Stock offerings can often go wrong for companies if they offer deep discounts to the market price and that is what happened with CannTrust Holdings Inc (NYSE: CTST) (TSX:TRST), a Canada based cannabis company. On Thursday, the shares of the company tumbled significantly after it emerged that its common stock offering had been instituted at a big discount. Investors did not digest this well.
CTST is currently in acute needs to raising capital as it tries to take on the far more established players in the Canadian cannabis industry and in order to do that, the stock offering was perhaps the best recourse.
The company had announced that it was making this stock offering way back on 22 April, but at the time the market did not react adversely since the pricing of the stock had not been announced. However, once CaanTrust announced that it is going to offer as many as 36,363,636 shares of common stock in the company at a discount of as much as 14.6%, the shares immediately collapsed in Thursday’s session.
The shares are being offered for $5.50 a share but on Wednesday the CaanTrust stock had closed at $6.44. Although this is going to be a period of turmoil for the company, it needs to be pointed out that the stock has gone up by 33% in 2019 alone and the share offering will net the company a hefty $170 million.
Find out when $CTST reaches critical levels. Subscribe to OracleDispatch.com Right Now by entering your Email in the box below.
The company has projected a 116% rise in revenues to $17 million for the next quarter but it should be noted that it reflects a rise of only 5% when compared to the quarter before that. The total cannabis harvest for Q1 2019 stood at 9424 kilos and that reflects almost a 100% rise from the harvest in Q4 2018.
However, the company is confident that, owing to its greenhouse capabilities, it will be able to raise its total output to 100,000 kilos a year from its current capacity of 50,000 kilos. CaanTrust is also expected to acquire 200 acres of land and that could take the company’s output past 200,000 kilos per year by 2020.
CTST is now trying to graduate from being a smaller player to a bigger player in the industry with higher capacity and more capital at its disposal. The stock may be beaten down now but it could prove to be an excellent long term investment.
Shares of CTST are down 13.10% to $5.60 on heavy volume.
Sign-up for continuing coverage on shares of $CTST stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $CTST, either long or short, and we have not been compensated for this article.