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.

Since then, the Kanabo share price has fallen down to 23p. But is this a buying opportunity for my growth portfolio? Let’s take a look.

What does Kanabo Group do?

Kanabo develops and manufactures CBD-based products and inhalers. The business has been around for a couple of years but has only recently begun selling anything.

It is currently in the middle of a three-month pilot scheme designed to measure several key performance indicators concerning the sale of its products. Specifically testing general demand, supply chain effectiveness, and quality controls.

But this is not the long-term strategy of the business. Using the income generated from selling retail products, Kanabo intends to produce a range of unlicensed medical cannabis oils to be used with its vaporisation devices.

If successful, this could form a viable razor-and-blades business model that could cause the Kanabo share price to rise even higher. But there are plenty of risks to consider.

The risks of investing early

Just like many start-ups, Kanabo has yet to create any proven products or establish a well-known brand. The results from its pilot scheme have revealed some level of customer retention, with around 40% coming back to buy more. While this is undoubtedly a promising start, I believe it needs to be much higher. I’ll be closely watching whether management can boost this metric over time.

This is especially important since the medical cannabis oil products that the company intends to make are going to be unlicensed. Why does that matter? An unlicensed medication doesn’t require extensive clinical trials nor regulatory approval before becoming publically available. This significantly reduces development costs. But consequently, it also means that Kanabo’s oils will never be prescribed by the NHS, as there are already existing licensed products available that fulfil the same role.

Naturally, this creates a significant barrier to entry for Kanabo’s future medical products. And so, the company will have to rely on the reputation of its existing brands to drive sales. Given it has yet to build any substantial reputation, this may be tough.

Can the Kanabo share price climb higher?

The medical cannabis industry is growing rapidly by almost 18% a year. And as more countries legalise medical marijuana, this growth may accelerate. This ultimately creates an excellent environment for Kanabo to thrive in. However, let’s not forget there are plenty of other companies trying to do the same thing.

Personally, it’s too soon for me to add Kanabo to my portfolio, even at its current share price. But I’ll definitely be keeping an eye on it.

The post The Kanabo share price: is now the time to buy? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Zaven Boyrazian does not own shares in Kanabo Group. 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.