ASX stock of the day: CannPal Animal Therapeutics (ASX:CP1) shares shoot 25%

The CannPal Animal Therapeutics Ltd (ASX: CP1) share price is shooting the moon today. Here's why this ASX cannabis company is flying high.

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The CannPal Animal Therapeutics Ltd (ASX: CP1) share price is shooting higher today, rising 20% to 15 cents per share. The CannPal share price closed at 12 cents a share last Friday after the company was placed in a trading halt. CannPal opened today at 16 cents per share before edging back slightly to its current price of 15 cents. Incidentally, the trading halt meant CannPal missed the ASX shutdown yesterday.

Today's rise in the CannPal share price is good news for investors. It means the company's shares are 25% up for the year so far, up 36% since 9 November, and up 114% since 25 March.

So what is this company and why is the CannPal share price soaring today?

What is this ASX cannabis company?

We can almost ascertain what this company does through its name alone. CannPal Animal Therapeutics describes itself as an "animal health company". It is developing "innovative and naturally derived plant-based therapeutic products for pets targeting the endocannabinoid system". The company was founded in Australia in 2016.

CannPal has a "research focus" on cannabinoids, the "active pharmaceutical ingredients" found in the cannabis (marijuana) plant. According to the company, CannPal has "identified a significant opportunity" to benefit from the fast-growing medical cannabis markets for the purposes of animal health.

The company asserts that "innovation in the animal health industry is lacking". It notes that existing treatments for pet conditions like arthritis and cancer are reportedly replete with side effects like nausea, appetite loss, internal bleeding and depression.

In response to this problem, CannPal is working to "further explore the natural healing abilities of compounds that can target the endocannabinoid system" in order to develop treatments for these issues that are natural and less likely to produce side effects. These treatments work by acting on the endocannabinoid system. The company informs us that this is "a system of receptors and compounds that are involved in almost every disease state, especially inflammation, pain and neurological conditions" in mammals.

CannPal, as of the time of writing, does not have any products currently in the market. However, it is currently "in the process" of testing a lead drug candidate by the name of "CPAT-01D". This drug is a pain control drug for canines (dogs). It is also testing 'DermaCann' – a product for canine skin health.

Why is the CannPal share price shooting higher today then?

We can likely put the dramatic move in this company's share price today down to an ASX announcement the company released this morning.

In this announcement, CannPal announced that it has "entered into a scheme implementation". This involves another ASX cannabis company, AusCann Group Holdings Ltd (ASX: AC8). This 'scheme', if successful, will result in AusCann acquiring 100% of CannPal shares – in other words, a takeover. AusCann is willing to pay a price of 18.4 cents per share under the arrangement. That likely explains why the CannPan share price surged on trade resumption today. The offer price is more than a 50% premium to CannPal's closing share price last week.

CannPal tells investors that the deal "gives CannPal access to the resources required to accelerate the Company's growth objectives". According to CannPal, "the two companies will form a combined entity with the financial resources and technical expertise to rapidly accelerate the commercialisation of human and animal health products".

The company goes on to say that "the combined group will also benefit from a strengthened leadership team, shared staff and administration, operational cost savings, intellectual property and procurement synergies".

Reportedly, CannPal's largest and founding shareholder, the Merchant Opportunities Fund, has indicated its intention to vote in favour of the scheme. This fund holds approximately 19.88% of the CannPal shares on issue. The CannPal board is unanimously recommending shareholders vote in favour of this scheme as well.

It's this development which is likely behind the surging CannPal share price today.

Motley Fool contributor Sebastian Bowen 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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