The old expression “buy on rumour, sell on news” certainly seems applicable to the recent fortunes of Emerald Health Therapeutics (EMH.C).
On Wednesday, the Victoria, B.C.-based licensed cannabis producer announced it had entered into an agreement with Dundee Capital Partners for a bought deal financing of 7.4 million shares at $1.35, raising just over $10 million. The deal escalated to $12 million Thursday morning as Dundee acquired 1.5 million more shares.
Then the market opened, and the selling began.
EHT had closed Wednesday on the Venture Exchange at $1.52. At the 9:30 a.m. Eastern opening bell, the stock started the trading day at $1.41. Forty minutes later, it had plummeted to $1.28 before recovering slightly then falling again to $1.28 by close.
Why? Well, because $1.35 shares with a $2 half-warrant beats the crap out of holding the stock at $1.52 with no warrant to speak of, and watching it plummet while others profit.
For those new to how financings work, it’s not uncommon for a company to decide it could really do with a bunch of cash, so they sell a bunch of new stock to big investors and give them half a warrant (an agreement to sell more stock for a set price at some point down the road) for every share purchased.
Said investors might already hold the company’s stock, so they sell their stake to pay for the new stake, being as the new stock is cheaper and comes with goodies.
Retail investors hate this, because their holding gets beaten up while some wealthy broker and his buddies take all the easy money, and the new shares dilute the existing stock pool. And that’s what we’re seeing with Emerald this morning.
Emerald produces various strains of cannabis herbs and oils but has long been seen as a minor player in the Canadian scene. It currently operates out of an indoor facility in Victoria, with plans for a purpose-built hybrid greenhouse expansion on 32 acres in metro Vancouver. The company prides prides itself on being one of Canada’s most medically focused producers, and claims to have one of the industry’s most qualified management teams in pharmaceutical drug discovery, development and distribution. Its market cap sits at $91.96 million, and it intends to use the $12 million to expand its facility.
— Bo Ramone
(Chris Parry contributed to this report)Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.