Time for a shot of the Medicinal Cannabis company often referred to as “the Cannabis Nespresso” in Kanabo Group ?
“…The omens seem good for Kanabo. The company has funding, an innovative product, and agreements in place to expand its reach into a burgeoning market…”
Our feature on the emerging medicinal cannabis sector last month, and subsequent interviews with the Love Hemp Group and Apollon Formularies, traced the explosive interest in perhaps this year’s most exciting new market.
As we reported, the long awaited decision last autumn of the Financial Conduct Authority (FCA) to allow UK-based medicinal cannabis companies to list on the London Stock Exchange led to a surge in companies applying to list, some of which went public earlier this year.
The door now seems open for the UK to become a major European trading hub for cannabis companies, rivalling Toronto and New York, where they have been able to list for some time. According to an extensive study by international cannabis market research firm Brightfield Group, liberalisation will allow the UK’s to grow by an estimated 100pc over the next five years. Europe’s cannabis market is projected to grow from $359m in 2020, itself a 25pc rise from 2019, to more than $3.1bn by 2025. The market grew by nearly a third last year as the plant’s capacity to help with stress, pain relief, and sleep disorders became more widely recognised, and its long term potential to relieve pressure on strained healthcare systems.
‘The cannabis Nespresso’
Kanabo Group (LSE:KNB), the first medicinal cannabis company to list on the LSE, enjoyed the Exchange’s biggest opening gain for several years when it listed on 16 February, the company’s share price tripling from 13.5p to close at around 40p. As the initial excitement surrounding Kanabo’s IPO and that of other cannabis small caps has subsided, the company’s stocks have stabilised at around 25p. Is it now time to take another look?
Kanabo, based in Tel Aviv, is part of Israel’s thriving medicinal cannabis sector: Israeli scientists were the first to isolate and identify the active compounds of cannabis in the 1960s, their work defining the non-psychoactive cannabinoid (CNB) system used in today’s health products.
The company currently generates its revenue by selling non-medical-grade CBD products to the UK and German markets, including proprietary formulas for sleep treatments. Kanabo is using the £6m raised through its IPO to expand its market channels, develop a new range of medical cannabis oils, and bring to market its flagship product, the VapePod, a medical-grade cannabis vaporiser.
Dubbed ‘the cannabis Nespresso’, the VapePod is the first medically certified vaporiser for the delivery of cannabis based formulas. It ensures patients get the same metered dose each time, thereby promising to solve the inefficiencies inherit in the traditional practice of simply smoking prescribed cannabis flowers, which can deliver unwanted carcinogens, soot and tar to the lungs, significantly reducing their therapeutic efficiency. Kanabo says inhalation through vaporisation dramatically improves the degree and rate of absorption of the plant’s beneficial medical compounds. The company is developing a plush iteration of the device, the VapePod MD, which uses cartridges of liquid derived from cannabis flowers, and whose design ‘includes wireless charging, haptic and visual indicators, and a mouthpiece with large channels for easy inhalation’.
Expanding market reach
Kanabo is betting the product, currently going through the certification process, will give it an edge in a fiercely competitive retail cannabis market, and also help speed mainstream acceptance of CBD extracts as a prescription drug: the NHS, like other national health services, has so far been hesitant to fully embrace it.
Kanabo has signed two agreements since listing to expand VapePod’s market reach. In February the company signed its first UK medicinal cannabis distribution framework agreement with Astral Health, part of the LYPHE Group, to distribute the VapePod medicinal cannabis formula through ‘a patient-access ecosystem providing clinics, dispensing, import infrastructure and educational services to patients, doctors and the industry in the UK’. The ecosystem is part of Project Twenty21 organised by Drug Science, the UK’s leading independent drugs scientific agency, aiming to create Britain’s largest body of evidence for the effectiveness and tolerability of medicinal cannabis. The Project will allow Kanabo to reach a broad potential customer base and collect substantial evidence to enhance the credibility of its products. The project is being rolled out over the summer.
Last month the company signed a production and supply agreement with European company PharmaCann to produce VapePod cartridges. PharmaCann will initially produce 36,000 cartridges a month, and will ramp up production according to demand. Earlier this month Kanabo’s Q1 newsletter confirmed VapePod MD’s certification process is proceeding, and an agreement for a research partnership with Hong Kong-listed vaporisation technologies firm Smoore International.
The omens seem good for Kanabo. The company has funding, an innovative product, and agreements in place to expand its reach into a burgeoning market. Its challenge is to establish an efficient manufacturing and logistics network capable of responding to the hoped-for increase in demand for its vaporiser product, and to continue to fund the associated marketing and development costs. If it can do so, it seems set to take a profitable slice of a growing market. Kanabo’s current valuation reflects the market’s uncertainties about the challenges ahead, but investors interested in this fast moving sector may want to take advantage of what may come to seem a relatively low share price.