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Kanabo shares: should I buy after the IPO?

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Kanabo (LSE: KNB) shares have been getting a lot of attention. Last week the firm listed on the London Stock Exchange through an initial public offering (IPO). Since then, the stock has created a lot of buzz in the investment community.

Normally I don’t consider IPOs, but this one is interesting. I’m not buying the shares for now, yet the stock is certainly on my radar. 

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What’s the story behind Kanabo shares?

In a nutshell, Kanabo is an Israeli medical cannabis company. It listed on the UK stock market as part of a reverse takeover of Spinnaker Opportunities.

Kanabo’s unique selling point is that it has created VapePod, which is a medical grade vaporiser. The company’s goal is to sell this device, along with its cannabis cartridges, to consumers and promote the medicinal benefits of the drug. According to Kanabo, it’s selling initial products in Europe already, and is ready to scale up to meet market demands and projected sales and revenues.

At present, the company is also generating revenue by selling THC-free cannabidiol or CBD products to consumers. The short-term strategy is to sell these retail products while building out the Kanabo brand.

What’s all the hype about?

I’m bullish about the long-term prospects that legalised cannabis will have for medical use. Medical cannabis is being used to treat mental health conditions such as anxiety and depression. It’s also being used to treat insomnia and other sleep disorders.

Last year, the UK’s financial regulator, the Financial Conduct Authority (FCA) gave the green light to medical cannabis companies to list in London. Kanabo’s IPO comes amid a growing demand for the drug.

MGC Pharmaceuticals, another medical cannabis company IPO’d on the London stock market recently. But I reckon the IPO most investors are waiting for is Cellular Goods, which is expected to trade under the CBX symbol on February 26. This is London’s first listed ‘pureplay’ consumer CBD company. Even football star David Beckham has backed the company through his DB ventures firm.

Kanabo shares: would I buy?

While I’m bullish on medical cannabis, I’ll hold fire on buying Kanabo shares. There’s a lot of hype around the sector and the company. I reckon this buzz is over-inflating the share price.

Some investors are even calling Kanabo the ‘cannabis Nespresso’. I think this is overkill. For now I’ll monitor the stock and wait for the euphoria to die down.

The risks

There are risks involved with Kanabo shares. Firstly, I expect there to be a lot of competition in the sector. I think its VapePod product could take some time to bear fruit. Until then it’s relying on the sales of its retail CBD products. For now, I don’t think Kanabo has a proven edge over its competitors.

Let’s be frank, the company is still very small and loss-making. There’s a chance it may not be able to commercialise its medical cannabis products too. It’s also incurring research and development costs, which I’d expect to continue to impact its profitability.

I want to see the company deliver trading updates and results as a public company. That way, I have more information to make an informed investment decision on. So for now, I’ll sit on the fence and monitor the share price.

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Nadia Yaqub 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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