At first glance, I didn’t know what to make of Aion Therapeutics (AION.C). There are a few moving parts, it’s a psychedelics/cannabis hybrid deal with a focus on AI. They’re testing out a few things with breast cancer and psychedelics, but nothing past the pre-clinical phase.
Their debt numbers are kind of scary and they’ve had some pretty underwhelming capital raises, but their chairman Stephen D. Barnhill, M.D. has been studying AI and neural networks since the 80’s so that’s pretty interesting, I wanted to give them a shot. Through reading the company’s financials it’s clear that the old CEO didn’t leave on the best terms, and that there have been some less than desirable run-ins from creditors, but maybe those folks are out of the company and they are looking to turn over a new leaf.
Then I saw this on their website:
Patients from Jamaica and around the world are welcome to our health and wellness resort in Negril Jamaica.
To make an appointment with one of our team physicians for treatment or for more information fill out form below.
Something about it just looked off. Just a gut feeling. So I headed over to the company’s MD&A where it’s a lot harder to lie.
Not a single mention of this world-class resort, and with a market cap of just $8 million CAD, you would think owning a resort would come up at least once.
From a September 20th, 2020 press release from Aion it states,
AI Pharma has leased space at Doc’s Place International, an award winning (recently ranked #1 in the world by Edibles Magazine) health and wellness resort in Negril, Jamaica for medical cannabis patients that will now also be utilized for AI Pharma’s patients as a treatment centre for psilocybin and combined psilocybin/cannabis based therapies.
What does it even mean to lease something at a resort? There were a few ads on Airbnb for the resort like Cabana #4.I hope that’s not what they’re talking about, but I kind of get the feeling it is, or something similar.
Or worse? Maybe a janitor’s closet?
We may never know.
Now let’s talk about debt.
Earlier this week I wrote about the current ratio and debt to equity ratio and how they can be used to analyze the short and long-term financial health of a company in terms of its relationship to debt.
Now for debt/equity. And while I get psychedelics companies aren’t trying to get old-school conservative value investors like Warren Buffett, even Investopedia says you don’t want to go over 2.0, no matter what sector. Aion’s is 13.51. This isn’t great when looking at the long term financial health of a company.
The current ratio measures the likelihood of a company to be able to pay of its debts over the coming 12 months. The higher the ratio, the more chance a company has to pay off its debts. It does this by comparing all of a company’s current assets to its current liabilities. These can be thought of as assets that will be turned into cash in a year or less, and liabilities that will be paid in a year or less. If the cash going in and out was exactly even the current ratio would be 1.
For some context, I’ll pick some names at random from the psychedelics sector – MindMed (MNMD.Q) has a current ratio of 14.8, Cybin (CYBN.N) 9.93, Havn Life (HAVN.C) 47.25, Seelos (SEEL.Q) 11.88, Mindcure (MCUR.C) 18.45, Atai (ATAI.Q) 6.88, Compass Pathways (CMPS.Q) 42.82, Revive 31.96 (RVV.C). All of these companies look to be in positions to pay back their debt over the next 12 months.
Aion has a current ratio of 1.02, which means they will just be able to pay their short-term debts if nothing goes wrong – which hasn’t always been the case for Aion.
On September 23, 2019, Aion and a creditor entered into a settlement, whereby, the Aion issued 1,500,000 shares to the Creditor fair valued at $105,000, paid cash of $125,000 CAD, and executed a promissory note in the principal amount of $125,000 CAD.
Aion also agreed to amend the conversion price of their debentures from $0.15 per share to $0.125 per share and agreed to pay to the Debenture holder an extension fee of $20,000.
In September, 2019, the company issued 1,500,000 shares valued at $105,000 to the former CEO for loan settlement.
To say there are some red flags on this one is an understatement. I’m going to continue searching to try and find out what their situation with this resort is. The resort doesn’t mention them in any of their marketing materials, and the resort isn’t mentioned in any document where the company is forced to be truthful.