Last week, UK biotechnology firm Oxford Cannabinoid Technologies (OCT), one of the first cannabis companies in history to list on the London Stock Exchange (LSE), informed investors of its intention to leave.
Since its landmark listing in 2021, which came amid a string of similar oversubscribed IPO’s, OCTs share price has fallen by 97%, seeing its market capitalisation fall to just £1.5m.
This dramatic shift in direction comes amid a palpable resurgence in investor sentiment in cannabis stocks following a difficult three years for these higher-risk public companies, with suggestions that some of the world’s biggest exchanges could now be warming to cannabis listings.
Yet, with the pre-revenue company dependent on raising capital to move forward, it has opted to delist and ‘reset (its) valuation’, opting for private investment to ‘supercharge its drug development programme’.
With the volatility of the public markets unlikely to abate any time soon, this high-profile exit could spur more companies to follow suit.
What happened?
On Wednesday, May 08, OCT announced that it had applied to the Financial Conduct Authority (FCA) and LSE to cancel the listing of its ordinary shares on the Standard segment of the FCA’s Official List.
Almost exactly three years after its IPO in May of 2021, OCT’s shares are now due to be removed from public circulation at 8am on June 06, 2024.
According to the company, the decision was made following an ‘internal strategic review exercise’ aimed at determining the most effective way to attract the continued investment it needs to bring its various drug programmes to market.
While stressing that it has no immediate cash flow concerns and remains debt-free, the company stated that, as an unlisted company, it expects to have a ‘far larger pool of capital’ available to it.
The decision comes amid the first positive uptick for many cannabis companies in years. German cannabis operators, or companies with a foothold in the market such as Cantourage, Synbiotic, and Stenocare, have all seen a recovery in their stock price in line with the passage of the CanG bill.
Meanwhile, news of potential rescheduling in the US has seen stock in some of North America’s largest cannabis operators take off in recent months, marking the first sustained recovery in months.
However, relatively speaking, these recoveries are just a fraction of the double-digit declines almost all of these companies have seen since listing over the past two brutal years on the public exchanges.
Asked why OCT had chosen to exit the LSE now, the company’s CEO, Clarissa Sowemimo-Coker, told Business of Cannabis: “In terms of actually thinking that delisting was the solution, that’s relatively new. In terms of why now, it’s really a case of grasping the nettle”.
She added that OCT’s offering is different from that of the cannabis companies enjoying an uptick in share price. With no revenues expected until at least 2027, OCT is reliant on meeting its development targets to generate value.
However, despite OCT consistently meeting targets and making recent strides in the development of numerous compounds, its share price has failed to recover in a meaningful way.
“The main point of being on the public market and opening yourself up to all that scrutiny, all that extra cost, and all that regulation is that you’ve got access to capital. That’s not working at the moment for biotech and also for small-cap companies in particular. It’s currently just not delivering what it’s supposed to deliver.
“We’re a milestone-driven business, and we rely on moving through those milestones to increase the valuation for inflection points. Other than delivering what we’ve said we’re going to deliver, which we have done the whole way along, we can’t influence our stock price. What we’ve achieved has not had the effect that it should have had on our share price.”
Ms. Sowemimo-Coker cited the company’s market cap, which ahead of the delisting announcement was approximately £3.8m, a figure she said ‘doesn’t bear any resemblance to what a sensible valuation of the company would be’.
As previously reported by Business of Cannabis, in February 2024, OCTP received a reiterated valuation of £25.3m from leading independent research firm Edison based on just one of its drug programmes.
“The thing that’s really challenging is the lack of institutional investment in the sector that we’re in,” she continued.
“With the lack of liquidity, we have such volatility in our share price. It can go up or down by 10%, 15%, or even 20% just on very small trades. That doesn’t give future investors in the business any real confidence.”
Are more to come?
This lack of institutional investment has been a major hurdle for listed cannabis companies since they began emerging on public markets, leaving listed companies largely in the realm of retail investment.
However, with the retreat of UK pension fund investment into domestic stocks, upcoming changes to the LSE’s listing rules, and a growing shadow looming over the market, Ms. Sowemimo-Coker believes it is becoming an increasingly unfriendly place for small-cap stocks.
Citing recent announcements from biopharma firms RedX Pharma and e-Theraputics that they would also be delisting from AIM, she added: “I don’t think we’re going to be the last, that’s for sure. I wouldn’t be surprised to see others.
“I don’t think we’re going to get a return to stability in the UK markets until this time next year at the earliest, and I think it will then be a slow path to growing back. Biotechs like us don’t have that time, we’ve got a cash burn whatever we’re doing.”
However, the company has been clear about its intention to return to public markets when conditions have improved, stating last week that it ‘expects to re-list on a regulated investment exchange that recognises the true underlying value of the business’ in due course.
“We also note a perceived rising tide of informed market sentiment that appears to suggest quoted companies may realise a better reflection of their intrinsic valuations by moving their listing to North America. The US, specifically NASDAQ, provides an attractive option with its deep pool of life science capital markets,” its statement read.
While the company’s management says it is ‘not making any firm decisions’ at this point, Ms. Sowemimo-Coker added: “That’s the plan, give the markets a couple of years to settle and recalibrate. I certainly wouldn’t rule out coming back to London, provided we’ve had a bit of a change and things are looking better. As others have stated, NASDAQ’s a very obvious target.”
