Last year the UK gave the green light for cannabis stocks to list in London, so it comes as no surprise to see Kanabo (LSE:KNB) leading the way onto the AIM market, with a successful IPO this week. We are already seeing massive investor interest in the sector in Canada and the USA, and we anticipate that there will be more like Kanabo coming to the London market in the course of the year.
Kanabo is based in Israel and specialises in vaporisation and inhalation technology. It used a SPAC to get onto the market, Spinnaker Opportunities plc. Early trading of the stock saw it rise more than 200% from its placing price.
That’s a pretty hefty gain on a single day of trading. Investors in Europe are naturally going to be wondering when the next Kanabo is going to be coming along. We think it will be very soon indeed.
When is a cannabis stock a healthcare stock?
From the perspective of institutional investors, one of the challenges is going to be whether to classify cannabis companies as recreational or healthcare stocks. Differentiation may depend one the underlying activity and focus on the company.
According to the healthcare and life sciences team at Peel Hunt: “There has been a lot of talk about the “cannabis sector” migrating to London from other exchanges, though we’ve not really seen this materialise yet. The two recent deals in the space have been very small and, resultantly, are unlikely to herald an institutional stampede for the sector. But it’s a start.”
Peel Hunt sees some movement from cannabis stocks into healthcare – MGC is undertaking clinical trials and looking to generate clinical data to support regulatory approvals in some serious indications; similar to GW Pharma, which was considered the “one that got away” from London in many regards.
GW Pharmaceuticals has actually been listed in London since 2001, when it launched an IPO on AIM. It used the AIM listing to fund clinical trials into plant-derived cannabidoid medicines. In 2013 it decided to dual list on NASDAQ, leading to the surge in the share price.
The question is, will UK investors be willing to support many years of R&D spend before a product may come to market? “R&D companies have been heading to the US in their droves and it is a long and very expensive game with inevitable set-backs,” Peel Hunt observes. “The likes of GW Pharma are also many years ahead and very well capitalised.”
MGC Pharmaceuticals (LSE:MXC), the first cannabis company onto the London Stock Exchange, has already seen its stock soar since it listed at the start of this month. It could be argued that these companies are benefiting from first mover advantage, as UK investors have few pure play cannabis stocks to pick from.
“It took us over 18 months to complete this process because we wanted to move onto the next step,” explains Roby Zomer, co-founder of MGC Pharma. “We are listed in Australia but we operate in Europe and our main facilities are in Slovenia so we want to be in closer proximity to our investors and shareholders. The UK stock market is already familiar with the story cannabis in the pharmaceutical sector and therefore we will have more understanding of our strategy and agenda.”
Ultimately, while it is obvious it took some time for GW Pharma to get up and running, there are more mature cannabis and hemp plays already trading on other markets which could quite easily tap into the enthusiasm of UK investors for this emerging area of healthcare.