Finance

London set for flurry of cannabis IPOs after UK watchdog green light

The FCA has received at least seven queries about listing cannabis companies since medical marijuana became legal in the UK, data provided to Financial News show, as commentators continue to talk up the prospects for weed stocks.

Medicinal cannabis was legalised in the UK in November 2018, with specialist doctors allowed to write prescriptions for the drug.

Since then, a host of cannabinoid companies have talked up the prospects of listing on London markets, including Cellular Goods, a business backed by football star David Beckham.

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The cannabidiol or CBD market in the UK is estimated to bring in £690m in sales in 2021, exceeding estimates made back in 2019 of £526m, according to the Centre for Medical Cannabis, which released a report claiming that the UK now had the “most evolved regulatory framework in the world for CBD”.

With the FCA having recently opened the door to potential listings, commentators have raised the spectre of a race to go public for medical use cannabis companies comparable to the situation in the US market, which has seen mammoth deals like healthcare group Jazz’s £5.3bn takeover of GW Pharmaceuticals in February, driving the value of the shares held by founder Geoffrey Guy, nicknamed ‘Dr Pot’, to some £65m. 

February saw the stock prices of a host of cannabis companies skyrocket; on a single day, Canadian cannabis firm Tilray closed up 51%, while Aurora Cannabis and Canopy Growth reported gains of 21% and 6%, respectively. 

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Growing interest has spawned the launch of a handful of exchange traded funds in Europe focused on the sector, including those from product providers HanETF and Rize.

HanETF’s Medical Cannabis and Wellness ETF has gathered $50m since its launch in January 2020, according to Morningstar. Meanwhile Rize’s Medical Cannabis & Life Sciences ETF has pulled in almost $59m following its launch a month later.

In September, the FCA put out a statement on how it would assess applications “in response to queries from cannabis-related companies interested in listing in the UK”.

A consultation would be conducted “in due course”, the watchdog said, but for now it confirmed that purely UK-based medicinal cannabis and cannabis oil companies could be admitted to stock exchanges provided they had received any relevant Home Office licences.

“For medicinal cannabis and cannabis oil companies with overseas activities, the company will need to satisfy us that their activities would be legal if carried out in the UK,” the regulator wrote, suggesting they would be allowed to list if they passed a review.

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When it came to recreational cannabis, however, the FCA was clear that “even when they are located in those jurisdictions that have legalised it, are proceeds of crime under the Proceeds of Crime Act 2002, so the regulator would not allow them onto the Official List”.

In December 2018, one month after medicinal cannabis was legalised in the UK, the FCA received its first query about listing, figures disclosed to Financial News under a Freedom of Information Act request show, with requests also coming in June, August, October, and December 2019. Only one query was received throughout the whole of 2020, however.

Two companies have had their prospectuses approved and have been admitted to the Official List: MGC Pharmaceuticals, which was admitted to listing on 9 February 2021, and Spinnaker Opportunities plc, since renamed Kanabo plc, which was admitted to listing on 16 February 2021.

No companies have been rejected as no formal application for listing has been made which has been refused, the FCA says in its response.

“The decision notice for any application for listing that had been rejected would be made public in accordance with normal FCA procedures for decision notices,” the FCA’s response reads. 

When asked how many recreational cannabis companies the FCA had deemed to be in potential breach of the Proceeds of Crime Act, the FCA said that such offences are normally investigated by the National Crime Agency, the police, or HM Revenue and Customs, so it would not be able to provide data.

However, it reiterated that no cannabis-related companies have had an application for listing rejected.

When asked to provide copies of any internal research notes, presentations or similar that may be relied on by the FCA to assess cannabis companies, the watchdog said that it was unable to disclose its criteria because it could impact its ability to police the market.

To contact the author of this story with feedback or news, email Justin Cash

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