Sativa Group, the UK’s biggest quoted medicinal cannabis company, has appointed Cenkos Securities as its corporate adviser and broker, underlining the group’s ambition to tap into Europe’s emerging medical marijuana industry.
“The appointment of Cenkos is a big step for the company and is an indication of how the City of London is starting to acknowledge the potential opportunities of the medicinal cannabis market,” Geremy Thomas, Sativa’s founder and chief executive, said.
Sativa listed in March 2018 on NEX Exchange, London’s market for small, high-growth companies, as an investment vehicle to allow UK investors to take stakes in Canadian medicinal cannabis companies. On June 12, shareholders approved a change of name to Sativa Group, after NEX allowed the company to move to being a trading business.
Sativa now has two trading divisions. These are PhytoVista Laboratories and George Botanicals, which develops, manufactures and distributes wellness products derived from cannabis oil, or CBD.
Sativa has already invested more than £600,000 in its lab, which tests cannabis derivatives for impurities like heavy metals. There are plans to add more staff to the business, which Sativa said is already being used by industry rivals to test the quality of their own products.
“Europe is so far behind the curve compared to North America and the lab business is the gateway to providing investors and regulators with the level of credibility needed,” Thomas said.
Under UK law, CBD products cannot have any medicinal claims, nor be marketed as such. CBD is sold by retailers as a wellness food supplement and contains very low THC levels.
Medicinal cannabis, meanwhile, was legalised in the UK late last year and contains both CBD and THC, the compound in the cannabis plant that gives recreational users a “high” but which is regarded as an enabler to the CBD content of medicinal products.
Sativa is understood to be close to receiving an R&D licence from the Home Office, with a final site inspection due to take place on July 2. This will allow it to grow specific strains of cannabis with a high THC content as part of a research programme with Kings’ College London to study the impact of medicinal products on inflammation and respiratory diseases. At present there are fewer than 100 prescriptions for medicinal cannabis in the UK.
Although North America has accounted for the majority of world spending on medicinal cannabis, international markets are becoming increasingly bigger, with US investment bank Jefferies recently highlighting the potential of the UK market in an equity research note.
One industry banker said that at least three new cannabis companies were considering listing in the UK in the next few months.
Thomas said that he had chosen to list the company on NEX in the hope the exchange would eventually mirror the success of the Canadian Securities Exchange in Toronto. Originally designed for start-ups, the CSE has rapidly become the go-to place for cannabis stocks. In the first quarter of 2019, cannabis and cannabis-related issuers accounted for 77% of all capital raised on the Canadian bourse.
“The genie is out of the bottle and this will only increase as demand for medicinal cannabis continues to come under pressure from both patients and the medical profession,” Thomas said. “Institutional investors want to participate in this space.”
He added that while medicinal cannabis was the “main prize”, Sativa also had a fast-growing wellness business in the UK. It will open the first of a planned chain of Goodbody wellness centres, where customers can taste CBD-infused coffee, tea and water, at the end of June in Bath.
However, Sativa in May abandoned plans to grow its own supply of cannabis in the UK, choosing instead to sign commercial off-take agreements with one Swiss and one Portuguese cannabis oil supplier. “It was clear that a lot of people are going into the growing space with many more resources than us and we did not want to spend millions of shareholders' money doing the same,” Thomas said.
In 2018, its first year as a listed company, Sativa reported a gross profit of £110,000 on revenues of £260,000. The company raised £1.6m in March 2018 to finance its operations and carried out a subsequent £3.75m fundraising in August 2019. It has £2.63m in cash at the bank and was valued at more than £32m at close of trading in London on Friday.
The appointment of Cenkos suggests Sativa could go to the market for more money to accelerate its expansion. The mandate will be a much-needed boost for the small and mid-cap specialist broker, which suffered a 25% drop in full-year revenue in 2018, compared with 2017, amid falling commission rates, a dearth of UK flotations and new regulations.
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