Cannabis companies queue up to join London’s budding subsector

Interest in cannabis stocks sparked into life this month as London welcomed its first two specialist medical marijuana companies.

A surge in share prices was seen around the world last week, as the Reddit-inspired retail investors and YOLO traders jumped aboard the cannabis bandwagon, but a day later and most of the share prices were back to where they started.

To be fair, the self-dubbed ‘degenerates’ of the WallStreetBets online forum were probably joined by many other investors in taking an interest in the sector, as there has been a rush of news flow recently.

Most of the buzz came from a couple of fat M&A deals, namely the US$7.2bn deal to take over Anglo-US group  PLC (NASDAQ:GWPH) struck by Jazz Pharmaceuticals () this month and the planned US$4bn roll-up between Tilray and Aphria.

While interest in the US cannabis sector has been growing since Joe Biden closed in on the White House, British investors found somewhere to get their fix with the initial public offers in the past fortnight of () and PLC (). 

What’s happened?

Before we look at the players in this nascent London sub-sector, it is probably best to look at why they are coming on the market now.

In short, it is a heady mix of legislative and regulatory changes, along with the current market hunger for IPOs.

The changes to financial regulation were significant in opening up the UK market to potential growers, retailers and end users, but they were slow to come amid conservatism that probably still lingers from the days of Reefer Madness propaganda films.

Medicines derived from cannabis were made legal in 2018 but there remained a grey area around the Proceeds of Crime Act.

But finally, in September last year, the Financial Conduct Authority gave its gold seal of approval for UK-based medicinal cannabis companies to list their shares publicly.

While cannabis patient numbers in the UK are still low, they are rising at a consistent pace, with the Australian market said to be where to look for how Britain’s domestic market could develop. 

Australia, which is said to be around 18 months ahead of the UK, has seen numbers of active patients rise from fewer than 500 three years ago to roughly 30,000 today, according to FreshLeaf analytics, which tracks the industry.

Looking at the market globally, the medicinal use of cannabis has been legalised in 40 countries, with most US states having declared medical cannabis an essential product in the pandemic with both the WHO and EU proposed rescheduling cannabis under global drug treaties to acknowledge cannabinoids have medicinal value.

Cannabis Advisory, an investor in early-stage cannabis companies, reckons the global industry could grow to over US$100bn of annual revenues in the next three to four years from US$20bn currently.

Cannabis companies and funds in London

With the ball set rolling, MGC Pharmaceuticals, which is based in Europe and was already listed on Australia’s ASX and on the US Pink Sheets, sealed its London IPO with a £6.5mln fundraising last week and became the first cannabis-sector company to float on the main market of the LSE.

The funds, which are intended to be used to advance clinical trials of two drug candidates, increase distribution and complete construction of manufacturing facilities in Malta, were raised at 1.475p and the shares have since climbed almost tripled to 4.3p.

MGC said this week that its pre-clinical research program into the use of cannabinoids in the treatment of aggressive glioblastoma brain cancer has been expanded to explore the use of other treatment delivery systems, including the nanoparticle delivery system used successfully in its ArtemiC clinical trial into the treatment of COVID-19.

On Tuesday this week, Kanabo Group, maker of vaporisation…