The falling British American Tobacco share price

In 2020 there were rightful concerns about the firm’s ability to continue selling its tobacco-based products when consumer spending was falling rapidly. Fortunately, these fears proved to be unfounded. Why? Because British American Tobacco’s products are pretty popular with its customers. And so overall revenue in 2020 remained basically flat. But due to operational efficiency improvements, margins increased, leading to a 10.5% rise in underlying profits.

This is undoubtedly good news. And is why the management team was able to increase shareholder dividends last year. By contrast, most other businesses were either cutting. or outright cancelling, them. So why’s the BATS share price still slumping?

Last week, a report came out indicating the Biden administration is exploring the potential introduction of nicotine level restrictions in cigarettes. The motive behind this move is to further protect the health of smokers. But given that nicotine is what makes cigarettes so popular, it isn’t good news for companies like British American Tobacco.

So far, the US Food & Drug Administration (FDA), who regulates these products, hasn’t made any comments regarding the report. And it’s entirely possible these new restrictions won’t come into effect. But the uncertainty appears to be negatively impacting the BATS share price, for now.

Looking to the future

I believe tobacco-based products will always face a strict regulatory environment that’ll continue to pose a threat in the future. However, the management team has fully acknowledged this risk and has since begun to diversify its portfolio of products. The firm is already seeing a rise in popularity of alternatives to cigarettes, such as vaping devices. It’s even started investing some of its capital into the cannabis sector.

As it stands, these alternative products contribute very little to the top line. But the management team is expecting them to represent around 20% of the revenue stream by 2025.

The bottom line

Seeing a company adapt to changing consumer habits is always a good sign, in my eyes. However, its alternative products are still surrounded by tight regulation at this stage, especially its foray into the cannabis sector.

As it stands, the substance remains illegal for non-medical uses in both the UK and most States in the US. The decriminalisation of marijuana will be an essential requirement to succeed within this space. And while there are expectations of this happening, it’s currently unclear when that might be.

Having said that, based on the current performance and the BATS share price, the 7.8% dividend yield looks very attractive, as well as maintainable. And so, personally, I think this is a buying opportunity for my income portfolio, despite the risks.

The post Is the British American Tobacco (BATS) share price too cheap? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in British American Tobacco. 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.

Small stocks, big rewards

My first buy has been a top-up to my holding in the Lionstrust UK Micro Cap fund. This aims to hold some of the best small company shares available and is managed by a team of highly experienced managers including Anthony Cross and Julian Fosh.

Thanks to their ability to grow revenue and profits far quicker than your average FTSE 100 juggernaut, minnows tend to generate better returns for investors over the long term. Launched back in September 2016, the 64-stock Liontrust fund had gained 133% by the end of March. This compares very well to the 85% achieved by its benchmark (IA UK Smaller Companies).

As good as this performance is, it’s important not to get carried away. Micro-cap stocks can be infinitely more volatile than their blue-chip equivalents. This may make them unsuitable for more mature investors nearing (or in) retirement. With hopefully many decades of investing left, however, I’m confident the Liontrust fund matches my own risk tolerance.

New entry

The first new addition to my Stocks and Shares ISA in April has been the Biotech Growth Fund (LSE:BIOG). As it sounds, this near-£600m trust invests in a diversified basket of companies in this space. These come from around the world but most (almost 75%) are based in the US. 

BIOG’s share price rose almost 68% over 2020. Like the Liontrust fund, this compares favourably to the 22% achieved by its benchmark (The NASDAQ Biotechnology Index). Although this may prove to be an exceptional year, I think the growing demand for diagnostics and therapeutics solutions for chronic diseases bodes well.

Of course, there’s the potential to make more money in individual biotech stocks. However, I’m fairly certain BIOG’s managers have a better idea than I do about which companies have the best growth prospects. The only snag is that this expertise doesn’t come cheap. BIOG has an ongoing charge of 1.1%.

Hot growth theme

It pays to catch an investment theme early and keep all profits from the taxman in a Stocks and Shares ISA. As such, my final purchase this month is a small opening position in the Medical Cannabis and Well Being ETF (LSE: CBDP).

Launched last year, this provides me with exposure to a concentrated bunch of companies involved in the medical cannabis, hemp, and cannabinoids industry. Its biggest holding is UK-based firm GW Pharmaceuticals. 

Naturally, CBDP is far from risk-free. In fact, it’ll likely prove to be the most volatile of all three funds mentioned. The medical cannabis industry is still very much in its infancy and still faces huge regulatory hurdles. The 0.8% total expense ratio isn’t cheap for a passive fund either. 

