The Kanabo (LSE:KNB) share price has had a rough time since its IPO. Despite rising from its issue price of 6.5p to over 40p within 48 hours of being listed, the stock has since tumbled substantially. In fact, it’s so far lost around half its value and currently trades at a price of around 19p per share. But is this an opportunity to buy the stock at a discount? Let’s take a look.
The falling Kanabo share price
I’ve previously explored Kanabo’s business model. But as a quick reminder, it is a medical cannabis company that develops and manufactures CBD-based products and inhalers. The long-term strategy is to create and sell a wide range of unlicensed medical oils that can be used in combination with its inhalation devices. If successful, it may lead to the replication of Gillette’s razor and blade type of business model that continues to generate consistent recurring revenue.
With that in mind, I can see why investors were initially excited at the prospect of owning shares in this business. So why has the Kanabo share price fallen by so much since? There are likely to be many contributing factors. But as far as I can tell, it seems the initial excitement has started to die down after investors have taken a closer look.
The firm has only just begun generating revenue from a relatively unproven collection of products. While that doesn’t mean it can’t be successful, it does add a considerable level of risk for investors, should it fail to meet performance expectations. Having said that, Kanabo has been making good progress.
Revenue on the horizon
The firm recently published its first-quarter operational update for 2021. And so far, it seems everything is progressing as expected. The management team has begun making preparations to launch new medical cannabis products within the next six months.
What’s more, its flagship vaporisation device, VapePod MD, is currently being reviewed for certification. However, it is worth noting that the average approval time for a new medical device can vary from a week to eight months. In other words, Kanabo and its share price may not be able to fully benefit until 2022.
Beyond product development, it has also has signed two new partnerships. The first is with PharmaCann Polska, which increased Kanabo’s production capacity by an additional 36,000 vaping cartridges per month. And the second is a distribution agreement with Astral Health. This contract allows the business to tap into an established patient ecosystem — a valuable advantage to have, given Kanabo’s current lack of brand awareness. At least, that’s what I think.
Is it time to invest?
The medical cannabis industry is growing at a phenomenal rate. And as more governments legalise the use of medical marijuana, this level of growth will likely accelerate. As such, Kanabo and its share price seem to be operating in an increasingly favourable environment.
However, there remains a long road ahead, with plenty of other companies trying to penetrate the same market. So for now, I’m keeping Kanabo on my watch list.