MGC Pharmaceuticals (ASX: MXC, LON:MXC) dual listed its shares on the London Stock Exchange last week.
These two listings in sharp succession show that demand is hotting up in the British empire.
The UK cannabis sector is poised for significant growth
Globally, the legal cannabis market is worth $17.5bn (£13bn, €14bn). But it’s poised for significant growth, with a 2027 forecast of $65bn. The reasons are two-fold. Legalisation efforts are ramping up in the West. Recreational cannabis is now widely accepted throughout many parts North America and is gradually being accepted more readily for medical use worldwide.
In Europe the market share is still very small in comparison with Canada and the US, but it’s forecast to grow to €2bn (£1.7bn) during the next four years.
And there are many more Cannabis companies with their sights set on the lucrative European marketplace. While there’s all to play for, it’s likely to become saturated very fast and only the best will survive. There are already signs of various competitive battles playing out in the EU markets.
Cannabis stocks to watch
MGC Pharmaceuticals (LON: MXC) is a bio-pharma company otherwise known as a medicinal cannabis stock. Its areas of scientific interest lie in developing treatments for epilepsy, Alzheimer’s and Covid-19-infected patients. The MXC share price is up 180% since listing in London last week.
Isracann Biosciences Inc (CNSX:IPOT) is another Israeli cannabis firm hoping to expand into the domestic and European export markets this year. It has its flagship farm ready to grow and produce, with the phase one 54,000 sq. ft. of greenhouse canopy fully constructed and extensive processing capability in-place.
While the Covid-19 lockdowns have held up its progress, it’s getting closer to industrial-scale operations. With its goal to become a premier low cost, high quality cannabis producer.
Planting should begin in March providing final government approval comes through. So far, every approval step has concluded successfully.Isracann COO Matt Chatterton comments,
“We look forward to reporting on the conclusion of the upcoming inspections and confidently anticipate an exciting period of activity ahead as we continue to build, grow and create value in Israel.”
At the moment it doesn’t appear to have plans to list in London but watch this space.
Mergers and Acquisitions
Canadian company Hexo Corp (NYSE: HEXO, TSE: HEXO) is getting set to buy Canadian medical and recreational marijuana producer Zenabis Global Inc (TSE:ZENA). This is the latest M&A in the hotly competitive cannabis sector.
The new entity will mean Hexo becomes a top three licensed producer in Canada’s legal recreational market by sales. It also gives Hexo a coveted foothold in the European medical cannabis market via Zenabis’ local partner in Malta. Here Zenabis operates an established facility supplying pharmaceutical products to the European Union market. This shows Hexo is aggressively going after its place in the international market and profitable globalised cannabis industry.
On conclusion of the $235m deal, Hexo shareholders will own 87.43% of the combined company and Zenabis shareholders will hold the rest. Zenabis will incur a C$6 million termination fee if it opts to call off the deal.
In December Canadian cannabis pharmaceutical company Tilray Inc (NASDAQ: TLRY) and peer, Aphria Inc (TSE: APHA) agreed to form the world’s biggest cannabis company by revenue, in a reverse merger deal worth $3.9 million.
Bluma Wellness is a company we’ve covered here before at Value the Markets. It was recently acquired by Cresco Labs (CSE:CL, OTCQX:CRLBF) for $213 million. Cresco is one of the largest vertically integrated, multistate cannabis operators in the US. And now it’s expanding its reach into Florida thanks to Bluma’s operations there.
Meantime, Australian-listed Creso Pharma (ASX:CPH) and its subsidiary Mernova Medicinal has a number of growth initiatives pending.
Canadian companies rule the roost
Another Canadian company, Sundial Growers (NASDAQ:SNDL) and cannabis stock Indiva Ltd (CVE:NDVA) have announced a $22 Million Strategic Investment via private placement. This broadens Sundial’s exposure to the rapidly growing edibles market. It also allows Indiva to strengthen its operations and invest in automation. Which will then allow Indiva to develop new and innovative products across the edibles space.
The edibles space is hugely competitive but also high demand. Therefore the ability for high capacity and high-quality edible production is rapidly growing in market share and sales volume.
The edibles market is fast becoming a mainstay for many consumers who are adapting to know their tastes and requirements. Thus, consumer demand is rising in specific areas such as high-quality products with a vegan, gluten-free, low-calorie, sugar free slant etc. For example, gummies are in high demand and chocolate, mints & capsules are also enjoying growth as they can mask the strong herbal taste of some CBD tinctures.
Fire & Flower aims for NASDAQ
Another popular Canadian cannabis company is Fire & Flower Holdings Corp (TSE:FAF). Fire & Flower is ramping up its competitive advantage with an application to list on the New York NASDAQ stock exchange.
Admission to the exchange will greatly help it attract retail and institutional investors via funds and direct stock purchases. Fire and Flower has done well adapting to lockdowns etc and has a great footing in Canada. It now wants to build out a global retail brand.
GW and Jazz Pharma merger opens floodgates to cannabis ETFs
Around 84% of GW Pharmaceuticals shares are owned by institutions. So, GW Pharma’s rise boosted the coffers of a massive range of institutional shareholders. Better yet, their faith in the company was validated by the pharmaceutical industry.
Once the value and future potential of cannabis-based companies to address patients’ unmet medical needs became clear, the floodgates to opportunity opened. And this is what ultimately led to the $7.2 billion bid from Jazz Pharmaceutical to acquire GW Pharmaceuticals.
The cannabis exchange-traded funds (ETFs), such as Cambria Cannabis ETF (NYSEMKT:TOKE), that had a big weighting in GW Pharma before the bid, now have to deploy their capital elsewhere. There are lots of contenders in London hoping to attract that investment.
Kanabo and MGC are no doubt among them. Then there is Tilray, which is breaking into the UK as one of the first companies to bring medical cannabis to British patients via the NHS.
XPhyto Therapeutics is expecting approval as a medical device manufacturer later this month, followed by European regulatory approval as a commercial in vitro diagnostic device by early March.
Canopy Growth (TSE: WEED) won a UK licence for a medical cannabis storage and distribution facility in 2019. Canopy Growth also has a presence in the UK through its subsidiary Spectrum Biomedical UK. Spectrum is focused on providing access to cannabis-based medicinal products to UK patients with pain, mood and sleep conditions. It also owns this works a UK natural skincare solutions brand.
While many of these Canadian, US and Australian-listed companies have high hopes of breaking in the European and UK medical cannabis markets, it won’t be easy. It’s hugely competitive and difficult to execute the transition, particularly when meeting varying regulatory conditions.