London Is Open: Part 3

Issue 3 – Finance and Investment Potential

In this issue of the ‘London Is Open’ series, we will examine the amount of potential investment medicinal cannabis and CBD companies can attract due to a listing on London’s exchanges. This week the blog has been written in conjunction with the independent corporate advisor and broker Peterhouse Capital, who recently worked on the successful listing of Kanabo and who provide in-depth advice on cannabis IPOs on London’s capital markets.

The UK – The Finance Hub of Europe

A listing on one of the UK’s capital markets is a fantastic opportunity for cannabis-related businesses (CRB) seeking to expand and further their potential. London is one of the world’s most prominent international financial hubs and the largest in Europe. The city boasts a thriving financial services industry; in 2019, the sector contributed £132 billion to the UK economy representing 6.9% of total economic output. The Global Financial Centres Index, a ranking that measures the international competitiveness of the world’s financial centres, ranks London first in Europe and second globally, close behind New York.

The UK is home to strong international public markets, including the London Stock Exchange (LSE), which holds a market cap of £3.5 trillion, and its submarket AIM which holds a market cap of £134.5 billion. The LSE and AIM both have deep pools of international capital, with around 50% of their investors being from abroad. These two public markets are, however, not the only exchanges that are intriguing to CRBs. Through its two growth market segments Apex and Access, the Aquis stock exchange currently holds several listed CRBs, including Ananda Developments, Sativa Wellness Group and World High Life, and attracts investment from all around Europe.

According to Eran Zucker, Managing Director at Peterhouse Capital Limited, “London is one of the key financial centres of the world and listing on the London Stock Exchange, one of the oldest stock exchanges, has a certain prestige involved with it. Beyond that, the UK market is fairly conservative and pays great attention to detail which can act as a quality filter for a growing nascent market like medical cannabis.”

UK IPOs and Investment

CRBs considering an IPO should see London as not only a viable option, but an exciting one: the proceeds that are generated during a UK listing far exceed those in any other country in the EMEA region. In 2020, UK IPO proceeds reached $7.9 billion, representing 28% of EMEA IPOs. It signifies an overwhelming amount of capital distributed within London’s capital markets, thereby making it one of the most attractive places to go public.

The number and value of IPO deals in the UK between 2017 to 2019 saw a considerable decline due to Brexit’s economic uncertainty and market volatility. In 2020, amid COVID-19, UK capital markets saw a slight increase in IPOs, proving London’s resilience. However, it is expected that in 2021, the UK will see a significant increase in IPOs compared to 2020.In the first two months of 2021, there have already been nine IPOs on the LSE, raising a combined sum of £940.6 million. Out of the nine IPOs on the LSE, three of the companies listing were CRBs, including Kanabo, MGC Pharmaceuticals and Cellular Goods.

UK – The Growing Cannabis Hub of Europe

Not only does the UK have a robust financial environment, but the medical cannabis and CBD markets are showing impressive growth. The UK is home to GW Pharmaceuticals, whose medical cannabis greenhouse facilities span over 182,000 m2. Altogether, it has leased over 566,000 m2 to grow cannabis in the UK. GW Pharmaceuticals also had tremendous success listing on AIM in 2001 before exclusively listing on the NASDAQ in 2016. The company has become world-renowned for its cannabinoid-based medicines Sativex and Epidiolex and in early 2021, it was acquired by Jazz Pharmaceuticals (headquartered in Dublin, Ireland) for just under €6 billion.

There is also growing public support for medical cannabis use in the UK. A 2020 survey conducted by Hill Dickinson showed that the majority (76%) of the UK public supports the use of cannabis within a medical context when supplied by a doctor. Alongside the growing support for medical cannabis prescriptions in the UK, there has been increased public pressure on the UK government to ease the restrictions on the access to cannabis-based medicines, as currently only a select few have managed to receive a prescription through the National Health Service. In 2019, Drug Science, a UK based drugs advisory committee, launched Project TWENTY21. This project establishes Europe’s first medical cannabis patient registry and seeks to enrol 20,000 patients in the UK suffering from a variety of conditions by the end of 2021. It aims to gather data from patients using cannabis-based medicines over two years to prove the necessary evidence needed to convince policymakers and prescribing bodies of the safety and efficacy of medical cannabis treatments. The project collaborates with a network of private clinics and cannabis medicine producers including, Kanabo, Senzer Pharmaceuticals, LYPHE Group and Khiron Life Sciences.

The UK CBD market has seen significant growth in the UK in the last years and is considered the largest CBD consumer market in Europe. It is estimated that the UK CBD market is worth over £400 million, with sales expected to increase as consumer interest rises. COVID-19 further fuelled demand as a 2020 survey by Alphagreen suggested that 7.8 million UK adult purchased CBD products between 2019 and 2020. The survey also states that UK adults purchased £155 million worth of CBD products in the first four months of 2020, representing a +50% growth from the year prior.

With all the developments occurring in the cannabis space in the UK, combined with the recent listings of Kanabo and MGC Pharmaceuticals on the London Stock Exchange, we will likely see an increase in domestic and overseas investors looking to involve themselves in the UK’s dynamic cannabis sector.

Eran Zucker mentioned that: “Following the recent Kanabo IPO on the London Stock Exchange, I believe we will see several companies following the same path. I think the fact that cannabis IPOs in London are new, fresh, and different has certainly attracted many eyes to the sector. While retail has already shown its enthusiasm, as CRB listings on London’s capital markets become a normal occurrence, more institutional investors will be comfortable investing in this new space.”

How do CRB IPOs Attract Investors?

