Cannasouth slumps on debut as investors back blue-chips

Wednesday 19th June 2019

Pre-revenue medicinal cannabis firm Cannasouth made an inauspicious debut as a publicly listed company, shedding 20 percent in early trading as investors pursue blue-chip stocks offering reliable dividends.

The Waikato-based company raised $10 million at 50 cents a share, half in a priority offer and half in an oversubscribed initial public offering. It opened at 51 cents on listing today, but has since dropped to 40 cents. About 522,000 of the firm's 102 million shares changed hands today.

The S&P/NZX 50 Index hit a record in early trading this morning, and was recently up 0.9 percent at 10,288.68. However, investor demand was largely concentrated in blue-chip stocks offering reliable dividends, such as Precinct Properties New Zealand, Infratil, Spark New Zealand, Meridian Energy and Port of Tauranga.

"There was a bit of scaling and some initial demand, but not enough to see the share price list strongly," Grant Davies, an investment advisor at Hamilton Hindin Greene, said of Cannasouth.

"If you look at the top five gainers today it's all of those solid dividend-paying blue-chip stocks - that's where the money is going at the moment, those high-quality dividend players and the more speculative stocks aren't in favour."

Of other early-stage healthcare companies, bladder cancer test maker Pacific Edge was unchanged at 20 cents, cervical cancer tech company TruScreen fell 4.8 percent to 10 cents, and probiotic manufacturer Blis Technologies declined 2.7 percent to 3.6 cents.

Cannasouth will use the IPO funds 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.

Cannasouth is the first IPO on the NZX since Oceania Healthcare went public in 2017. The stock market operator has been at pains to ensure the framework is in place to encourage new entrants, but is competing with cashed-up private equity funds and persistently low interest rates as attractive alternative routes for firms to raise money.

Hawke's Bay Regional Council has hired investment banks to sound out the market for a sell-down of its stake and listing of Napier Port, which Davies said is an entirely different proposition to Cannasouth.

"If you're buying into a pre-revenue IPO, you should be focusing on the long-term," 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.

(BusinessDesk)

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