Cannabis Growth Comes to LSE with First Pure-Play IPO (Bloomberg: 3rd December 2019)

Cannabis Growth Comes to LSE with First Pure-Play IPO

Published: 2019-12-03
By Kat Van Hoof (Bloomberg)

Though medicinal cannabis was legalised a year ago in the U.K., capital markets activity has been largely limited to fringe trading venues. One company preparing to make the jump to the London Stock Exchange could bust the sector wide open.

Cannabidiol and medicinal cannabis company Sativa said it will look to list on LSE’s junior market AIM early next year, the first initial public offering of the sort for Europe’s largest exchange. While already listed on the lesser-known NEX Exchange, the company “had numerous institutional shareholder requests” to move to AIM, said Chief Executive Officer Henry Lees-Buckley.

NEX isn’t subject to the same regulatory standards as LSE and the stocks listed there are often too illiquid for most institutions to invest in. The sector is primed for growth as public perception and legislation is turning in its favour. Banks in Europe have been gearing up for a boom in listings, hiring bankers and beginning research coverage, though the deals have been slow to materialise. Marijuana stocks are more established in Canada and the U.S., where the world’s largest weed company Canopy has been listed since 2014. “The European market is more nascent and most local companies are smaller as a result,” said Tristan Gervais, head of European cannabis investment banking at Canaccord Genuity. A Cenkos note estimates that the global pot market could be worth $300 billion in revenue per annum by 2030, with medicinal products alone accounting for $75 billion. Some local investors have turned to weed companies in North America and are familiar with the sector. They are open to investing in Europe, but are “keen to see more companies listed on main exchanges such as the LSE,” said Henry Fitzgerald- O’Connor, managing director at Canaccord Genuity. Much of the North American market focuses on recreational weed, which remains illegal in Europe.

In Britain, companies can only legitimately make highly regulated pharmaceutical and medicinal products or sell popular products such as CBD oil as a food supplement, regulated by the Food Standards Agency under the European Union’s Novel Food directive. However, pot stocks in the U.S. and Canada have not been without teething issues and investors should be wary of the comedown. Following exponential growth, Canadian stocks in the sector lost half their value between March and November amid disappointing results and regulatory issues. Even so, more companies will want to follow in Sativa’s footsteps, with “several IPOs” expected next year, Canaccord’s Gervais said. “European investors will be looking for sound business models, expecting visibility on revenue and profits,” said Fitzgerald-O’Connor.

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