So, is this a punt? Not exactly. The chances of cannabis being legalised at a Federal level in the US received a shot in the arm following the election of Joe Biden. Should this happen, it could prove to be the catalyst for more investors to get involved. Naturally, the gradual approval of more treatments should also prove a tailwind for this ETF’s share price.

The post 3 UK funds I’ve been buying for my Stocks and Shares ISA appeared first on The Motley Fool UK.

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Paul Summers owns shares in Liontrust UK Micro Cap Fund, Biotech Growth Fund and the Medical Cannabis and Well Being ETF. 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.

So what caused this sudden growth? And Should I be adding this business to my portfolio?

The rising Zoetic (ZOE) share price

 Zoetic is a producer of cannabidiol (CBD) oil products and operates within the medical cannabis sector. It has two brands under its name. The first is Zoetic, which targets the health & wellness segment of the market. These products include soft-gel capsules, oral tinctures, massage oils, as well as cosmetic items.

It’s hardly the only brand in the space. But it has managed to distinguish itself by being nominated and winning multiple awards for its product’s quality. As a result, Zoetic already has started building some reputation and pricing power. A promising sign in my eyes.

The management team is now leveraging this reputation to launch its second brand called Chill. After a long testing period, these products have proven to be a viable alternative to tobacco-based items. And since they are free from THC, nicotine, and heavy metals, the products are a significantly healthier option for individuals who smoke or chew tobacco.

From what I can tell, Chill is what triggered the rising ZOE share price. A trading update was released in October 2020, which announced the success of its trial phase. Over the next couple of months, the business began distributing these new products among a growing collection of reputable US stores. Based on the most recent progress, Zoetic now expects these items to be stocked at more than 3,500 US stores by July 2021. It also intends to begin launching Chill within the UK as well this quarter

The risks that lie ahead

As promising as these launches are, the company still has a lot of challenges to overcome. The firm only recently pivoted into CBD products, and in the process, lost its original revenue stream (it was an oil and gas business called Highlands Natural Resources, and decided to switch to CBD in 2019). Zoetic is already selling online. However, between April and September last year, only £55,000 worth of goods were sold.

Since the firm’s revenue stream is currently quite restricted, it remains unprofitable. And with limited information as to when that might change, the company is dependent on external financing to keep the lights on. Just last month, it opened a new £35m credit facility with LDA capital. And in my experience, a leveraged and unprofitable business carries quite a bit of risk.

The bottom line

I’ve previously explored other companies trying to penetrate the medical cannabis sector. But Zoetic does seem the most promising so far, thanks to its award-winning line of premium products. And if the launch of Chill meets expectations, I believe the ZOE share price can continue to climb even higher over the long term.

Having said that, I think it’s still too soon to invest. There remains quite a bit of uncertainty regarding the sales performance of its new products. And so, until more financial data becomes available, I’m keeping the business on my watch list for now.

The post Can the Zoetic (ZOE) share price keep climbing? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in Zoetic International. 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.

Since then, the Kanabo share price has fallen down to 23p. But is this a buying opportunity for my growth portfolio? Let’s take a look.

What does Kanabo Group do?

Kanabo develops and manufactures CBD-based products and inhalers. The business has been around for a couple of years but has only recently begun selling anything.

It is currently in the middle of a three-month pilot scheme designed to measure several key performance indicators concerning the sale of its products. Specifically testing general demand, supply chain effectiveness, and quality controls.

But this is not the long-term strategy of the business. Using the income generated from selling retail products, Kanabo intends to produce a range of unlicensed medical cannabis oils to be used with its vaporisation devices.

If successful, this could form a viable razor-and-blades business model that could cause the Kanabo share price to rise even higher. But there are plenty of risks to consider.

The risks of investing early

Just like many start-ups, Kanabo has yet to create any proven products or establish a well-known brand. The results from its pilot scheme have revealed some level of customer retention, with around 40% coming back to buy more. While this is undoubtedly a promising start, I believe it needs to be much higher. I’ll be closely watching whether management can boost this metric over time.

This is especially important since the medical cannabis oil products that the company intends to make are going to be unlicensed. Why does that matter? An unlicensed medication doesn’t require extensive clinical trials nor regulatory approval before becoming publically available. This significantly reduces development costs. But consequently, it also means that Kanabo’s oils will never be prescribed by the NHS, as there are already existing licensed products available that fulfil the same role.

