The Cellular Goods share price jumps! Is it too late to buy the stock?

Investors have rushed to buy Cellular Goods shares after its IPO, but is this a mistake, or will I regret not buying too?

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The Cellular Goods (LSE: CBX) share price has jumped in early deals today. On its first day of trading, the stock is changing hands for 25p, at the time of writing, which’s five times higher than its IPO price of 5p

Following this performance, the stock is selling with a market capitalisation of around £125m, up from its projected market-cap of £25m.  These figures suggest the company’s launch has been met with incredibly high investor demand. But is it too late for me to buy the stock?

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Time to embrace the Cellular Goods share price?

Cellular Goods is the first provider of premium consumer products based on biosynthetic cannabinoids to join the London stock market.

Regulators have only recently allowed cannabis-related companies to launch on the London market. As such, the space in London is relatively underdeveloped compared to other markets such as Canada and New York. 

That is expected to change over the next year or so. Cellular’s IPO is the first of a handful of companies in the space looking to press ahead with an IPO. 

I think the lack of alternatives on the London market explains some of the high demand for the Cellular Goods share price

The IPO will provide the company with funding to develop its product portfolio. It was established in August 2018 to create efficacy-led and research-backed cannabinoid products.

The initial focus is on two products, which will be launched later this year. The company has partnered with four American businesses to help it develop and manufacture the ingredients required. 

The potential market for these products is tremendous. Estimates suggest the British market for so-called CBD products could be worth an estimated £1bn by 2025. The same research suggests consumers are currently spending £300m on these products. 

Risks ahead

Lots of firms are all jostling for a position in the market. Cellular Goods sees an opportunity to unite this market under one brand. 

Unfortunately, this is also the most significant challenge the business faces. Cellular Goods is worth £125m today, but it’s still a relatively small operation in the grand scheme of things. High street chains such as Holland & Barrett, Boots and Lloyds Pharmacy are all already stocking CBD products.

A quick search of the Holland & Barrett website shows the retailer already stocks over 100 different CBD products from 25 different brands. Cellular Goods has the backing of global celebrity David Beckham. So, it might have a marketing edge over other brands. Still, I think conquering the market will be an uphill struggle for this business. 

At the same time, the corporation is still relatively young. It was only founded under three years ago and doesn’t have any products on the market. Therefore, it could be some time before the firm generates a profit. And there’s no guarantee it will ever be profitable.

Then there are the general risks of investing in small businesses to consider. Owning shares in small companies can be incredibly risky, especially in the startup stage. Cellular Goods is unlikely to be any different.

Overall, despite the hype surrounding the business, I wouldn’t buy Cellular Goods shares for my portfolio today. I generally like to own profitable companies, so if and when the organisation reaches this target, I may review my position. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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