As more CRBs seek a listing on one of London’s capital markets, companies need to decide which market they wish to list on, based on a realistic assessment of the regulatory hurdles and opportunities which each market has to offer, as described in the last issue of London Is Open.

Since London is a financial hub, it has an abundance of investors willing to invest in companies who mitigate risk, have a clear vision and a strong management team that can execute an IPO successfully. Therefore, it is crucial for CRBs to communicate their business message efficiently in order to gain as much investor attention as possible. Not only is communication to potential investors important at the pre-IPO stage, but it remains a priority when retaining and attracting new investors once listed on a capital market.

CRBs should set up a strong investor relations team to ensure communicating with investors and potential investors is as fluid as possible and providing them with a path between the company and the financial market. Communications with investors can take many forms, including roadshows, meetings, CEO presentations, news releases, and maintaining an updated company website.

Before CRBs begin their communication strategy, they should focus on their equity story. The company’s equity story should portray the corporate image of a company and be tailored to the interests and concerns of public market investors. This should include the company’s description, history, management team, milestones, and any selling points that can be converted to profit, growth, and returns from an investor’s perspective. The story should be concise, comprehensible, and compelling as it will be competing with other investment opportunities available on the market.

Eran Zucker from Peterhouse Capital noted that “the most important thing for companies is to tell stories in a very coherent and exact way. First impressions matter; you only have a brief moment to attract an investor to your idea. The investors need to immediately understand the core of the business, its market position and the company’s key strengths.”

The equity story is a critical narrative included in a business plan, presentations, and roadshows. It highlights all the vital elements needed for investors to believe and invest in a company’s potential. It should be continuously reviewed and updated to ensure it sets the right tone and provides the key takeaways that instantly attracts potential investors and places value on a company.

Once the equity story is finalised, CRBs should commence the IPO roadshow, a series of presentations that engage with potential investors and ignite interest for the upcoming offer. This can be portrayed in a series of meetings, Q&A’s, digital presentations, conferences and CEO presentations. A successful roadshow is critical for the success of an IPO as it highlights whether the market believes in the company’s value proposition, scalability, investment opportunity, and profitability.

Eran Zucker mentions that in these roadshows, CEO’s should be conscious that “investors are investing both in the company, and in the CEO’s to make an achievable plan and execute it. As such, the presentation needs to not only convey the basic facts about the Company, but also inspire confidence in the management team.”

Future of CRB IPOs in the UK

As the medical cannabis and CBD market in the UK progresses and as CRBs start to list on London’s capital markets, one can safely state that London has the potential to become one of the leading international hubs for cannabis. The strength of the financial sector, along with experienced advisors and lawyers in the medical cannabis space, such as Peterhouse Capital and Hill Dickinson, provides the UK with a clear advantage compared to other global markets. Thus, domestic and overseas CRBs looking to expand their footprint and gain access to a deep pool of international capital should consider a listing in London.

About Peterhouse Capital

Peterhouse provides integrated financial services – Corporate Finance, Corporate Broking, a Matched Bargain facility and Securities Trading – to companies which are listed on, or looking to join, the Standard List of the Main Market, AIM, the Aquis Exchange, or IPSX.

Peterhouse is the #1 London-based independent investment bank, as well as the leading independent small cap broker for AIM companies, and has completed, on average, one Client fundraise per week for three years running.

Peterhouse is also the largest AQSE Corporate Adviser, and its advisory business is known for problem-solving and pioneering new initiatives. These include:

• Supporting the first public company to undertake an ICO
• Listing the first UK medicinal cannabis investment company & the first cannabis IPO on the London Stock Exchange
• Structuring the first Aquis Exchange bond issue
• Introduced the first Canadian Stock Exchange/Aquis Exchange fast track dual listing

The Peterhouse team works closely with clients to provide them with pertinent and meaningful advice and bespoke solutions, whether on routine public company matters or in the context of complex corporate transactions.

For further information about the firm, click here.

About Hill Dickinson

Hill Dickinson LLP is a leading and award-winning international commercial law firm with more than 850 people including 185 partners and legal directors. It has offices in Liverpool, Manchester, London, Leeds, Piraeus, Singapore, Monaco and Hong Kong.

The firm delivers advice and strategic guidance spanning the full legal spectrum, from non-contentious advisory and transactional work to all forms of commercial litigation and arbitration.

Hill Dickinson’s life sciences team provides practical, commercial legal advice to companies at all stages of development, from start-up to established multinational.

Clients are supported from an idea in a lab, to helping incorporate the company, raising capital, protecting and licensing intellectual property, signing strategic partnerships and, ultimately, commercialising life-changing treatments and technologies.

The interdisciplinary team, based at offices in London, Manchester, Liverpool and Leeds, as well as internationally, blends insight and pragmatism to provide high-quality, trusted advice to some of the world’s leading life sciences companies.

For more information about the team, visit https://www.hilldickinson.com/sectors/life-sciences

For further information about the firm, visit hilldickinson.com

About Prohibition Partners

Prohibition Partners unlocks the potential of cannabis through data, intelligence and networking. We provide strategic solutions to an international client base of investors, operators, blue-chip companies, FMCG brands and government bodies.

Prohibition Partners’ experienced consultancy team can offer cannabis-related businesses intending on floating with the essential information and strategic services needed to prepare for a successful IPO on the London Stock Exchange.

Prohibition Partners’ services include:

• Expert independent market reports
• Due diligence
• Risk analysis
• Competitor benchmarking
• Investor presentations
• Strategic planning
• Stock promotion
• Dedicated events and publications
• Networking and partnerships