SMALL CAP IDEA: Cannabis businesses

Two years ago, the London stock market was gripped with excitement about medical cannabis, with companies queuing up for a public listing.

After the initial buzz, investors did not see many highs for the following year or so, but a budding revival has been apparent in recent months.

Companies are adjusting to the shifts in an industry that is, in a legally approved sense, still very young, with one chief executive describing this stage of the market as ‘Cannabis 2.0’.

Although the UK is the second largest market for medical cannabis in Europe, its legalisation in 2018 has seen progress in fits and starts.

Patient numbers are rising by around a thousand each month, and are forecast to exceed 47,000 this year, and possibly 70,000 by the end of the next year, according to industry specialist Prohibition Partners.

Progress: Although the UK is the second largest market for medical cannabis in Europe, its legalisation in 2018 has seen progress in fits and starts

This growth has seen significant share price bounces for several companies, with Oxford Cannabinoid Technologies jumping over 70 per cent in the first few months of the year, Celadon Pharmaceuticals soaring 190 per cent and Chill Brands almost 300 per cent.

All three cover different corners of the cannabis market, with the full array of London-listed medical cannabis companies offering access to corners of the market from cultivators to biotechs, CBD producers and distributors, and makers of skincare and other consumer goods.

London investors currently have direct access to two cultivators, Celadon and Hellenic Dynamics, with a possible third, Northern Leaf, recently raising £3 million for a potential listing.

Hellenic Dynamics, based in Greece, is more focused on European markets and has just signed a major deal signed with a German distributor.

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

This approval allowed the commercial sale of its product and has led to the surge in Celadon’s value.

UK patients prescribed medicinal cannabis are currently reliant on imported product, but Professor Mike Barnes, a neurologist who educates and trains doctors about prescribing medical cannabis, says Celadon is one of a new generation of domestic producers that should provide an important boost to the UK market by guaranteeing more consistent supply.

Another brake on the UK’s medical cannabis growth is the caution of the medical regulatory environment, Prof Barnes adds.

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

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

For investors who are looking for the potential reward than comes with higher risks, there small cap biotechs looking to follow in its footsteps.

Oxford Cannabinoid Technologies (0.93p) is one such company, which has seen considerable share price movements on the back of its Home Office growing licence renewal and approval for a phase 1 trial in the UK of its lead pain relief drug candidate.

Ananda Developments, also with a UK cultivation facility, is set to begin two Phase 2 clinical trials for chronic pain conditions.

Broker SPAngel suggested these trials could provide more confidence to prescribers and regulators.

Another to have segued into more of a 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 via the I Am Billy Foundation and ‘named patient’ request scheme.

Kanabo (2p), which characterises the fast-moving nature of the sector by seeming to do a bit of everything, has a cannabis inhaler in development, which was tipped for European approval earlier in the year.

It also recently launched an online medicinal cannabis clinic specialising in pain management.

CBD, one of the best-known chemical extracts from cannabis, is an active ingredient in some of these pharmaceutical products but its largest presence in the UK is in the wellness and lifestyle goods spaces.

Total sales of CBD, which can be bought without a prescription as a health supplement or in cosmetics products, are expected to reach €344million in the UK this year and €383million by 2027.

Chill Brands (7.4p), a skincare business, has regained investor confidence under its new boss Callum Sommerton, with its balance sheet reinforced and its chill.com website now selling third-party products as well as its own branded CBD oils, tobacco alternatives and edibles.

Cellular Goods (0.8p), a skincare products maker, lately received a boost by winning a product placement on multinational beauty retailer Sephora’s website.

What we are witnessing in the cannabis sector ultimately mirrors 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.

To read more small-cap news click here: www.proactiveinvestors.co.uk.

This post first appeared on Dailymail.co.uk