The Kanabo (LSE:KNB) share price is finally rising after months of underwhelming performance. In the last couple of weeks, the cannabis stock has almost doubled, moving from around 14p to just under 22p today. What’s behind this newfound growth? And is now the time to add this business to my portfolio?

The rising Kanabo share price

I’ve previously covered this business. But as a quick reminder, Kanabo is a producer of premium cannabidiol-based products for the health & wellness sector. These products are mostly various types of oils that are used in conjunction with its VapePod inhalation device. Combined, these form the start of a classic Razor & Blade business model that could send the Kanabo share price surging over the long term.

Last month, the cannabis stock saw a change of trajectory after the management team announced that its first shipment of cannabis cartridges to the UK had been sent. This is quite an impressive milestone for the business, in my opinion. Why? Because apart from getting its product on pharmacies shelves, it proves that its supply chain and production pipeline work. So I’m not surprised to see the Kananbo share price rise on the news.

Now What?

This shipment and future shipments are made possible thanks to the strategic partnerships the company has formed in the last couple of months. Manufacturing was handled by PharmaCann Polska, while Astral Health granted Kanabo access to a roaster of patients.

But that exposes a potential weakness in the business’s structure. As it stands, Kanabo is heavily reliant on these key partnerships to produce its products and get them into the hands of customers. Suppose it is unable to maintain a good relationship with its partners moving forward. In that case, the loss of support from just one may be sufficient to jeopardise Kanabo and its share price.

But the cannabis stock is fully aware of this potential threat. And the management team have already begun exploring ways to diversify its retail channels using acquisitions. At the end of July, Kanabo proposed acquiring Materia, an independent Europe-based processor of medical cannabis.

It’s not clear how much Kanabo is expecting to pay at this stage. However, assuming the deal is approved and completed, the firm would gain access to another production facility in Malta, as well as access to a network of pharmacies across Germany as a new sales channel. That certainly sounds like a promising prospect. And could send the Kanabo share price even higher in the future.

The bottom line

Acquisitive growth strategies can carry a lot of risks. After all, integrating one company into another often leads to complications that incur costs. It’s not uncommon to see acquisitions actually destroy value rather than create it.

But a more immediate threat is that of equity dilution. To raise the necessary funds to perform this purchase, the management team intends to offer more shares which will cause the Kanabo share price to fall. At least in the short term.

If the acquisition is a success, then the cannabis stock could quickly recover. However, with limited historical and financial information about this business, I will wait and see for now. Therefore, Kanabo is staying on my watchlist.

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