Market report: Finsbury Food sours after traders find lower revenues hard to digest
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Market report: Finsbury Food sours after traders find lower revenues hard to digest

Kids may love Finsbury Food Group for its Star Wars-themed cakes, but the “force” was certainly not with the bakery firm on Monday.

The City quickly left the cake-maker with a soggy bottom after the company warned that revenues for the year to June fell 3.4% to £303.6 million.

 

The AIM-listed firm’s trading was hit by the closure of two bakeries towards the end of last year. However, comparable sales rose 2.4% to £290.2 million.

Chief executive John Duffy also spooked investors by claiming the challenging UK economic environment “is showing little sign of abating from the levels experienced”. He pointed to higher costs linked to wages and ingredients. Shares fell 2.2p, or 2%, to 112.8p.

Moving from pastries to property, and the Square Mile shunned a number of housebuilders and estate agents. Investors ditched stock on the same day that online giant Rightmove published a gloomy report that showed London’s housing market woes worsening ahead of the traditional summer lull.

Rightmove said the average asking price in the capital this month is down £11,040 from a year earlier. Throughout the country, property prices are almost flat. The report warned that finding a buyer over the summer has been made more difficult by an 8.6% increase in new seller numbers. The closely watched index further reported that there is “no corresponding increase in buyer numbers to soak up new seller influx”. 

FTSE 250 housebuilders Bovis Homes and Redrow saw their shares sink lower on the report, down 3p to 1137p, and 4.35p to 530.65p respectively. The FTSE 250 index as a whole was up 107.61 points to 20,920.73.

On blue-chip FTSE 100 index, housebuilders were also out of favour. Berkeley lost 16p to 3604p, and Persimmon was down 9p at 2473p.

The FTSE 100 was also grappling with the implications of the latest comments from Donald Trump. The US President named Europe as one of America’s “foes” but investors seemed largely unmoved with the index down only 8.81 points at 7653.06p.

Stockbroker AJ Bell said the flat market was a result of a robust performance from utility and engineering stocks, offset by weakness in miners and insurers. 

One company that put traders on a high was Sativa Investments, which in March became the first cannabis-focused vehicle to list in London after debuting on the Nex.

The firm said it has signed an IP sharing agreement with Canada’s Veritas Pharma, which it hopes will help its efforts in the UK’s emerging cannabis market.

Shares in Sativa edged up 0.09p, or 2.74%, at 3.37p.

Small-cap spotlight

CentralNic, the AIM-listed internet platform that gets revenue from the worldwide internet domain name and web services industry, is relisting on the junior market today after buying German-based domain names business KeyDrive, in effect doubling its size.

CentralNic shares fell 6p to 52p.

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Business focus: London’s green rush? City financiers tune in to the cannabis industry
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Business focus: London’s green rush? City financiers tune in to the cannabis industry

The crushed velvet sofas and mahogany panels of Mayfair may seem a world away from skinning up a joint in the park but London high finance and cannabis are colliding  in what’s been dubbed a 21st-century green rush. 

Dozens of City types descended on the boutique Dukes hotel in St James’s on Tuesday for the Cannabis Invest UK conference, a kind of speed dating for the cannabis industry where companies showcase themselves to investors.

Former investment banking analyst Patrick Morton, who hosts the regular event, says the conference was in response to investor demand for up-and-coming cannabis firms as a wave of legal changes across Europe relax weed laws.  

“We get a mix of people here. Private investors, institutional investors and cannabis industry people,” he says. “Most people have a personal connection to it, they’ve got a relative ill. The level of awareness is not that high in the UK yet.”

But all that could be about to change. The recent cases of Billy Caldwell and Alfie Dingley — denied marijuana medicine for their epilepsy — means medicinal cannabis could soon be legal in the UK, opening the floodgates for investment. Mayfair’s private family offices and well-heeled investors provide fertile ground for overseas cannabis companies looking to raise money. Dozens of cannabis company chief executives come over to London every month to tap London’s deep-pocketed investors. 

“It’s the hot topic in Mayfair at the moment,” says Hanway Associates co-founder George McBride, a former barrister who now advises investors on putting money into the industry. “There’s more money than can be spent, the appetite is insatiable.”

Stephen Murphy, head of London-based cannabis consultancy Prohibition Partner’s, estimates more than £200 million has been raised so far for overseas medicinal cannabis ventures. 

