Will investors get a high from pot stocks?

As medicinal use legalised, growers plan for stock float

by Francesca Washtell

MEDICAL cannabis was legalised in November in what was hailed as a landmark moment – in theory, at least.

In practice, strict guidelines and doctors’ lack of experience in prescribing cannabis treatments – reported to have therapeutic effects such as pain relief and alleviating cancer-related symptoms – mean few patients have so far benefited from the change in the law.

Even so, interest in the burgeoning cannabis market is rising and 2019 is likely to be a watershed year when British retail investors can start buying so-called ‘pot stocks’.

Whether they will prove a profitable investment, or all go up in smoke, is another question.

Individual shareholders have sparse choice when it comes to investing in the cannabis sector.

FTSE 100-listed Associated British Foods’ subsidiary British Sugar grows cannabis plants in Norfolk for drug maker GW Pharmaceuticals, which is based in Cambridge.

ThErEare three cannabis-focused investment funds on challenger stock exchange Nex – Sativa Investments, high Growth Capital and Ananda Developments.

But the industry is about to go mainstream after a number of companies making medicinal cannabis products recently said they are planning to join the London Stock Exchange.

Jacana, which grows medical-use cannabis in Jamaica, said in February

it is considering a stock market float on AIM later this year.

European Cannabis holdings, which helped to secure the arrival of the first legal shipment of marijuana in Britain earlier this year, and Emmac Life Sciences, which will produce and supply medicinal cannabis, are also planning listings.

Spinnaker Opportunities, a cash shell company on the main market, last month said it was planning a reverse takeover of medicinal cannabis oils and vapour producer Kanabo. If it completes as expected by the summer, it could be the first of its kind on the main market.

Nick Davis, chief executive of law firm Memery Crystal, which is advising a number of cannabis companies on London floats and fundraisings, said he knows of another four companies looking to list on the London Stock Exchange this year. One is eyeing the main market while the other three are targeting AIM.

Davis said: ‘I think this will be the year that there are a significant number of listings – though it’s predicated on no change to regulation here.

‘I’d be surprised if there weren’t a dozen companies across AIM and the main market by the year-end.’

Tristan Gervais, the Londonbased head of European medical cannabis investment banking for Canaccord Genuity, said: ‘There has been significant interest from the medical cannabis sector in pursuing stock market listings in Europe.

‘A lot of companies from all over the world are looking to raise capital in London and there is huge appetite from a wide range of investors to match this.’

The stock market in Canada, which in October became the second country after Uruguay to legalise recreational cannabis, is awash with cannabis stocks, with almost 20 companies listing on Toronto exchanges in 2017 and 2018 alone.

home Secretary Sajid Javid’s move to legalise the drug in certain circumstances late last year followed high-profile campaigns around two young boys, Alfie Dingley and Billy Caldwell, who galvanised public opinion when it was revealed that the cannabis oil used to treat their seizures had been denied to them.

So as a result, does the London market face a similar prospect to Canada’s? Memery Crystal’s Davis said it will be ‘more measured’ in the UK. And experts warn that investors should proceed with caution as it could turn out to be another market fad.

RUSSMould, investment director at broker AJ Bell, said: ‘Things that go up like a rocket have a bad habit of coming down like a stick. Just ask those investors who were chasing crypto- currencies 18 months ago.’

It is highly unlikely that the drug will be legalised for recreational use in the UK any time soon, especially with studies finding that teenagers who smoke cannabis are more likely to develop mental health issues, and that it can affect users’ memory and concentration.

Mould said: ‘It is still a divisive investment. The deciding factor could rest on whether the positives surrounding medicinal uses of cannabis can start to outweigh the perceived negatives around recreational use and the impact that has on society.’