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Why MGC Pharmaceuticals Ltd shares have surged 11% higher

medical marijuana

One of the strongest performers in morning trade today has been the MGC Pharmaceuticals Ltd (ASX: MXC) share price.

At the time of writing the cannabis company’s shares have returned from their trading halt and pushed almost 11% higher to 8.3 cents.

Why are MGC Pharmaceuticals Ltd shares on a tear?

This morning the company announced that it has successfully completed a $5 million capital raising via a share placement at 7 cents per share.

The funds raised from the oversubscribed placement will be used to establish MGC Pharmaceuticals’ medical cannabis production and cultivation facility in Malta.

The company is establishing this production and cultivation facility after the Maltese government awarded it with a contract to construct a 4,000 metre squared state-of-the-art medical cannabis production and cultivation facility.

According to the release, MGC Pharmaceuticals is one of only five companies to be awarded a full medical cannabis production and cultivation contract following a competitive tender process in the country.

Under the agreement, the company will be permitted to produce all THC and CBD strains of medical cannabis. Management believes this expands the commercial opportunity for it to develop and sell additional medical cannabis pharmaceutical products into key European and global markets.

Should you invest?

While this is undoubtedly a positive step forward for MGC Pharmaceuticals, the company is still behind a bit compared to some of its peers such as Auscann Group Holdings Ltd (ASX: AC8) and Cann Group Ltd (ASX: CAN).

Because of this, if I were looking to gain exposure to the medicinal cannabis industry I would be considering AusCann and Cann. Not only do they have facilities up and running already, but they have strategic partnerships in place that give them an edge when it comes to exports, in my opinion.

But it is worth remembering, of course, that the industry is still in its infancy and an investment carries a lot of risk for investors.

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As of 2.11.2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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