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Kanabo shares: 1 month since the IPO. Should I buy?

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It has been a month since Israel-based Kanabo (LSE: KNB) shares came to market. I wrote about the stock just after it listed. But the company has made two interesting announcements recently and I reckon it’s worth taking another look.

My original view was to watch Kanabo shares. I still hold this view and here’s why.

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Kanabo: an overview

Before I cover the recent announcements, I think it’s worth a quick overview of the stock. Kanabo is a medical cannabis company. It’s currently generating revenue by selling non-medical-grade CBD products to consumers. But this isn’t its main strategy. Kanabo intends to sell the CBD products in the short term until it can build its brand.

The main driver is its medical grade vaporiser called VapePod. Kanabo expects to sell this device along with its cannabis cartridges to consumers. So far, the company has sold the product in Europe but it’s ready to expand to meet market demands. It’s no wonder that I see the company being dubbed as the “cannabis Nespresso”.

The first announcement

At the end of last month, it signed an agreement with Astral Health to allow patients to use the VapePod medicinal cannabis formula.

I should highlight that Astral Health is fully owned by LYPHE Group, which is part of Drug Science’s Project Twenty21. So what does this mean? Well, for Kanabo it’s a step in the right direction. The patients will be from Project Twenty21, which provides eligible participants with affordable cannabis treatments, monitored by Drug Science. The point of the project is to create the UK’s largest body of evidence that medical cannabis works.

Kanabo will work with Astral Health over the next three to six months. I think the point of this is to put its products out in the market and boost its credibility. If successful, I reckon it could be positive for the shares.

The second announcement

Earlier this month, Kanabo announced what I see as a key medical cannabis production agreement. The company signed an agreement that will see PharmaCann supplying the cannabis cartridges for the VapePod device.

PharmaCann, which is based in Warsaw, is part of the PHCANN International Group. Under the agreement, PharmaCann will provide an initial production capacity of up to 36,000 cartridges per month. But there’s the ability to increase production if required.

Kanabo wants and needs to expand and this agreement helps it do that. It will help it start to further expand distribution of its medical cannabis products to the UK and Europe. I believe it helps to have a production facility based in Europe. And this could also be positive for Kanabo shares.

My view

For now, I’ll still watch the stock. There’s one thing having agreements in place but it’s another demonstrating that the supply chain works. I’m bullish on the long-term prospects of medical cannabis but I’ll wait until Kanabo can provide evidence of its success.

The company is still small and still loss-making. Kanabo’s VapePod product could be a success, but I think it could take some time. For now, it’s relying on selling CBD products, which I don’t think have a competitive edge.

In order for Kanabo to build its brand, it will have to continue incurring marketing and development costs. I’d expect this to impact profitability into the foreseeable future.

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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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