WHILE last week’s news from the US saw many EU cannabis stocks experience a spike in stock price on Friday, these gains were almost unanimously lost within hours.
The UK Home Secretary Suella Braverman’s controversial comments suggesting cannabis should be upgraded to a Class A substance may have also helped sour sentiment this week.
However, with the FTSE 100 hitting an 18-month low ahead of US inflation data, and the S&P 500 falling to its lowest level since 2020, cannabis stocks were far from outliers in their performance.
DeepVerge
DeepVerge, a UK biotech firm which produces a range of CBD cosmetics, saw its stock plummet nearly 60% this week, wiping nearly £11m off its market cap.
The Dublin-based firm secured a mezzanine loan of £25m in March 2022 from Riverfort Global Opportunities PCC Limited and YA II PN Limited, £4m of which it initially withdrew.
Following growing market speculation, DeepVerge addressed investors on Wednesday, October 12, confirming both that it was currently in the ‘process of seeking to raise equity’, and that it may not have the money to cover the first repayment of this loan, due on Sunday, October 16.
In an RNS, DeepVerge said that given the impact of aforementioned market speculation, which had already seen its share price drop 24% since the previous week, ‘there can be no guarantees that sufficient equity can be raised’ to make the first £500k payment.
The news sent its stock plummeting a further 41% on Wednesday, dropping from just over 6p to just over 3p at the time of writing.
In a bid to calm the market, DeepVerge assured investors that the ‘institutional equity roadshow is progressing well’, adding that it had been in talks with its lenders ‘for some time’ and had come to an agreement to give it around a month of wiggle room.
According to the company, an agreement is now in place, meaning ‘there will be no event of default relating to any repayments that have been or may be missed up to 14 November 2022’.
However, this grace period came with a caveat. Its lenders have stipulated that DeepVerge must repay the total amount it has drawn down, £4m, alongside interest, which must be paid ‘in full immediately following the proposed fund raise’.
In the company’s most recent financial update, published on September 22, DeepVerge reported revenues for the six months to June 30, 2021 of £6.4m, up 94% year-on-year, while losses fell slightly from £2.4m to £2.2m, equating to a loss per ordinary share of 1p.
As of June 30, 2022, the company also reported cash and cash equivalents of £1.2m, down significantly year-on-year from £7.5m.
Chill Brands
Chill Brands is one of the few companies tracked by BusinessCann that has managed to maintain the gains it made following President Joe Biden’s cannabis announcement last week.
The international CBD retailer’s stock jumped 20% from 2.35p to 2.8p between Wednesday, 5 and Friday, October 7, and at the time of writing, sits even higher at 2.86p.
Its stock price was buoyed by an announcement on Wednesday, October 13 that it had launched a new ‘sales pilot programme’, which will see its products sold in 20 cannabis dispensaries across the US.
Launched in conjunction with Colorado-based sales and retail logistics companies Bellator and Dyspense, Chill said it intends to roll the pilot out to more locations throughout Q4 this year, and will expand to even more locations once the trial is complete.
This news will have provided some respite for investors, finally providing some concrete progress on its troubled US roll-out and giving it exposure to the newly re-energised market.
It comes just weeks after Chill released a disappointing set of full-year results, in which it revealed that the £1m in revenues it reported during its interim results had actually declined in its full year to just £624,187.
This was due to a ‘related party agreement promissory note’ with Ox Distributing, which was based on product requirements for projected store counts, falling through.
Following ongoing ‘supply chain and logistics issues’ holding up shipments to stores across the US, Chill ‘determined that it was not financially equipped’ to fulfil these commitments, and thus the value of the note has been reduced.
Akanda
Last week BusinessCann reported that Akanda had become the second cannabis company in six months to face delisting from the NASDAQ.
In contrast to many of its NASDAQ-listed peers, Akanda’s stock price has halved since last week’s announcement, dropping from $0.41 on Thursday, October 6 to $0.22 at the time of writing, making its uphill battle to bring its share price back over $1 that much steeper.
It came as Halo Collective, which owns a 40% stake in Akanda, said it was set to delay its share consolidation plans.
In late September, Halo revealed plans for a share consolidation, a move often used by companies to artificially boost their share price.
In the year to date, Halo has seen its share price plummet from $20 to just $0.2 at the time of writing.
The consolidation would see one post-consolidation common share equate to five pre-consolidation common shares, in theory making each of the remaining post-consolidation shares five times as valuable.
However, yesterday Halo said it ‘intends to delay the implementation of the share consolidation’ indefinitely, providing little explanation for investors.
“The company will continue to evaluate a potential share consolidation and will provide a further update in the event that the company elects to proceed with a share consolidation,” it said.
