AnalysisEuropean Cannabis Stocks Review: SEED Loses Recent Gains As...

European Cannabis Stocks Review: SEED Loses Recent Gains As Stock Drops 30%, DanCann Performs Well Despite Lower Estimates, & More From DeepVerge

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THIS week saw news emerge that countries across the globe were making significant moves towards the liberalisation of cannabis regulation, with Spain, Japan and Ukraine all exploring the legalisation of medical cannabis.

Meanwhile Thailand removed cannabis from its list of narcotics alltogether in efforts to boost its economy, giving away 1 million cannabis plants, allowing citizens to grow and consume cannabis at home, and releaseing 4200 people in jail for Cannabis offenses.

Despite the growing recognition cannabis can be beneficial for both health and economic prosperity, cannabis stocks remained largely subdued as global market volatility continued to drive investors towards risk averse investments.

SEED Innovations 

Two weeks ago multi-sector AIM-listed portfolio investment firm SEED Innovations, which holds a significant stake in six cannabis companies worldwide, saw its share price skyrocket after one of its investees Leap Gaming secured a UK content supply licence. 

After gaming firm Leap, in which SEED owns a 44% stake, was granted the licence by the United Kingdom Gaming Commission (UKGC) on May 24, SEED’s stock price rose by over 50% in the subsequent days. 

However, those gains have now been all but lost, with SEED’s share price dropping from highs of 7.6p to 5.26p at the time of writing, just 5.2% above where it started. 

On June 8 SEED announced that it had provided Fralis (trading as Leap Gaming) with a ‘term loan’ of up to €250,000, drawn down in tranches with the first totalling €100,000. 

According to the release, the money will be used to fund Leap’s ‘advances towards a liquidity event’, which will either be an IPO or reverse takeover transaction expected later this year. 

As part of the announcement Leap said that its unaudited turnover for the year to December 2021 was €3.1 million, with operating profit of €615,000. 

Investors once again remained cautious of investing in SEED with the hopes of making returns once Leap goes public. 

This follows SEED’s sale of its stake in EMMAC in March 2021, which saw it make a 1.86 times return on its original investment, following similar investor expectations it was due to go public imminently. 

DanCann Pharma

The Danish pharmaceutical firm, which posted its first quarter results for 2022 in mid-May, saw its stock jump around 10% this week. 

Towards the end of the week, European research firm and financial advisor CarlSquare, released an update on their analysis of DanCann Pharma.

CarlSquare said that while DanCann’s revenues and profitability in Q1 came below its expectations, ‘important steps’ were taken at its production facility ‘Biotech Pharm 1’. 

These included the submission of a GMP application, and signs that the company had begun to build its sales pipeline for bulk production with a distributor in the Swedish market, with sales expected to begin in 2023, though it noted these developments were ‘a little delayed from what was initially expected’. 

The delays, previous quarter’s outcome and guidance that distribution and sale of its products will start towards the end of 2022, saw CarlSquare lower its forecast for the company’s revenue for the full year. 

It also revised its initial estimates for its share price, dropping from DKK7.6 to DKK6.7. 

“The challenging stock market environment continues to put downward pressure on growth-oriented companies. 

“In particular, those with the need for further capital injections. Considering that, we calculate a fair value of DKK 6,7 (7.6) per share corresponding to an EV/Sales multiple 2023 of 6,1x. Our reference group is currently trading at EV/Sales 2023 of 2.1x. The premium is motivated by the expected growth even after 2023, well above the companies in the reference group that are more mature.”

It added that it believed ‘value-changing opportunities’ were likely to come in the near future. 

DeepVerge

DeepVerge, a UK biotech firm which produces a range of CBD cosmetics, was also one of the few companies to post a positive stock performance this week, seeing its stock rise 10% since Monday.

The rise appears to be driven by a number of PR pushes by the company, particularly its subsidiary Skin Trust Lab. 

On June 1 DeepVerge announced that Skin Trust Lab, which offers at-home skin microbiome testing for personalised skincare and skin health tracking, had won the ‘Best New Disrupter Brand’ award at the Pure Beauty Global Awards 2022. 

CEO Gerard Brandon said this demonstrated the ‘incredible pace at which Skin Trust Club’ has gained a strong global reputation’. 

Alongside the announcement, DeepVerge noted that sales could now ramp up again in China and Shanghai, after its local offices were released from the country’s strict Covid lockdowns. 

This PR push extended later into the week as Skin Trust Lab launched a promotion offering free microbiome testing kit and free delivery, which saw such high demand its website crashed under the load.

The strong demand for its products saw the volume of shares traded increase by nearly 600% compared to the previous day, and 66% above its weekly average. 

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