The Kanabo Group (LSE: KNB) share price is up 32%, at the time of writing. The gain came after the medical cannabis group announced a new production agreement.
Kanabo will partner with Polish firm PharmaCann Polska. The two companies will produce medicinal cannabis formulations for Kanabo’s VapePod device.
It’s been a rollercoaster ride for shareholders who bought into the business when the stock floated on 16 February. On its market debut, Kanabo’s share price doubled in a day, before slipping back. Today’s gains leave the stock up by around 35% since its flotation.
VapePod nearing production?
Today’s news appears to bring Kanabo’s medicinal cannabis VapePod inhaler a step closer to production. The two companies will establish a dedicated production line for medicinal cannabis at PharmaCann’s production site in North Macedonia.
Kanabo plans to supply filling equipment to support PharmaCann’s production. Initial capacity will be up to 36,000 cartridges per month, with the potential for expansion, if needed.
PharmaCann grows cannabis indoors, using a pesticide-free, hydroponic system. Kanabo says it will have full visibility of the production process, from extraction through to filling and distribution.
More deals likely?
Kanabo’s share price may be rising because this is the company’s second deal in two weeks. On 23 February, it announced a UK distribution agreement with Lyphe Group. Lyphe will make the medicinal cannabis formula developed for VapePod, available to patients taking part in pain management trial Project Twenty21.
The PharmaCann and Lyphe deals form part of Kanabo’s strategy of developing medical-grade cannabis products. The firm hopes these products will become an alternative to smoking cannabis for medicinal purposes.
Kanabo is also engaged in developing non-THC cannabinoid (CBD) products for the consumer wellness market. That’s important because THC is the active ingredient in cannabis that gets users high. CBD-only products are said to provide therapeutic benefits with no psychoactive effects.
Will Kanabo’s share price keep rising?
Kanabo’s market-cap has now risen above £80m, suggesting investors see considerable potential. Founder and CEO Avihu Tamir remains heavily invested, with a 27% stake in the group.
However, commercial progress so far has been limited. Information shared for the flotation shows Kanabo generated revenue of £82,124 in 2019. And in the first half of 2020, revenue was only £14,389.
As an early-stage start-up with research and staffing costs, it’s running at a loss. To boost cash reserves, it raised £6m at the IPO, selling new shares to selected investors at 6.5p each. This should be enough for near-term funding needs.
I haven’t been able to find any broker forecasts to provide a guide to its expected financial performance, which makes it tough to estimate the likely future value of the shares.
Kanabo’s share price was close to 24p, at the time of writing. Investors who bought shares at 6.5p in the IPO may now be sitting on big profits, assuming they kept their stock.
