FEBRUARY 2022 marked the one-year anniversary of MGC Pharmaceuticals IPO on the London Stock Exchange, which saw cannabis stocks traded on the platform for the first time in its 320-year history.
The event marked a significant step forward for the industry, and in the words of MGC’s Co-Founder Roby Zomer ‘opened the door’ to one of the world’s biggest markets for cannabis companies.
It sparked a period of unbridled optimism and opportunity in the European cannabis sector, leading many, including Mr Zomer, to expect a swathe of companies to follow his footsteps on to the LSE.
Yet a year on and the landmark listing’s legacy tells a different story. The momentum which saw four companies list on the LSE in rapid succession last year has slowed to a near deadstop, seeing many IPO contenders delaying their plans, scrapping them altogether, or targeting alternative markets.
However, with momentum gathering pace once again across Europe as some of its biggest markets take further steps towards liberalisation, could we see another flurry of cannabis IPOs on the LSE in 2022?
This Year’s Contenders
Cannabis healthcare company CiiTech declared its intention to list on the LSE at an initial valuation of £17.5m in July last year.
Despite falling around ‘three months’ behind schedule, CiiTech is pushing ahead with its plans to go public, and intends to launch on the LSE some time this year.
The company’s founder Clifton Flack told BusinessCann that CiiTech was unlikely to be an outlier, and that many of the companies caught up in last year’s IPO ‘frenzy’ could still launch a listing this year.
“Around the summertime, in August or July, there must have been at least 10, 15, 20 companies that started the process,” he said.
“And I know a bunch of them that have given up. But there’s a bunch that are still going through it. I think there’s a bunch more that will come back online and give it a go.”
UK CBD brand Love Hemp is another company pushing ahead with a listing close to a year after initially announcing its intention in April 2021.
Currently listed on the Aquis Stock Exchange, Love Hemp is targeting an up-listing onto the LSE which it confirmed to BusinessCann was on track to go ahead in Q1 this year.
Love Hemp’s Chairman Andrew Male said that as a brand ‘effectively home grown in the UK’ it has ‘always been focused on the LSE’, which gives it the opportunity to both access greater capital and ‘be representative of that UK marketplace’.
It’s not just brands strictly tied to the UK targeting an LSE listing though, Greek cultivator Hellenic Dynamics is also in line to become the exchange’s first listed cannabis grower.
After approaching the FCA back in July 2021 Hellenic’s Vice President Davinder Rai said it was now ‘at the end of our process with the FCA’ with a listing expected imminently.
He added that once Hellenic finally makes it onto the LSE, he anticipates ‘there will be a wave of companies that come’ afterwards.
South West Brands was another of the initial tranche of cannabis companies to get caught up in the IPO frenzy last year, and also announced plans to go public in July, however the status of their application is currently unclear.
Vertigrow Technology, which owns Midlands-based cultivator Celadon is also due to be admitted to the LSE’s Alternative Investment Market (AIM) as part of a reverse takeover deal with Summerway Capital.
One financial market expert told BusinessCann they believed IPO activity was likely to pick up ‘midway through the year’, but was unlikely to happen in the first quarter, and maybe ‘not this side of summer’.
Less Than Expected
While 2022 looks set to be a year we see the number of cannabis stocks traded on the LSE at least double, the number would still be well below what many industry leaders had anticipated by this point.
“I thought that by the end of 2021 there could be up to 20 companies. I thought there was going to be a flood,” Mr Flack said.
His predictions were echoed by the LSE’s Kanabo’s CEO Avihu Tamir, who previously said he expected ‘a dozen companies’ to list by the end of 2021.
Another financial expert added: “I must admit, if I looked back, I would have predicted that we would have had a lot more on by now in the cannabis sector, not just four or five.”
FCA Changes
These modest numbers could be the result of a long delay in the listing process brought about by significant changes imposed by the FCA.
Following the publication of new guidance last year, cannabis companies who wish to be accepted onto the LSE must prove that their operations in every territory they operate meet UK law.
This requires them to procure expert legal opinions, all ‘underpinned by a QC barrister in the UK’, to reassure the FCA their overseas operations subscribe to UK legal requirements regardless of local law.
Mr Flack said this new guidance meant his company was forced to ‘go back to the drawing board on (its) legal opinions and due diligence’.
“Mostly because we operate in England, Spain, South Africa, Brazil and Israel and a bunch of other countries.
“So for us that was maybe about three months delay, I’d say about three months going off to about half a dozen different countries and making sure that everything that we plan to do or might like to do is compliant.”
Many young cannabis companies who had planned to follow in MGC, Kanabo, Cellular Goods and Oxford Cannabinoid Technologies’ onto the LSE last summer also saw their chances scrapped entirely following a 4000% rise in the minimum market capitalisation (MMC) threshold.
In what one market analyst described as a ‘brutal’ process, the FCA announced in December 2021 that it was raising the MMC from £700,000 to £30m for both premium and standard listings.
“I guess there were a few companies lined up for that for the standard list that have now been either shelved altogether or looking at other listing venues such as Aquis, where its much harder to raise money.
“There’s many of these newcomers that are going to meet the minimum market cap requirement.”
180-Degree Shift in Sentiment
This abrupt change has prevented a significant portion of early stage companies from accessing the capital they need for growth on the LSE, but the performance of those who successfully listed has likely deterred even more.
According to Mr Flack, market sentiment towards cannabis stocks has undergone a ‘complete 180 shift from 12 months ago’ when there was an ‘absolute frenzy’.
“Companies that went public have underperformed to some degree,as far as shareholders are concerned. And generally, the cannabis stocks are being hammered all over the world.”
The underperformance of cannabis stocks across the world due to both ‘overvaluations’ and the pandemic has seen a marked drop in appetite for cannabis stocks, one analyst told BusinessCann.
“It’s whether the investor appetite is there because that attitude is markedly different than it was this time last year.
“It was just a real feeding frenzy for anything with cannabis, seeing all these issues vastly oversubscribed. Now, I think they’d struggle.”
They added that while cannabis was no longer the buzzword it once was in the UK for investors, this momentum was likely to come back around.
“At the moment listed Cannabis is, I wouldn’t say out of favour, but it’s just not as exciting. Don’t forget there’s 1000s of stocks for people to put their money in, and it’s just not the hot sector at the moment. Will it be again? I’m sure it will.”
