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What’s next for the Kanabo share price?

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The Kanabo (LSE:KNB) share price started this year with a bang. After becoming the first cannabis company listed on the London Stock Exchange, Kanabo saw investors leap in, pushing its share price as high as 51p. Then the stock tumbled. But over the past couple of months, it has remained reasonably stable, hovering between 19p and 25p. What’s causing this sedentary behaviour? And is now the time to add this business to my growth portfolio?

The idle Kanabo share price

As a reminder, Kanabo is a medical cannabis company. It develops and manufactures cannabidiol-based products as well as inhalers, targeting the health & wellness sector. On paper, the business actually sounds quite promising. The management team’s strategy is to initially sell its inhalation devices at a low margin to customers. Then introduce a recurring revenue stream by re-selling consumable products that work in combination with these devices. In other words, a razor and blade model.

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Given how effective this approach to doing business has proven itself to be for brands like Gillette, the initial surge in the Kanabo share price from investor excitement is understandable to me. However, its subsequent decline was also unsurprising. Why? Because Kanabo, despite its growth potential, has yet to begin selling anything beyond its pilot programme. This means it’s currently quite difficult to judge just how popular its products will be with consumers.

Looking at the Kanabo share price in recent months, its idle performance suggests to me that investors are waiting to see how this company will perform once full-scale commercialisation begins. And that could be just around the corner.

Revenue is coming

The last time I looked at this business, it had begun seeking approval for its VapePod MD device as well as signing new production and distribution partnerships. Since then, the management team, in a joint venture with Pure Origin Group, has completed its first EU good manufacturing practise (GMP) production line. What does that mean?

Beyond meeting the regulatory requirements to produce medical-related goods in the EU, Kanabo is now effectively ready to begin commercial-scale production. This marks the end of its pilot programme. And while there are still a few more hurdles to overcome, the business appears to be positioned for a full product launch within its primary markets – namely the UK and Germany. Needless to say, this could be fantastic news for the Kanabo share price if sales meet expectations.

But as exciting as this is, there are still risks to consider. The quality and popularity of its soon-to-be-launched products are still relatively unproven in the eyes of most consumers. Suppose Kanabo cannot meet expectations, or a competing firm can offer a better product at a lower price. In that case, the company may struggle to develop its brand into one that generates a lot of pricing power.

The Kanabo share price has its risks

Time to buy some shares?

Overall, I am pretty impressed with the progress made by the management team since the company went public. The growing list of value-adding partnerships is encouraging. And it seems to me, the Kanabo share price could be on the verge of exploding. But I cannot say it will for certain. Itn may continue to tread water. It could be just another cannabis company with little competitive edge. I’m keeping it on my watchlist for now.

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Zaven Boyrazian 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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