Its announced intention to make a cannabis investment has sent shares of shell company Fragrant Prosperity (LON:FPP) soaring and given the potential in this sector, this makes it a SPAC (special purpose acquisition company) to follow closely.
In late February, shares rose more than 40 % to a high of 6.85p after the company issued a statement that it was eyeing the medicinal cannabis and CBD wellness sectors in addition to its original plan to look for opportunities in the financial services sector.
Focus on cannabis and cannabis therapeutics
On March 3, Fragrant made a share placement, raising £543,930 to provide additional capital for the company to pursue its investment strategy, “in particular” said chair Craig J. Marshak in the cannabis and cannabis therapeutics sectors. So almost definitely shelving financial services for now.
Fragrant Prosperity also announced it expected to appoint “in the reasonably near future at least one additional director who will add to the current in depth experience of the existing board to assist with this search”. It also appointed UK counsel with experience of cannabis business listing.
It’s not hard to see why a SPAC that was set up in 2017 but has yet to find a suitable acquisition in its initial target sector would look at this burgeoning cannabis sector which is expected to reach $73.6 billion by 2027 globally.
The shift in strategy follows guidance issued by the Financial Conduct Activity on admission of medicinal cannabis and CBD oil companies to the Official list and the subsequent IPOs by Israel’s Kanabo Group (LSE:KNB) and MGC Pharmaceuticals (LSE:MXC).
Fragrant said that as a result it had been presented with “a number of investment opportunities” in this area and that it is considering a number of opportunities although it added that discussions are at a very early stage.
Of SPACs and cannabis opportunities
Shares in various cannabis related stocks have seen some sharp rises in recent times. Kanabo, which also listed via a SPAC, was up 500% last week from its initial offer price while MGC spiked sharply a few days ago on news of an increased purchase order for one of its products.
Exchange traded funds active in this sector have also been posting some impressive gains. Seven of the top 10 best-performing funds were active in this field, according to data from TrackInsight.
Then there is the shift in the regulatory regime with the election of Joe Biden in the US paving the way for further acceptance and approval of cannabis related products and the UN’s removal of cannabis from the convention on narcotic drugs, giving a further boost to what we have dubbed Cannabis 2.0, the second wave in the development of the sector.
For Fragrant Prosperity, much will depend of course on which company it acquires. In a sector that is becoming increasingly populated and where some forecasters expect to see a drop in the cannabis price, not every company offers the same potential for investors.
We prefer those with some geographical diversification and which can therefore take full advantage of markets with more favourable regulatory regimes. If Fragrant Prosperity can find an opportunity that ticks those boxes, we can expect to see some interesting developments in its share price.