October 21, 2021

By Alasdair Haynes, Chief Executive of Aquis Exchange.

Three years after legalisation in the UK, more and more cannabis firms are headed to public markets.

The City is seeing a flurry of activity around the research, development, distribution, and sale of cannabis. The listed cannabis-related sector has doubled in size in the first half of 2021 alone.

To many, with acceptance and legalisation spreading globally, it appears we are reaching an inflection point for the industry. Cannabis is moving from a niche – some might even say taboo — to a mainstream venture.

In August, the UK’s largest tobacco firm, British American Tobacco, said it saw cannabis-related products as part of its future growth. That followed a £126m investment and strategic collaboration with Canada-based medical cannabis firm Organigram in March, giving BAT a 19.9% stake in the company.

Examples of other London-listed cannabis stocks include operational businesses Love Hemp, a producer of more than 40 CBD product lines working with over 2,000 stores, and Sativa Wellness, a provider of premium wholesale and retail CBD brands, both on AQSE, as well as Oxford Cannabinoid Technologies, which listed in May 2021 on the LSE’s Main Market.

Clearly, there is an increasingly wide range of cannabis options for investors. But beyond the hype surrounding these companies, fueled by celebrity endorsements, it is important for investors to approach these stocks through the same lens as one would any other investment. 

In fact, the criteria for the best chance of returns remain the same. Does the prospective investment have a solid track record of delivering growth? Is it situated within a rising market? Does it have strong fundamentals and a solid management team at the helm? And is this company providing genuine innovation in its field? 

In essence, these characteristics are no different to those investors have long been looking for in disruptive healthcare and technology stocks in order to get the best returns.  It is these traits which form the basis for steady, consistent share price growth and help avoid the initial headline-driven share price hike and subsequent rebalancing seen across a range of sectors this year. The point remains that none of this should fundamentally change the way investors approach the wave of cannabis stocks coming to market.

As important as the business fundamentals are, however, so is the growing momentum within the regulatory and market environment which should strike investors as the core differentiator of cannabis stocks. The regulatory status of cannabis listings now reflects the wider shift in attitude towards cannabis in the UK, which has come to view cannabis products as a legitimate business proposition.

Whist it is crucial that these stocks remain appropriately regulated to protect investors and consumers alike, the trend towards cannabis stocks which started with the first UK cannabis PLC listing over three years ago has become undeniable.

The first IPO of cannabis-related stocks came in 2018, following the legalisation of medical cannabis in the UK that year, with Sativa Group (now Sativa Wellness), which listed on AQSE (then known as NEX Exchange) in March that year.

The opportunity for investors is huge. Prohibition Partners, the leading source of market intelligence on Europe's legal cannabis industry, has estimated the UK’s medicinal cannabis market could be worth over £7.8 billion by 2028.  Crucially, there is now the correct infrastructure, choice of exchanges and regulation in place to appropriately welcome and support these firms on the public markets, making London the ideal venue for facilitating continued growth for these stocks.

Published in Financial News, Thursday October 21, 2021 9:11 am

Alasdair Haynes is Chief Executive of Aquis Exchange