In September of 2020, the Financial Conduct Authority (FCA) announced that the guidelines surrounding cannabis-based companies that sought to list on the London Stock Exchange (LSE) were being reviewed. The FCA announced that Medical Cannabis and CBD companies that are based in the UK would be eligible to list on the LSE assuming that the company has the proper Home Office Licences.
The change in legislation means that overseas licensed cannabis companies may also be eligible to float on the exchange. However, the company’s operations must be considered to be legal under UK law. This means that any company with any recreational exposure in North America in either Canada or the United States will not be able to list on the LSE yet.
The largest exchange in Europe is now an option for cannabis companies that are seeking to go public. This can provide the company with large amounts of capital and provides investors with greater options to deploy capital within the cannabis industry.
The London Stock Exchange is the largest in Europe and it is obviously a huge opportunity for the European cannabis industry. The combined market capitalisation of companies listed on the LSE stands at £3 trillion. The LSE counts the FTSE 100 companies as members of the exchange.
Access to listing on the LSE will inevitably cause intrigue throughout the European cannabis industry. However, the requirements to successful comply with the LSE’s demands is an onerous task. The requirements are set by the FCA and they include a market capitalisation of at least £700,000 and at least 25% of the company’s shares must be floated. The company’s prospectus will also be rigorously vetted to ensure the company is fit to go public.
The UK cannabis focused companies that have listed to date have all done so via the Alternative Investment Market (AIM) exchange. Companies such as Sativa Group plc have gone public through this method with varied success. AIM is typically tailored to smaller companies and the LSE wasn’t an option until Q4 2020.
GW is known for its plant-derived cannabinoid medicines Epidiolex and Sativex. GW listed on the AIM exchange in 2001 and then graduated to the US NASDAQ exchange in 2013. This led to a substantial increase in the company’s share price, at the time listing on the LSE was simply not an option. GW had a negative result in a 2015 clinical trial which smashed the share price down. However, following Phase Three Clinical Trial results that were positive for the Epidiolex drug, the share price surged.
GW Pharmaceuticals is the most successful British cannabis company to date. GW pharmaceuticals announced its intention to be acquired by Jazz Pharmaceuticals last week. GW is the biggest cannabinoid-based company in the world and the acquisition cost Jazz $7.2bn.
The companies that are currently listed on the London Capital Markets are:
○ Sativa Wellness Group
○ Greencare Capital
○ Freyherr International
○ World High Life
○ Ananda Developments
○ Zoetic International
○ FastForward Innovations
Race to Get Listed
The option of listing on the LSE now being open to cannabis companies means that industry leaders are now expected to navigate the FCA’s requirements and list on the LSE. Structuring a listing to provide greater visibility, liquidity and capital from European and British investors is likely to entice a number of companies to proceed with their listing.
Spinnaker Opportunities which are currently listed on the LSE has announced that it intends to close a reverse takeover of the medical cannabis company Kanabo Research. MGC Pharma also completed its listing on the 9th of February.
Spinnaker Opportunities is a special purpose acquisition company (SPAC) that is currently listed on the LSE. Spinnaker Opportunities initially decided to leverage a reverse takeover with an energy related business but has since shifted its focus towards to cannabis industry. Kanabo announced their pursuit of a listing on the London Stock Exchange via a reverse takeover of Spinnaker Opportunities in September of 2019.
Listing on the LSE will provide Kanabo with additional funds that will allow them to increase with Research & Development spend to ensure they have extraordinary formulations and vaporisers available to bring to market. It will also enable them to bring more medical and OTC CBD products to more CBD users and patients.
MGC Pharma Become the First Cannabis Company Listed on The London Stock Exchange
MGC Pharma is a European biopharma company and they are focused on developing commercial phytocannabinoid derived medicines. They have worked hard to satisfy the FCA and are the first cannabis company to float on the LSE. MGC Pharma already trades on the Australian Public Markets but it is still an extremely interesting development.
It has taken MGC Pharma approximately 2 years to get to a point where they were ready to list on the LSE. MGC Pharma disclosed that they had secured definitive commitments of £6.5m to coincide with a total of 441 million shares that were issued at a price of £0.01475.
They are a number of other cannabis companies that appear to be preparing themselves for an attempt to list on the LSE. It is interesting to see how this develops and to see how the European market reacts to some of the larger players in the cannabis space entering the capital markets.
This is a significant step for the European cannabis sector. Enabling some of the more established companies in the space to gain access to the capital markets is likely to drive innovation and increase quality throughout the sector. With companies now having to be accountable to the public markets, the industry standards should rise and the demand for success will improve the standards throughout the industry that are sometimes lacking.
With the sector having increased access to serious capital, the capacity of larger entities will grow, and it may also mean that smaller players in the space could be acquired or receive investment.
Having cannabis companies listed on the LSE also means that the industry will grow in credibility as the wider public and investment community begin realising the potential of what is still a nascent market. Upon seeing the massive opportunity that the cannabis industry has over the next decade, many shrewd investors will elect to take a punt on cannabis stocks getting higher.