Two years ago the London Stock Market was gripped with cannabis fever, as companies queued up for a public listing.
After the initial buzz, investors did not see many highs for the following year or so, but in recent months the buds of a potential revival have been apparent.
Rather than just hype and excitement, the pickup has been led by news of positive developments, with many cannabis companies having tweaked or totally rejigged their strategies.
Cannabis patients numbers are growing
‘Cannabis 2.0’ is how one chief exec describes the current market, as companies reposition themselves and adjust to the shifts in what is in a legally approved sense still a new industry, despite the history of medicinal marijuana over thousands of years.
Since Britain’s legalisation of medical cannabis in 2018 the market has moved in fits and starts, though it is the second largest market in Europe, after Germany, which liberalised a year earlier.
The number of medical cannabis patients in the UK is growing by “around a thousand patients a month”, says Professor Mike Barnes, a neurologist who educates and trains doctors about prescribing medical cannabis.
The numbers stood at 27,000 in 2021, according to registered users of the Cancard scheme, and are forecast by cannabis industry research experts Prohibition Partners to rise to around 70,000 by the end of next year.
Tangible progress has been seen on the stock market, with sizeable share price bounces for several companies: Oxford Cannabinoid Technologies Holdings PLC (LSE:OCTP, OTCQB:OCTHF) is up 71% over the past six months, Celadon Pharmaceuticals PLC (AIM:CEL) over 192% and Chill Brands Group PLC (LSE:CHLL, OTCQB:CHBRF) over 290%.
This trio represents different sections of the cannabis market: OCT is developing pharmaceuticals, Celdaon is a cannabis cultivator and Chill Brands makes and retails products containing CBD, one of the best-known chemical extracts from cannabis.
These are just three of the many companies listed in the UK and overseas, with the full array offering access to most corners of the cannabis market from medical cannabis cultivators, CBD producers, distributors and retailers, biotechs, skincare and other consumer goods specialists.
Cultivating a market
Focused on cannabis in its most natural form, London investors currently have direct access to two cultivators, Celadon and Hellenic Dynamics.
A possible third, Northern Leaf, raised £3mln in funding earlier this year in preparation for a potential London listing and has an application for EU accreditation apparently in the late stages.
Until its floats, investors can currently gain access via SEED Innovations Ltd (AIM:SEED, OTC:FFRIF), an investment company with a portfolio of holdings in cannabis and CBD firms.
London-headquartered Celadon grows medical cannabis from an indoor hydroponic facility, which is thought to be the first to gain Good Manufacturing Practice (GMP) for cannabis high in delta-9 tetrahydrocannabinol (THC) from the UK medical regulator since the legalisation of medical cannabis.
Any investors around the turn of the year have enjoyed significant rewards, with the shares tripling after the grower gained approval for the commercial sale of its product in March.
Celadon, which has applied for the changes to its Home Office licence it needs to sell its product, notes that UK patients prescribed medicinal cannabis are currently reliant on imported products.
Prof Barnes says a new generation of domestic producers like Celadon could provide a key boost to the UK market.
Evolution of the market
More focused on European markets is another high-THC cultivator Hellenic Dynamics Plc (LSE:HELD), which floated in December.
London-listed but with its growing facility in Greece, Hellenic’s investors have not yet enjoyed the same highs but these are still early days and it recently signed its first major deal with a German distributor.
Chief executive Davinder Rai points out that an important dynamic in the past few years has been companies adapting to the evolution of the European market.
“There's actually no such thing as the European market – there’s 35 countries in Europe and they allow medical cannabis on completely different levels – some allow the importation of flowers, some don't, some allow export, some don't, some only have passed medical cannabis legislation for marketable medicines.”
As a result, he said cultivators should stick to their knitting: “distributors are far closer to the end patient and know what the patients want, having built up over the past five years a great understanding of patient demand. We’ve reacted to that.”
One distributor Grow Group PLC, which has raised £12mln through crowdfunding and private fundraising, has looked at a London listing but was frustrated at the low valuation on offer.
Recently it has been raising money from private investors using a trade finance approach that is says is making backers extremely happy with interest rates of 20%.
Pharmaceutical approach
One reason that the number of medical cannabis patients in the UK has not grown as fast as some predicted is that the medical regulatory environment remains quite conservative.
The NHS's guidelines from NICE (the National Institute for Health and Care Excellence) have put off many doctors, says Prof Barnes.
“NICE said there's not enough evidence to support more widespread prescriptions of cannabis and that there’s not enough double-blind placebo-controlled studies, the classic way of approving new drugs,” he says.
Indeed, he acknowledges that the nature of cannabis does not lend itself to being treated like a pharmaceutical pill.
“Unlike a pharmaceutical product, where you put the ingredients for one pill in the machine and each pill comes out the other the same, cannabis is less precise – the same seed and same genetics can be affected by endless variables such as the temperature it was grown at, whether it was indoors or outdoors, how it was fertilised and dried.”
