AFTER a month of relatively positive upwards trajectory for many European cannabis stocks, this week has seen a return to stagnation and decline, although a number of companies have managed to retain their price gains.
With suggestions cannabis stocks across both North America and Europe may have bottomed out, and legislative progress continuing at pace across both continents, there remains cause for optimism.
As the economic forecast for the coming months continues to feed a bear market, a BusinessCann understands number of companies are looking to diversification in an effort to weather the storm.
This includes Canadian giant Aurora, which has just purchased a controlling stake in vegetable grower Bevo Agtech for $45m CAD.
Oxford Cannabinoid Technologies
This morning Oxford Cannabinoid Technologies (OCT) announced plans to launch a ‘strategic budget review’ which it says will ‘extend its current cash runway’ by around six months.
In late July, BusinessCann reported that OCT was gearing up to raise its second major round of funding since it listed on the London Stock Exchange (LSE) last May, a crucial raise which will determine the shape of the company’s future.
With its current cash reserves always scheduled to last until March/April 2023, OCT had planned from day one to launch a secondary raise to fund its ongoing operations moving forward.
However, with its stock price falling more than 80% since its initial listing, its chances of raising enough capital through its upcoming share issue have forced the company to consider contingency plans.
It has now announced plans to delay the launch of Phase 1 clinical trials for its secondary programme in order to allow its leading programme to remain on track, due to start Phase 1 clinical trials in January 2023.
This strategy will stretch its current cash reserves until Q4 2023, and the company will be banking on a boost to its share price following the completion of Phase 1 trials for its lead compound in order to raise further funding.
Alongside this, OCT’s current finance director Karen Lowe has announced her intention to step down, with the hunt for a successor understood to already be underway.
Naked Short Selling Ban
News emerged from across the pond this week that naked shorting, an illegal practice that has often been cited as a key factor in the dismal performance of many cannabis stocks traded on North American exchanges, could soon be clamped down on.
Last week, the Investment Industry Regulatory Organisation of Canada (IIROC), responsible for overseeing all investment and trading activity in the country, issued new guidance on the controversial practice, prohibiting it as a ‘Manipulative and Deceptive Activity’.
Short selling involves borrowing a company’s shares and then selling them with the hopes of buying them back at a lower price in the future, effectively betting that a company’s stock will decline.
Short sales can be ‘covered’, which means the seller has borrowed or acquired the shares that they then sell on.
They can also be ‘naked’, which is when the seller has not borrowed or acquired the shares, seeing an investor essentially trade share’s that do not exist.
While the practice was officially made illegal during the financial crisis in 2008, it continues to occur thanks to various loopholes and discrepancies between paper and electronic trading systems.
As investors are making trades with shares that don’t exist, the number of shorted shares can outnumber the real shares in circulation, making it all but impossible for stock prices to recover.
While the practice is difficult to track, it is widely believed that this practice was a major factor in the 52% increase in cannabis short positions between June and September 2018, hitting over $3bn.
The cannabis industry has been dogged by naked short selling ever since, and is thought to be a key factor in a number of stocks’ underperformance.
It’s not yet clear how this ban on an already illegal practice will be enforced, but it is widely considered to be a positive development for cannabis stocks.
Tikun Olam Cannbit
Israeli medical cannabis supplier Tikun Olam Cannbit was by far this week’s top performer, seeing its stock jump nearly 30%.
Its strong performance followed an announcement earlier this week that the company had recieved EU-GMP certification from the German Federal Ministry of Health for the production, export, and marketing of medical cannabis to Europe.
This is a major development for the company, which says it is now preparing to export its products to Germany, Austria and Switzerland via a partnership with German Pharmaceutical company Fette Pharma.
Furthermore, it says it will ‘act to sign additional global production agreements’ to expand the sale of its products worldwide.
Its CEO, Avinoam Sapir, said this development was ‘the company’s most important strategic move to date and is a true breakthrough for our company and the entire Israeli cannabis industry’.
The news comes off the back of a successful rights issue which saw the company raise 18.3m NIS.
This offering was only available to existing shareholders, seeing a number of senior company officials take advantage of the opportunity and make significant investments.
These included its CEO Mr Sapir who invested 164,000 NIS, and the son of Israeli real estate developer Barak Rosen, Ben Rosen, who invested 3.6m NIS retaining his position as the company’s largest shareholder.
It is understood that this share issue was also a key driver of the company’s share price boost.
While the company’s fortunes appear to be on the rise, there is still a mountain to climb for before its stock returns to pre-pandemic levels, peaking at over 15 NIS in 2019.
It is also currently loss making, reporting a loss of 23.6m NIS in 2021, a trend expected to continue when it publishes its interim results for 2022 in the next few days.
According to the company, it still requires 12m NIS to finance its ongoing activities for the coming year, meaning its likely another raise will be on the cards before 2023.