In the world of IPOs Cellular Goods (LSE:CBX) is one stock whose share price has been like a roller-coaster ride. From its original listing price of 5p, Cellular Goods share price shot up by 400% on its first day of trading.
Since then, the stock has seen some pull-back. But is this an opportunity to add the company to my growth portfolio? Let’s take a look.
The first UK-Listed cannabis stock
Cellular Goods is a provider of premium consumer products based on cannabidiol (CBD) and is the first company to be listed on the London Stock Exchange to do so.
Rather than extracting CBD from hemp plants, the company uses synthetic CBD created in a lab. Why? Because the chemical supply is more consistent, ecologically sensitive, and scalable than relying on hemp plant growers.
The company is launching with two product lines targeting different segments of the cannabis market. The first is a face-mask & serum, and the second is a topical roll-on athletic recovery gel. Both of these products will be manufactured by Arcania Apothecary, which will act as a contracted manufacturing organisation (CMO).
The goal is to provide a premium series of products and leverage its quality to build a reputable brand over its vast number of competitors. As promising as that sounds, there are some considerable risks to consider.
As it stands, the company has yet to sell any of its products. Meaning it currently does not generate any revenue. Its face-mask and recovery gel are both unproven products. And considering the market is already flooded with hundreds of CBD products by household names such as Holland & Barrett and Boots, Cellular has a tough road ahead.
Without any revenue, it’s difficult to judge the level of demand for its products or how sticky they will be with customers. To me, there are a lot of unknowns, and an unprofitable business with no existing revenue sources is quite a risky investment. Perhaps the realisation of this is why the Cellular Goods share price has been falling over the past few weeks.
The Cellular Goods share price: time to buy?
The legal UK cannabis market is still in its infancy. But its growth rates are quite impressive. In 2020, £300m was spent on CBD products. By comparison, there was only £119m spent on Vitamin-C related goods.
At current growth rates, the CBD market is projected to reach £1bn in sales by 2025. That’s an average 35% increase each year.
Needless to say, the sector shows a lot of promise for large returns. However, even at its current share price, Cellular Goods is just too risky an investment for my tastes.
Once more information is known about the performance of its products, I’ll take another look. But for now, I think there are safer growth stocks out there that better fit my portfolio.
Zaven Boyrazian does not own shares in Cellular Goods. 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.