SEED Innovations saw its stock tumble more than 20% this week after releasing a ‘portfolio valuation update’ in which it revealed a £2.6m decline in Net Asset Value (NAV).
On Friday (September 2), SEED informed investors that as of August 31, its NAV stood at £17.84m, down over 12% from £20.46m as of March 31, a figure published in its full-year results at the end of July.
According to SEED, which holds a stake in six cannabis companies worldwide, this decline in NAV was ‘in the most part’ down to significant declines in the value of two of its investee companies.
The first is Fralis LLC, which trades as Leap Gaming, which has until now been a strong performer in SEED’s portfolio.
In May Leap, in which SEED owns a 43% stake, announced that it had been granted a UK content supply licence by the United Kingdom Gaming Commission (UKGC) to enter the country’s £14bn gambling market, sending SEED’s share price rocketing over 50% in the following days.
Now SEED says that given the ‘current market’ conditions, its €22.3m estimation of the company ‘based upon a third party valuation report’, is now overvalued.
Since March 31 2022, SEED says ‘it has become clear that this valuation is unlikely to be achieved in the foreseeable future via normal M&A activity in the current market.’
The company continued in an RNS: “At the same time, despite best efforts to pursue a capital markets liquidity event, it is apparent that this is a poor time to pursue a public listing given the current economic outlook.”
SEED’s board has now reportedly ‘re-assessed the likely realisable value of Leap’ to around €16m, meaning its investment in the company is now worth £6m, rather than £8.2m.
The second company attributed to the loss in NAV was Australian medical cannabis firm Little Green Pharma, which has seen a 37% decline in market price between March 31 and August 31, ‘further impacting SEEDs NAV by approximately £715,000’.
It also reiterated that the poor performance of Yooma Wellness had also continued to damped its overall valuation, but that ‘management remain positive on the business fundamentals and hence outlook of both companies, both of whom are developing strong businesses in what is a challenging market currently.’
German medical cannabis operator Cannovum was one of the few companies to see its share price increase this week after it reported record sales and new customers in the first half of the year.
In the six months to June 30, Cannavum reported revenues of €516,952, a more than tenfold increase on the €38,892 it reported in the same period a year earlier.
According to its recent RNS, Cannovum’s products are now sold regularly in over 300 pharmacies, equating to ‘every 10th pharmacy supplying cannabis’ in the country.
Pia Marten, Cannovum’s CEO said: “Our strategy to win the trust of physicians and pharmacists with premium products exceeded our expectations. We are well within our plans in terms of sales growth and new customer acquisition.”
Despite the huge growth in sales and customer numbers, the company reported a net loss for the period of €539,335, up from a net loss of €499,717 a year earlier.
Cannabis Legalisation Could Reduce Pharmaceutical Sales by Billions
Last week new research from California Polytechnic State University and The University of New Mexico was published, predicting that cannabis legalisation was set to lose pharmaceutical companies billions in sales.
Understood to be the first study of its kind to examine the effect widespread access to cannabis is likely to have on pharmaceutical companies of all products and types of patients, not just its potential to reduce use of opioids.
According to the study, due to cannabis’ ability to treat a range of conditions and physical symptoms, as opposed to traditional drugs which target one specific issue, cannabis is set to become a major new competitor in the drugs market.
Furthermore, in the US where the cost of drugs remains over 100% more expensive than in the UK, Germany and Canada, cannabis presents a much more cost effective alternative for swathes of the country, which has the largest pharmaceutical industry in the world by some margin.
Should the US approve full federal legislation conventional pharmaceutical sales, which grew to $555bn last year, are predicted to drop by more than 10%.
The authors also found that this was already having an impact on pharmaceutical stock prices, with stock market returns 1.5-2% lower in the 10 days following a legalistion event.
However, there was a significant disparity between recreational legalisation events and medical cannabis legalisation events, with the former found to have more than twice the impact on pharmaceutical stock prices than the latter.
It concludes that rather than continuing to lobby against the cannabis industry, pharmaceutical giants may benefit from investing in cannabis markets, and cannabis legalisation’s impact on pharmaceutical stock prices meant cannabis was likely to remain a growing player in the pharmaceutical markets worldwide.