MGC Pharmaceuticals (LSE: MXC) was the first cannabis company to list on the London Stock Exchange earlier this year. While the stock saw a good opening, its share price has fallen to less than half its initial highs.
There is little to pin the share price fall on, though. All listed cannabis stocks have seen a reversal in stock market fortunes in the past few months. As far as I can tell, regulation has not changed for the worse.
So, if anything, I think this could be an opportunity to buy stocks in the cannabis industry, which is slated to grow fast.
Robust revenue growth
Among the cannabis stocks listed on the London Stock Exchange, that include the David Beckham-backed Cellular Goods and the medical and wellness solutions provider Kanabo Group, I think MGC Pharma has an advantage.
It has been around far longer than any of the others. And it has a revenue stream. Cellular Goods is pre-revenue and Kanabo has some revenues from its pilots, but that is about all.
MGC Pharma, on the other hand, has been generating revenue for years now. For the financial year ending June 30 2020, its revenues were at A$2m, which was more than three times the levels seen in the year before.
Its latest trading update released last month was encouraging too. It says that in March it saw its “best monthly sales revenue”, and for the quarter ending March 2021, it had a “record quarter of sales revenues from its proprietary phytomedicine product line”.
Visible pipeline
The company, which produces cannabis-based medicines, saw this increase in sales as it delivered a bulk order to SwissPharmaCan, a nutraceutical company. Nutraceuticals refer to any food with health benefits beyond nutrition.
This sale alone almost doubled MGC Pharma’s revenue for the quarter. Specifically, it supplied an anti-inflammatory supplement, which is aimed at countries with a high incidence of Covid-19.
Further, it now has a three-year contract with SwissPharmaCan, which guarantees revenues for the company. I think this bodes well for its share price.
Contextualising the losses
MGC Pharma is still loss-making, but I do not think that needs to get in the way of its share price performance. There are multiple examples of high-performing stocks in growing industries that are also loss making.
Consider FTSE 100 stocks like Ocado or Just Eat Takeaway. They are expanding fast, as is evident from their double-digit growth rates. Both companies have given a new spin to an old business, by digitising grocery and restaurant deliveries respectively. And both are running with losses.
I see MGC Pharma in the same light. Here, though, the one big risk is that regulation may turn against cannabis companies, if any serious side effects to their products are discovered.
My takeaway
Otherwise though, if MGC Pharma continues to increase its revenues, I think its stock can do quite well. I am watching it closely.
