Good bet or will potmania go up in smoke?

REMEMBER Argo Blockchain? You probably don’t. But it does provide us with a salutary lesson as we witness the rise of ‘potmania’.

It was the first ‘Bitcoin company’ to list on the main market of the London Stock Exchange at the height of last year’s crypto currency frenzy.

Argo hoped to rent out specialist computers for ‘mining’ crypto coins – the method of finding the digital currency. It floated with much fanfare last August at 16p with a valuation of £47million.

Eight months later the stock is languishing at 3p, giving it a market capitalisation of just £9 million. Now, there are smoke signals puffing around the City that Argo is looking to switch its business model and join the rush into the marijuana market, although a spokesman said last night: ‘Argo Blockchain is not moving into cannabis.’ But there are concerns that the cannabis market may be another speculative bubble – full of hopes of huge returns in a short space of time – and that we may, in fact,

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Chong’s oil is made in Jamaica see a repeat of last year’s Bitcoin rally and rout. Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘We are slightly wary of the hype. These cannabis companies clearly have a product where markets are opening up. So, the rewards are big but there are also significant risks.’

One factor is that cannabis is still illegal in the US despite some states decriminalising its use for medicine and recreational use.

‘That creates a lot of issues, especially for banks,’ says Garry White, chief investment commentator at Charles Stanley.

Still, this has not stopped the marijuana industry from flourishing in North America, especially after Canada became the second country in the world, after Uruguay, to legalise recreational cannabis use. That has led to a wave of ‘pot stocks’ flotations in North America and a string of deals, such as Marlboro maker Atria Group paying $1.8 billion for a 45pc stake in Canadian cannabinoid firm Cronos Group.

In London, there remains scepticism about ‘potmania’, which has seen entrepreneurs such as Alexandra Chong raise £15 million to launch her medicinal cannabis firm, Jacana.

Khalaf said: ‘Investors need to look at these cannabis companies with a fine tooth comb – they should take a good look under the bonnet.’

Indeed, if investors had looked hard at Argo before its flotation they would have found it was a business with just a handful of staff – and zero revenues.