But there are already pharmaceuticals on the market using cannabis extracts.
First to break ground in the pharmaceutical sector was GW Pharmaceuticals, now owned by Jazz Pharmaceuticals PLC (NASDAQ:JAZZ).
GW’s Epidiolex, where the single active ingredient is CBD, was approved in the US in 2018 to treat two rare syndromes in young children, and Sativex was given the green light in England in 2019 to treat spasticity in multiple sclerosis.
Sativex, which contains CBD and the second active ingredient of THC, the chemical that provides the cannabis ‘high’, last year made sales of under US$20mln, while in the US Epidiolex generated sales of US$736mln.
Shares in Nasdaq-listed Jazz, where these cannabis-derived medicines are just two of many in its drug portfolio, have largely move sideways for most of the past decade.
Small-cap marijuana-based pharma
Historically, investors looking for a bigger risk/reward ratio have traditionally delved about for bargains in the small cap sphere. And in the cannabis sector, it is no different.
There are a group of small biotechs putting all their chips on a small handful of cannabis-derived medicines, often with a single lead product that if it shows progress can lead to major jumps in the shares.
Investors in Oxford Cannabinoid Technologies Holdings PLC (LSE:OCTP, OTCQB:OCTHF), a biotech developing prescription medicines for chronic pain, have experienced rather a rollercoaster for the shares over the past year, with recent steep rises on the back of its Medicines and Healthcare products Regulatory Agency and Research Ethics Committee approval of the phase I clinical trial application in the UK of its lead pain relief drug candidate.
Shares in Aquis-listed Ananda Developments Plc (AQSE:ANA) recently enjoyed a good bounce after it acquired a company that has developed a method to formulate cannabis medicines, to boost its focus on inflammatory indications which it says are unmet by existing treatments.
Ananda, which has its own UK cultivation facility and is set to launch a cannabidiol-based medical oil this summer, is set to begin two Phase 2 clinical trials for chronic pain conditions, supported by £1.55mln in non-dilutive grant funding.
Healthcare analysts at broker SP Angel said they believe Ananda’s clinical trials could provide more confidence to prescribers and regulators about the replicability of its formulations.
On the borders of the pharmaceutical cannabis space is Futura Medical, better known for its erectile dysfunction gel, but which has formed a joint venture to explore the application of its transdermal technology as a cannabidiol delivery system.
Adapting to the cannabis industry shift
Another company that has shifted its focus is MGC Pharmaceuticals PLC, moving from medical cannabis to more of a pharmaceutical approach and hailed an important development last month as the first doses of its high-CBD, low-THC formulation were delivered to UK patients to treat drug-resistant epilepsy.
Building on a safety study in Australia and following approval for prescription in Ireland, first CannEpil treatments were received by patients in the UK via the I Am Billy Foundation and under the ‘named patient’ request scheme.
Reflecting its pharma shift, which also includes other medicines using herbal extracts, MGC recently reshuffled its board and UK advisers.
Also operating in the pharma space but hard-to-define is Kanabo Group PLC (LSE:KNB), which characterises the fast-moving nature of the sector by seeming to do a bit of everything.
It has developed a pharmaceutical development in the form of a cannabis inhaler, which was tipped for European approval earlier in the year.
It has also recently been expanding its online clinical business, where it has expanded its existing online clinic business with the launch of an online medicinal cannabis clinic specialising in pain management.
CBD and wellness
Although it is used in many of these pharmaceutical products, the UK market for CBD might currently be classed as focused more on the wellness or lifestyle goods spaces.
What is for sure is that it is currently a much larger domestic market, with CBD sales expected to hit €344mln in the UK this year, on a par with Germany, according to research by Prohibition Partners.
This is in large part as CBD can be bought without a prescription as a health supplement or in cosmetics products.
Listed companies in this corner of the market include Cellular Goods PLC (LSE:CBX) and Chill Brands Group, makers of branded CBD products.
These have been pressed to change direction since listing, reviewing their business models amid the industry’s tectonic shifts in recent years that have included Google, Facebook and Instagram temporarily imposing restrictions on advertising and marketing of CBD and CBG products online, and the UK regulators cracking down on which manufacturers it approved.
Cellular Goods, which cancelled its proposed acquisition of Cannaray Brands and Love CBD in February, is focused on the skincare market and recently got a big boost as it won a product listing on multinational beauty retailer Sephora’s website.
Chill Brands is also focused on skincare, but also makes CBD oils, tobacco alternatives and other edibles like CBD-infused chocolates.
Under new CEO Callum Sommerton its shares have been showing steady improvement this year, with its Chill.com website expanding to third-party sales, followed by a £2.6mln fundraising and various new distribution deals for its nicotine-free vapour products in the US and UK in recent weeks.
Some investors have recently made a small pot as the likes of Chill rebound, but as the medical cannabis market still remains in its early stages there are equally good chances of making a hash of it.