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The Kanabo share price is down almost 40% since listing. Here’s what I’d do now

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With regulation of the cannabis sector increasingly being relaxed around the world, including in the UK, companies in the segment may be poised for great growth. Israel-based Kanabo Group (LSE: KNB) recently became the first such to list on the London Stock Exchange’s main market. The Kanabo share price opened to a well-received debut. 

But almost two months later, its share price was down by 40% at the last close. 

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Kanabo makes progress

I am not inclined to read much meaning into this, however. There does not seem to be much to explain the drop. In fact, going by the company’s latest update, it is clear that it has in fact made some forward strides. These are aimed at strengthening both production and distribution of its products. 

For production, it has tied up with Poland-based PharmaCann Polska. The company, which has both a cannabis cultivation and extraction facility, will produce Kanabo’s medical formula based on its protocols. It will also supply the cartridges required for its proprietary device VapePod. The device has the advantage of allowing metered doses of medical cannabis.

The company has also signed an agreement with Astral Health for distribution of its medical cannabis formula in the UK. 

Potential for sales expansion

I am particularly looking forward to Kanabo’s progress in the distribution of its products. It has so far run pilots for its products in two of its target markets – the UK and Germany. Its annual revenues are small from these, which I think essentially makes it pre-revenue. 

But, even the data for these years shows progress until 2019. It did slow down in 2020, though, because of the pandemic. As it expands its product distribution further, there should be more sales revenue for Kanabo. I think this can suggest how the company is developing.

Kanabo also has a presence in the wellness segment, which is somewhat separate from medical marijuana. The wellness segment includes products like CBD oils and teas that are available over the counter. 

With retailers now open in the UK again, there could be some pickup in these products too, though they are available online as well. The return of consumers to shops, greater acceptance of cannabis-based products for relaxation and anxiety relief and a likelihood of greater consumer spending post lockdown, could be positive for Kanabo. 

Is the Kanabo share price attractive?

The catch here of course is that it is early days for the company. How the Kanabo share price evolves over time will depend on its progress in growing its market. It will also depend on the regulatory environment, which has not always been positive for similar products. 

All things considered, I am cautiously optimistic on the medical cannabis sector. And going by its growth in markets like the US and Canada, I think this could be the next big thing. I will assess it for a bit longer before taking a plunge, however. Never mind the Kanabo share price fall. 

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Manika Premsingh 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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