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.

The post What’s going on with the Kanabo share price? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Kanabo. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So what caused this sudden growth? And Should I be adding this business to my portfolio?

The rising Zoetic (ZOE) share price

 Zoetic is a producer of cannabidiol (CBD) oil products and operates within the medical cannabis sector. It has two brands under its name. The first is Zoetic, which targets the health & wellness segment of the market. These products include soft-gel capsules, oral tinctures, massage oils, as well as cosmetic items.

It’s hardly the only brand in the space. But it has managed to distinguish itself by being nominated and winning multiple awards for its product’s quality. As a result, Zoetic already has started building some reputation and pricing power. A promising sign in my eyes.

The management team is now leveraging this reputation to launch its second brand called Chill. After a long testing period, these products have proven to be a viable alternative to tobacco-based items. And since they are free from THC, nicotine, and heavy metals, the products are a significantly healthier option for individuals who smoke or chew tobacco.

From what I can tell, Chill is what triggered the rising ZOE share price. A trading update was released in October 2020, which announced the success of its trial phase. Over the next couple of months, the business began distributing these new products among a growing collection of reputable US stores. Based on the most recent progress, Zoetic now expects these items to be stocked at more than 3,500 US stores by July 2021. It also intends to begin launching Chill within the UK as well this quarter

The risks that lie ahead

As promising as these launches are, the company still has a lot of challenges to overcome. The firm only recently pivoted into CBD products, and in the process, lost its original revenue stream (it was an oil and gas business called Highlands Natural Resources, and decided to switch to CBD in 2019). Zoetic is already selling online. However, between April and September last year, only £55,000 worth of goods were sold.

Since the firm’s revenue stream is currently quite restricted, it remains unprofitable. And with limited information as to when that might change, the company is dependent on external financing to keep the lights on. Just last month, it opened a new £35m credit facility with LDA capital. And in my experience, a leveraged and unprofitable business carries quite a bit of risk.

The bottom line

I’ve previously explored other companies trying to penetrate the medical cannabis sector. But Zoetic does seem the most promising so far, thanks to its award-winning line of premium products. And if the launch of Chill meets expectations, I believe the ZOE share price can continue to climb even higher over the long term.

Having said that, I think it’s still too soon to invest. There remains quite a bit of uncertainty regarding the sales performance of its new products. And so, until more financial data becomes available, I’m keeping the business on my watch list for now.

The post Can the Zoetic (ZOE) share price keep climbing? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Zaven Boyrazian does not own shares in Zoetic International. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.