Sharechat Logo

Licensing key to medicinal cannabis firm Cannasouth's ambitions

Monday 20th May 2019

Text too small?

Medicinal cannabis firm Cannasouth is poised to become NZX's first initial public offering in two years and is touting its ability to secure licences and strong relationships with regulators as selling points. 

The Waikato-based company wants to raise $5 million from invited investors and another $5 million in a public offer, selling as many as 20 million shares at 50 cents each. Provided it gets at least $5 million, Cannasouth intends to list on the NZX in what will be the stock market's first IPO since Oceania Healthcare went public in May 2017. 

The company filed its product disclosure statement with the Companies Office on Friday and said it plans to use the funds raised for research and development, investigating sites to build commercial operations, take on staff, and cover the cost of the offer and listing. It would also boost its working capital. 

Fat Prophets head of research Greg Smith has invested in the company in his personal capacity and also intends to participate in the offer.

He acknowledges it's a speculative investment and carries a higher degree of risk. But he says he has been impressed by the track record of the founders - Mark Lucas and Nic Foreman - who have been trialling and growing industrial hemp since 2002, and the suite of licences Cannasouth has already secured.

"It's the credibility - they've been around for a long time. It's not a fly-by-night operation," he said. 

Parliament passed legislation last year to improve access to medicinal cannabis and introduce quality standards for products. The Ministry of Health is designing the framework for how the law will operate to enable domestic commercial cultivation and manufacture of medicinal cannabis. 

Cannasouth has so far secured licences to cultivate, extract, import and purify medicinal cannabis and cannabinoids for research purposes. It has also secured two import licences, which are needed every time the company wants to import a cannabis product. 

Smith said the company's ability to get those licences puts it at an advantage over its rivals, and he anticipates Cannasouth has a faster route to commercialisation than other firms. 

"They're doing the right thing ahead of the change." 

The offer is being handled by CM Partners, which will take a 5 percent brokerage fee. The estimated costs including legal fees, registry fees, NZX fees, brokerage and financial advisory fees and advertising and publishing costs, are estimated at $640,000 to $970,000 depending on how much is raised. 

New shares will account for 11-20 percent of registered stock. 

The offer opens on May 27, with the priority offer closing on June 7 and the public offer a week later. The shares are expected to list on June 19.

Joanna Lawn, NZX head of issuer relationships, congratulated Cannasouth for its intention to list and use the public market to raise capital. 

"We look forward to supporting Cannasouth to develop and grow its company via the public markets," she said in a statement. 

"This industry is just beginning in New Zealand, and companies within the industry are looking at listing as an opportunity to aid development and growth. This also provides investors with access to an early-stage growth opportunity." 

Smith said the listing is coming at a reasonable time, with the benchmark S&P/NZX 50 Index holding near a record, and also given the shortage of market listings in recent years.

"If the market was in a different place, maybe a speculative listing such as this wouldn't fly, but then again, in such a ‘topical’ segment, there was always going to be interest," he said. 


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Rio Tinto decision following strategic review of Tiwai
Contact says smelter closure is ‘disappointing’
South Port (SPN) Statement on NZAS Tiwai Point Aluminium Smelter Closure
Rio Tinto announcement on Tiwai Aluminium Smelter
Me Today announces equity raising to accelerate growth
Scott Technology Trading Update; Rising to the COVID Challenge
New non-binding indicative offer received from apvg, shareholder meeting deferred
U.S. Added 4.8 Million Jobs in June as Reopened Businesses Rehired
Auditors have a duty to be alert to fraud
Strong sales recovery but uncertainty remains over economic outlook and potential second wave of COVID-19

IRG See IRG research reports