There has been a lot of noise around the IPO of Cellular Goods PLC (LON:CBX), the first cannabinoid (CBD) listing on the London Stock Exchange focused solely on premium-quality consumer products.
All of it has been positive – from the clamour for stock in the placing, which was 13-times oversubscribed, to the stellar start to life as a listed company (the shares shot to a major first-day premium) and, of course, there’s the involvement David Beckham’s DB Ventures.
However, the hullabaloo may also have (partially and inadvertently) obscured the uniqueness of the underlying investment proposition – one that should mark Cellular out from the crowd in the CBD space and underpin its long-term success.
The points of difference start with the innovative method of production, a process called biosynthesis that produces the cannabinoids used as ingredients in its consumer products. It extends to the expertise, both creative, commercial and scientific, baked into the business.
And then there’s the whiplash-inducing speed at which Cellular aims to get its branded products to market – supported by commercial production that leads to revenue generation, and finally financial self-sustainability.
Traditionally, cannabinoids are derived from hemp, which requires cultivation that can take anywhere up to 200 days. After that CBD is extracted from the plant, refined and turned into a concentrate or distillate.
This is both time-consuming and comparatively expensive, particularly if it all takes place indoors under glass.
Biosynthesis has been around for many years and is the method used to create artificial insulin, citric acid, and vanilla, though it’s a method new to the CBD industry, which only started to look at its potential a couple of years back.
In simplified terms, it is a fermentation process (think beer-making) that takes seven to 10 days involving a feed-source such as sugar, placed in a tank along with a microorganism (usually yeast). This is then followed by a short extraction and purification stage.
Crucially, Cellular is not only at the forefront of embracing biosynthesis for sourcing its ingredients but is actively collaborating with bulk producers to research so-called “minor” cannabinoids other than CBD for future consumer use.
This is because these cannabinoids may have a wide range of benefits that have yet to be fully understood.
As well as being a quicker and cheaper source of cannabinoids than via traditional cultivation it is ultimately a greener, 100% legally compliant and altogether more sustainable approach.
Biosynthesis also guards against pesticide taint and heavy metals getting into the supply chain.
“Hemp plant has a tendency to absorb everything in the soil around it,” points out Alexis Abraham, Cellular’s chief executive.
“What we have is a simple process,” he adds. “So, from a business perspective, and with the ambitions of becoming a very large dominant player in the space for consumer goods, this was clearly incredibly attractive.”
Partners in the US and Europe
The company is working with partners both in the US “where all the intellectual property resides”, and Europe, home to fermentation, to perfect stable CBD formulations.
The first products will be in skincare and are set to hit the market in September or October. It is also developing a movement range aimed at muscle relief for people of ages 18-80+, due for launch next year, before expanding into pet health.
Its innovations are designed to work in conjunction with (rather than instead of) the consumer’s existing products.
They will be based on “uncomplicated formulations” that are “premium quality”, says Abraham.
And they will be independently-tested and verified for the antioxidant, anti-inflammatory, antibacterial, analgesic or anxiety suppressing claims ascribed to cannabinoids.
From a regulatory standpoint, Cellular plans to follow best practice, Abraham says. This means submitting what is used in its products to the British successor to the European Cosmetics Body.
It has also been careful not to expose the company or its investors to issues around the Proceeds of Crime Act that continue to be a grey area for purveyors of traditionally produced CBD.
“This was one of the benefits of using biosynthesis to source its active ingredients,” says Abraham.
“It’s an archaic and strange piece of legislation, but it was an early problem that took me down the exploration around alternative ways to access cannabinoids.”
Expertise across the board
A look at the Cellular team reveals one that has plenty of brand experience, starting with Abraham, who worked for international design groups Identica and Pentagram.
This is possibly a point that has yet to be fully recognised and digested by the wider market.
It is also a company with significant commercial, operational and scientific heft; with the capacity to take a new product from prototype to the mass market.
“Essentially our team is split between science and brand,” says the Cellular CEO. “Our core belief is when you bring these two together in this space you can create a lot of shareholder value.”
Turning to commercial roll-out plans, the skincare launch ‘playbook’ involves teaming up with a leading online retailer and a top bricks and mortar operation. Direct-to-consumer is likely to be step three in the process – once the brand is established.
The £13mln raised from the stock market listing (around £5mln more than initially planned) will provide the financial backing to fast-track business through formulation, production, marketing and then along the commercial hockey stick.
Abraham says there is enough in the coffers to get the business to break-even, which would represent a significant achievement.
He says the stock market listing, while providing access to capital, also brings with it other intangible benefits.
“There’s unquestionably a huge prestige with a listing on the London Stock Exchange main market. It has opened numerous doors,” he explains.
“There’s no question that in a lot of conversations with various suppliers and partners over in the US, as soon as I say, ‘London Stock Exchange main market’ the phone call gets answered, the email gets answered, and the conversation begins. So, it made an enormous difference.”
With such ambitious plans and keen shareholder support, it will be interesting to see how the next 24 months plays out at Cellular.