Shares in medical cannabis research firm Cannasouth have slumped 20 per cent in early trading.

The Waikato-based company raised $10 million at 50 cents a share, half in a priority offer and half in an oversubscribed initial public offering. It opened at 51 cents on listing today, but has since dropped to 40 cents. About 522,000 of the firm's 102 million shares changed hands today.

Shares dropped to 36c - a 28 per cent fall - before recovering some ground.

Cannasouth is the first initial public offer on the New Zealand market for two years.

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Chief executive Mark Lucas said there had been "very strong" interest in the offer from a range of investors.

Cannasouth registered its product disclosure statement in mid-May, revealing plans to raise up to $10m in new equity. The offer comprised a priority offer of $5m and a general offer, also of $5m.

Cannasouth plans to use the money for research and development, a new commercial processing facility, more staff and to increase its working capital, as well as paying for the NZX float.

The company has no revenue or forecast financials but is touting its ability to secure licences and strong relationships with regulators as selling points.

Lucas said there had been very strong interest in the offer from a wide range of 1400 or so New Zealand investors.

Cannasouth founders Mark Lucas, left, and Nic Foreman. Photo/NZ Herald.
Cannasouth founders Mark Lucas, left, and Nic Foreman. Photo/NZ Herald.

Post the issue, Lucas and co-founder Nic Foreman will see their holdings fall to 27.6 per cent each from 34.4 per cent each before the issue.

Cannasouth, in its offer documents, warned there could be delays in developing the new framework, or the medical conditions for which medical cannabis can be prescribed may be so narrow it will not support profitability for the multiple companies operating in the sector.

"Cannasouth's business model and future revenues are dependent on the introduction of legislation and regulations, including but not limited to the Medical Cannabis Scheme which will enable Cannasouth to implement its business plans," it says.

- With Business Desk