SMALL CAP IDEA: Cannabis businesses

Two years ago, the London stock market was abuzz with excitement over medical cannabis, with companies lining up to go public.

After the initial buzz, investors didn’t see many highs for the next year or so, but a burgeoning uptick has been visible in recent months.

Companies are adapting to the shifts in an industry that is still very young in a legally approved sense, with a CEO describing this phase of the market as ‘Cannabis 2.0’.

Although the UK is the second largest market for medical cannabis in Europe, legalization in 2018 has progressed in fits and starts.

The number of patients is rising by about a thousand every month and is expected to exceed 47,000 this year and possibly 70,000 by the end of next year, according to industry specialist Prohibition Partners.

This growth has caused the share prices of several companies to rise significantly, with Oxford Cannabinoid Technologies rising more than 70 percent in the first few months of the year. Celadon Pharmaceuticals an increase of 190 percent and Chill Brands almost 300 percent.

All three cover different corners of the cannabis market, with the full range of London-listed medical cannabis companies providing access to corners of the market, from growers to biotech companies, CBD producers and distributors, and makers of skin care and other consumer goods.

London investors currently have direct access to two growers, Celadon and Hellenic dynamicswith a possible third, Northern Leaf, recently raising £3m for a potential listing.

Hellenic Dynamics, based in Greece, focuses more on the European markets and has just signed a major agreement with a German distributor.

Celadon grows its medicinal cannabis from an indoor hydroponic facility that was one of the first to receive Good Manufacturing Practice (GMP) certification from the UK medical regulator.

This approval enabled the commercial sale of the product and has led to a significant increase in the value of Celadon.

UK patients prescribed medical cannabis currently rely on imported product, but Professor Mike Barnes, a neurologist who educates and trains doctors in prescribing medical cannabis, says Celadon is one of a new generation of domestic manufacturers bringing a major boost to the UK market should give. by ensuring a more consistent supply.

Another drag on the growth of medical cannabis in the UK is the prudence of medical regulation, adds Prof. Barnes.

He recognized that the nature of cannabis makes it difficult to regulate like a pharmaceutical pill, with many complex variables affecting the growth of cannabis and affecting the nature of each plant.

But GW Pharmaceuticals, now owned by Jazz Pharmaceuticals, was the first to develop prescription drugs based on cannabis extracts. Epidiolex and Sativex products were approved in the US in 2018 and in the UK in 2019, respectively.

For investors looking for the potential reward that comes with higher risk, there are small biotech companies looking to follow in their footsteps.

Oxford cannabinoid technologies (0.93p) is one such company, which has seen significant share price movements following the growing Home Office license renewal and UK Phase 1 trial approval of its lead pain relief drug candidate.

Ananda Developments, also with a growing facility in the UK, plans to initiate two Phase 2 clinical trials for chronic pain conditions.

Broker SPAngel suggested that these studies could give more confidence to prescribers and regulators.

Another that has moved on to a more pharmaceutical approach is MGC Pharmaceuticals (0.29p), where the first deliveries of its CannEpil treatment for drug-resistant epilepsy were received by UK patients in May through the I Am Billy Foundation and its named patient application programme.

Kanabo (2p), which characterizes the fast-paced nature of the industry by appearing to be a bit of everything, is developing a cannabis inhaler that was tipped for European approval earlier this year.

It has also recently launched an online medical cannabis clinic specializing in pain management.

CBD, one of the best-known chemical extracts of cannabis, is an active ingredient in some of these pharmaceuticals, but its largest presence in the UK is in wellness and lifestyle items.

Total sales of CBD, available over the counter as a health supplement or in cosmetics, are expected to reach €344 million in the UK this year and €383 million in 2027.

Cool Brands (7.4p), a skincare company, has regained investor confidence under its new boss Callum Sommerton, with a strengthened balance sheet and a chill.com website that now sells third-party products, as well as own-brand CBD oils, tobacco alternatives and edibles .

Mobile goods (0.8p), a skincare manufacturer, recently got a boost by winning a product placement on the website of multinational beauty retailer Sephora.

What we are seeing in the cannabis sector ultimately reflects a trend often seen in new industries as they transform and adapt, with investors needing to keep a close eye on developments to reap the potential harvest.

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