Chill Brands (LON: CHLL) shares are down another 5% this morning as the struggling group attempts to find the capital to keep going. On 26 April Chill announced an open offer fundraising. Then on 29 April the company received a private offer. The announcement this morning is that the private offer has been rejected (would not lead to sufficient capital etc) and the open offer revived. Except it’s not quite been revived, it looks like it will raise £450k instead of that original £3.5 million.
As we’ve said before about Chill Brands there’s a certain problem at the heart of the idea. We can accept that there are logistical problems, sure, but repeated ones? That looks like – the repetition that is – something that might be wrong internally rather than an imposition from outside. For Chill Brands is having these logistical problems repeatedly. Which is one explanation for the consistent fall in the Chill share price from the 60 pence and more of a year back to the current 2p and change.
But there’s a larger potential problem here. Yes, certainly, CBD is all the rage right now. Or, rather, it was a year or two back that is. Cannabidiol aids all sorts of things, it’s becoming legal in all sorts of places and so on. So, a vast new market opening up and just ripe to be conquered by a new brand, right?
Except, well, maybe not actually. Cannabis itself is becoming legal in ever more places and so the relative excitement of CBD might fall. Why go for the half-measure when the full is also newly available? It’s even possible that CBD is really only popular with those who already gain access to it anyway – that is, it’s a new legal market but still constrained by the number of people actually interested in it.
Then it’s possible to go that one stage further. Precisely because it was all fashionable a couple of years back there are many new players in the market. As with the legal cannabis market itself – near no one seems to be making any profit out of it despite sales rising substantially. The reason being the competition of so many people trying to conquer the new market.
Competition is great for consumers and a horror for producers as it wipes out margins. Gaining a margin, making a profit from having done so, being the point of going into business in the first place.
So, why has Chill Brands' share price fallen yet again? The short-term technical reason is the disappointing terms of that fundraising. The longer-term issue though remains. Is there going to be a large CBD market to conquer, is Chill going to be able to do the conquering and given the number of other people in the market will there be any profits from having done so? Even at these current low prices that’s the decision tree that has to be worked through before taking a trading position in Chill Brands.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.