Naturally, this creates a significant barrier to entry for Kanabo’s future medical products. And so, the company will have to rely on the reputation of its existing brands to drive sales. Given it has yet to build any substantial reputation, this may be tough.

Can the Kanabo share price climb higher?

The medical cannabis industry is growing rapidly by almost 18% a year. And as more countries legalise medical marijuana, this growth may accelerate. This ultimately creates an excellent environment for Kanabo to thrive in. However, let’s not forget there are plenty of other companies trying to do the same thing.

Personally, it’s too soon for me to add Kanabo to my portfolio, even at its current share price. But I’ll definitely be keeping an eye on it.

The post The Kanabo share price: is now the time to buy? appeared first on The Motley Fool UK.

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Zaven Boyrazian does not own shares in Kanabo Group. 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.

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.

Risks ahead

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.

The post The Cellular Goods share price falls. Is now the time to buy? appeared first on The Motley Fool UK.

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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.

Is this a growth stock I should be considering for my own portfolio? Let’s take a look at the investment case.

Kanabo Group: what does it do?

Kanabo is an Israeli medical cannabis company focused on the distribution of cannabis-derived products for medical patients, and non-THC products for CBD consumers. It listed on the LSE through a reverse takeover of Spinnaker Opportunities. At its current share price, it has a market-cap of about £100m. 

Kanabo says it has conducted “extensive R&D” in order to develop high-quality cannabis extract formulas, innovative medical-grade vaporisers, and various non-smoking consumption solutions. It says it’s selling initial products in Europe already, and is ready to scale up to meet market demands and projected sales and revenues.

The company’s leadership team is made up of experienced medical industry professionals in a variety of fields shaping the medical cannabis industry. The CEO, Avihu Tamir, is a cannabis entrepreneur with five years ‘hands-on’ experience in multiple cannabis ventures. He’s also the founder of Teva Nature, the leading vaporiser company in Israel.

I’m bullish on cannabis

I’m relatively bullish on the legal cannabis industry from a long-term investment point of view. Already, over 30 countries worldwide have legalised cannabis for medical use.

Between now and 2026, the global legal cannabis market is projected to grow at a compound annual growth rate (CAGR) of more than 30%. This means there are likely to be plenty of opportunities for investors.

That said, I’m not convinced at this stage that Kanabo stock is a good fit for my portfolio. For starters, I can’t see the company having a clear competitive advantage. There are lots of companies developing CBD products today. Does Kanabo have an edge over the competition? It’s not clear to me.

Secondly, Kanabo is still very much unproven at this stage. As it says in its prospectus: “Kanabo has a short trading history and is unable to demonstrate any significant revenue being generated as at 31 December 2019. Investors therefore have a very limited basis on which to evaluate potential future performance of the Enlarged Group. The Enlarged Group may continue to generate sustained losses in the event that it is unable to generate sufficient revenue from the sale of its Retail CBD Products.”

It also notes in its prospectus that “the group may not commercialise its medical cannabis products.” I like to invest in companies that have proven track records of success.

Third, the financials concern me. I prefer to invest in growth companies that are already profitable. I’ve found that investing in these types of companies reduces risk significantly. Kanabo, at this stage, isn’t yet profitable.

Source: Kanabo

KNB also states in its prospectus it had retained losses of approximately £3.1m (as at 31 December 2019) as a result of costs incurred in connection with early stage R&D activities.

Kanabo shares: too speculative for me

Kanabo could be successful. However, looking at the investment case, the stock is too risky for me. I think a safer way to play the cannabis growth story is a thematic ETF (a tracker fund that taps into a specific theme).

The post Should I buy Kanabo shares for my portfolio? appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

What is MGC Pharma?

MGC describes itself as a bio-pharma company “specialising in the production and development of phytocannabinoid-derived medicines.” In short, a medicinal cannabis business.

The company is focused on three areas: Neurology, Oncology, and Autoimmune diseases. It has two flagship products: CannEpil for refractory epilepsy; and CogniCann for improving the quality of life for Alzheimer’s patients. Interestingly, it’s also developing a product for treating Covid-19-infected patients (ArtemiC)

Last week, MGC became the first company in this very niche sector to IPO in London. That’s not to say this is the minnow’s first foray into the market. It’s actually been listed on the Australian stock exchange since 2016. 

IPO result?

So how did the IPO go? Very well. MGC’s entry into the UK market followed an oversubscribed £6.5m capital raise with institutional funds and professional investors at 1.475p per share. By yesterday, the  shares were changing hands for 4.52p, a rise of over 200% from the offer price. A quite spectacular result!

