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Is The Kanabo Share Price About To Explode?

The Kanabo share price is down more than 50% over the last two months but is that about to change? Zaven Boyrazian investigates.

by | Last updated 6 Aug, 2023 | Consumer Discretionary

cannabis plants growing

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Kanabo Group Plc (LSE:KNB) made its public debut on the London Stock Exchange at the end of March 2021. The stock initially displayed stellar performance, with its share price soaring from 6.5p to over 40p within 48 hours. Unfortunately, this stellar performance could not be maintained.

Kanabo stock went bearish after that. And till today, the bearish streak has not ended. From a peak price of 40p, the stock is now trading at the lows of 1.95p. At the start of 2023, the Kanabo share price showed signs of improvement when it rose to 4.1p. But the bearish momentum returned, and the stock dropped again.

Let’s explore the prospects of Kanabo’s share price.

Why did the Kanabo share price fall initially?

As a reminder, Kanabo is an early-stage medical cannabis company. It designs, produces and sells CBD-based oils as well as vaporisation devices. The management team’s strategy is to create a classic Razor & Blade business model. This means the firm first sells its VapePod MD vaporisation device to customers at a low margin and then generates real profit through repeat sales of its consumable medical oils. 

In my opinion, it’s an excellent strategy to pursue and certainly explains why many investors were excited on IPO day.

However, the immediate downfall of the Kanabo share price appears to be the result of a dilution effect. When the business first came onto the market, it was pre-revenue. In other words, it had yet to start selling any products.

This naturally adds a considerable level of risk for investors since the company was ultimately unproven. And while Kanabo has begun its initial distribution of products, revenue is still relatively scarce. This has resulted in it needing to raise additional capital to scale up its operations.

Growth on the horizon?

One of the major challenges the cannabis-based company faced in the initial months of going public was that the majority of existing patients were already self-treating with cannabis. Moreover, the management discussed what they learned during Kanabo’s first year as a clinic and dispensary-focused company in the UK was that access to cannabis is much more of a challenge.

Also, there is relatively slow growth in the number of medical cannabis patients in the UK, which has resulted in a huge decline in sales. In order to correct this, the company has proposed a seamless experience for patients and providers through The GP Service within the UK.

Kanabo recently announced two new additions to its range of VapePod formulas this week. Around 20 new products will come in the first half of 2023 alongside other new products. The company has entered 2023 with an aim to focus more and more on medical cannabis. The £14m acquisition of The GP Service in February 2022 is part of the new strategy1.

As part of the new strategy, the company launched Kanabo Agritec Ltd. It is known as Agritec, a new, partly owned subsidiary offering one-stop-shop consultancy services regarding the design, build, operation and management of the production of medicinal cannabis. The cannabis-based company is now well-positioned to leverage its skillset and products and capitalise on the market opportunity, in my opinion.

The success of this new strategy is already starting to be reflected in the financial results. The company reported revenue growth of £603k, compared to £73k the previous year. And as a growth investor, I am thrilled to see the positive effects of the newly implemented strategy!

The bottom line

Overall, the business appears to be on track. The focus on seamless experience for patients is going to be the leading factor towards growth in the current year.

Moreover, the market is expected to be flooded with quality cannabis products. And when patients will get to experience quality products, prices will come down, and the focus will shift to patient care.

Needless to say, there remains a considerable level of risk still attached to this business. At least, that’s what I think. And so, for now, it is staying on my watchlist.

Learn more about Kanabo

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Article sources

  1. Business of Cannabis. “Kanabo Buys National UK GP Online Service to Improve Last Mile for Patients

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

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Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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