Cellular Goods had luck on its side when football celebrity David Beckham invested a stake in the CBD brand.
While myriad competitors were struggling to get noticed in the nascent CBD category, it was fantastic publicity for the brand. And a 13-times oversubscribed IPO in February 2021 raised £13m. It seemed ‘Golden Balls’ had struck again as, within hours, the share price soared by 300% over its initial £25m valuation.
But luck never holds forever. By the end of last year the share price had fallen from its 20p high back to near its 5p starting point as losses mounted. It’s been pretty much downhill ever since. And the final straw was when the Food Standards Agency effectively told Cellular back in April to stop trading its ingestible CBD product, becoming the headline casualty of the new novel foods regulations for the category.
It’s a cautionary tale not just on the perils of investment but on the particular challenge of the CBD category – one that offers such enormous potential, but also has had so many regulatory hurdles to overcome.
But there are secret opportunities inside every failure, and this week fellow CBD player Cannaray announced a reverse takeover into Cellular Goods that instantly propels it on to the stock market.
Having secured millions in investment, and the backing of TV’s Claudia Winkleman to spearhead its marketing, Cannaray’s plans for an IPO shortly after its 2019 launch appeared to be scotched by the pandemic. But the takeover gives it a public platform that would have been impossible with a conventional IPO, with flotations as rare as hen’s teeth in the current volatile market.
With the deal valued at £18.6m for Cannaray shareholders – some £4.4m of which is an expected earnout due in a year – it is well short of the “north of £100m” post-IPO valuation the company had mentiond in early 2020 as its target. Even so, it’s a milestone for the company, as well as the CBD market more broadly.
As outgoing chairman Clive Sharpe says: “Everybody is looking for how to realise the opportunity in the CBD sector, because there’s endless potential, but you need scale and good management teams to do it.”
He’s not alone in this thinking. Last week Tenacious Labs, a CBD company that is pressing the government to adopt more business-friendly cannabis regulation, named Bill Oldham as chair to lead a “build and buy strategy” across M&A.
Oldham “is a highly experienced operator with considerable expertise scaling up consumer brands around the world”, said Tenacious Labs CEO Nicholas Morland. “With his knowledge, expertise and network of contacts, we believe he will be critical in accelerating our growth in the months ahead.”
Tenacious Labs has already begun this strategy with the purchase of CBD petcare brand Rover’s Wellness in August. This followed two other acquisitions since Tenacious’s launch, the company having previously bought female-focused CBD brand Press Pause and white-label manufacturer SZM, which now operates as TL Manufacturing.
Taken together, these two plays show an appetite for consolidation in the CBD market, especially given much-needed clarity from the FSA over the novel foods process following a chaotic inception.
It also shows the UK is in an attractive position to host any consolidation. With its respected legal frameworks, sizeable pharma industry and the CBD novel foods regime, it’s an opportunity that business and our growth-obsessed new government would be advised to grab with both hands.