The cash raised will be spent in three ways. A good portion will pay for the company’s priority clinical trials of its leading products and improve MGC’s distribution network. The remainder will be used to assist with the construction of manufacturing facilities in Malta.

Next move for MXC?

So where next for the MXC share price? Over the very short term, it’s impossible to say where the MXC share price will go. That’s not to say we can’t speculate.

There’s certainly a chance the valuation could climb even higher as word spreads and hype grows. The huge Reddit forum-fuelled spike seen in overseas cannabis stocks, such as Canadian pharmaceutical and cannabis company Tilray, could further stoke interest among traders looking for speculative small-cap plays.

Attention on this part of the market is likely to increase further if President Biden gives his approval for the federal legalisation of the cannabis industry in the US. Based on this and the early success of MGC, more cannabis-related listings on the London market could be on the cards.

However, there are a few things I’m bearing in mind.

Buyer beware

First, it’s likely that some early holders will be looking to bank some profit. As a result, it seems reasonable to expect some volatility over the next few weeks. In fact, the MXC share price has already tumbled 7% in early trading today, highlighting the importance of being diversified elsewhere.

Second, the bio-pharma space isn’t known for its predictability. Moreover, medical applications of cannabis are still very much in their infancy and setbacks are inevitable. The goal of helping people manage pain is clearly admirable, but the complex scientific and regulatory hurdles ahead shouldn’t be underestimated.

Third, MGC’s current valuation must be seen in perspective. The firm achieved just AU$2.1m in revenue in the last financial year. That’s worth bearing in mind considering its market capitalisation passed £100m last week.

The performance of the MXC share price further evidence small-cap stocks have the potential to offer outsize investment returns to skilled private investors. Even so, I’m comfortable sitting on the sidelines for now.

The post The MXC share price has soared 200% in just one week! Should I buy now? appeared first on The Motley Fool UK.

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Paul Summers 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.

Over the last two years, British American Tobacco (LSE: BATS) shares have fallen 49%, while rival Imperial Brands (LSE: IMB) is down 46%. These are no doubt large falls, particularly when you consider that, only a few years ago, both stocks were considered to be dependable blue-chip dividend stocks. 

To offset the decline in cigarette volumes,  both FTSE 100 companies have been developing new innovative products that are considered less harmful to consumers, such as tobacco heating products and vapour products. BATS has its portfolio of ‘potentially reduced-risk products’, while Imperial has its portfolio of ‘next-generation products’. Both companies are seeing good results here, even if progress is a little slow.

However recently, I’ve been wondering if a different product is actually the long-term solution to the tobacco giants’ woes. I’m talking about cannabis.

Attitudes towards cannabis are changing

Now, that may sound crazy at first. After all, here in the UK, cannabis is illegal. Yet around the world, attitudes towards its use are changing dramatically.

For example, just look at the US, where the cannabis industry is booming. There, 10 states have legalised recreational marijuana use, while 33 states have legalised medicinal use. Meanwhile, in Canada, recreational and medicinal cannabis are legal across the whole country.

There are also a large number of countries within Europe that have legalised cannabis for medical use. These include Switzerland, Portugal, Italy, and Germany. Having long been considered a taboo industry, cannabis is clearly going mainstream.

Mega market

And it’s a massive market. While global sales are expected to come in at around $17bn this year, according to some analysts sales could potentially grow to over $150bn in the years ahead. To put that number in perspective, British American Tobacco generated sales of around $32bn last year. If tobacco giants are looking for a genuine growth driver, cannabis could the solution.

It’s already happening

What I think is interesting about this is that tobacco companies are already testing the cannabis market.For example, US tobacco group Altria – the owner of Marlboro cigarettes – recently splashed out $1.8bn to acquire a 45% stake in cannabis stock Cronos, with the ability to exercise warrants that could up its stake to 55%.

Closer to home, Imperial Brands announced last year that it had made a small investment in UK biotech company Oxford Cannabinoid Technologies (OCT) through a subsidiary. Imperial CEO Alison Cooper has said that cannabis is “an interesting place to explore.” It’s early days, yet there definitely appears to be some interest in this burgeoning sector from the tobacco companies.

Watch this space

Ultimately, I think the tobacco/cannabis story is worth following closely. FTSE 100 tobacco stocks aren’t going to turn into cannabis stocks overnight. However, I’m convinced cannabis could potentially provide another growth angle for the tobacco giants in the future. As a result, I wouldn’t write off British American Tobacco or Imperial Brands just yet.

The post British American Tobacco and Imperial Brands: could this be the future? appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.