“There’s a large number of conferences where the chief executive of the leading cannabis companies have come over to raise capital,” he says. “Europe is seen as the next phase of the capital market boom after Canada.”

Canada is the leader in this nascent sector. More than 30 cannabis-linked companies are listed on the Toronto stock market and, in October, Canada will become the first G8 nation to make recreational cannabis legal.

Top Canadian bank CIBC predicts that retail sales, through so-called “budtenders” in high street shops, will approach $6.5 billion by 2020 and London investors are already taking advantage.  

“The biggest flow of money out of London into cannabis has been into Canada,” says Canaccord Genuity analyst Matt Bottomley. “It’s the biggest landgrab in a new market currently available.” 

 

Canadian grower MPX Bioceutical is one of those tapping the City for money. In the past two years it has raised $75 million from around 100 rich investors in three private fundraising rounds. Boss Scott Boyes says he’s found it easier to raise money in the UK than in the US and Canada.

“We’ve found British investors to have a more global perspective,” he says. “They are pretty sophisticated. These are not mom and pop investors.” 

If investing in cannabis sounds like a bizarre futuristic fantasy or even the downfall of society itself there’s a throng of financiers who see the potential of the cannabis industry on a par with the alcohol and tobacco sector. 

 

Predictions for a possible UK cannabis market are bullish, with Prohibition Partners suggesting it could be worth €18.5 billion in the next 10 years, while Euromonitor predicts the global market could be worth $150 billion.      

CBD or not CBD: That is the question

Marijuana is banned in the UK but a by-product called CBD, known as “cannabis-light” by some, is seen by many as a precursor to a possible UK cannabis industry. 

Planet Organic, Ocado and Holland & Barrett stock CBD-infused water and oils made by companies like Love Hemp and CBD Living Water, but what is it? 

On a molecular level there are hundreds of elements which make up the cannabis plant but the two main ones are THC and CBD. 

THC is a controlled substance in the UK because it’s the psychoactive bit which gets you high.

 CBD is non-psychoactive and legal in most forms. Products which contain only CBD and no THC therefore are legal. 

Most CBD products come from hemp, a form of cannabis plant, which has low THC and high CBD.

“Many of the entrepreneurs and investors I’m talking to say this is the start of a whole new industry which we last saw with the creation of the internet industry. It’s groundbreaking,” says UK-based Tristan Gervais from Canaccord Genuity, the  biggest dealmaker in the cannabis sector.  

 London is also slowly opening up for home-grown companies. In March, Sativa Investments became the first cannabis-focused vehicle to list in London after debuting on the Nex in March And Cambridge-headquartered GW Pharmaceutical has won special licences from the Home Office to manufacture medicinal cannabis.

 

Sativa has won backing from blue-chip City fund manager Gervais Williams from Miton, one of the City’s best know mid-cap managers. Retail punters are also investors, through Hargreaves Lansdown and Tilney. Sativa boss Geremy Thomas says looming legal changes in the UK after the Caldwell case would trigger more demand. 

“The UK investment community is behind the curve in terms of what this market is all about but when medicinal cannabis is legalised here those concerns will fall away and investors will spot the opportunities,” he says.  

Yet concerns remain. Regulators are sceptical of cannabis companies and bigger banks steer clear due to the grey legal status of investing in recreational cannabis (Sativa does medicinal), which could mean investors break the law.

 

Hanway Associates’ McBride says: “It does raise compliance questions but those are surmountable. There’s differences in legal opinion where the boundaries of risk are but it is more complicated in terms of compliance than other industries.”

Recreational, known as “rec” in the trade, adds an extra layer of complexity. One London-based investment vehicle, Fast Forward, decided to to sell its holdings in a Canadian cannabis producer after it realised it would be exposed to recreational space.  

“With the recreational market set to happen in Canada, it will make it very difficult for a UK investor to invest in any company which has any exposure to recreational use at all,” says the company’s director Ed McDermott. “Even as an individual you would be getting the proceeds of crime. You’re effectively no better than a drug dealer.”

Back in Mayfair, investors are still bullish about the prospects for the medicinal industry. “We can help people from a compassionate standpoint and we can help change the law to get it more beneficial for communities,” says Morton. “And there’s also hopefully money to be made.”