Mrkt BUZZ DanCann Pharma: Financing secured
10 aug 2021
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Mrkt BUZZ Dancann Pharma 10 Aug 2021 EN
Financing secured
On March 31 the company had cash and cash equivalents of DKK 12.7m, down from 21.3m three months before. The company has moderate quarterly expenses, but it has a large cash outflow due to investments into its biotech farm. More investments are needed before commercial cannabis production can commence.
When the company was listed last year, the plan was to fund further expansions through warrants. A total of 2 668 000 warrants (To1) were issued at IPO. With a strike price of DKK 6.0, the company could receive DKK 16m if they are fully subscribed. However, as the subscription period is from 1 to 17 September 2021 and the share price has been just at or below DKK 4.0 during the last three months, the probability that To1 expires out of the money is relatively large. Therefore, the directed share issue and the simultaneously acquired loan on 16 July that together were valued at DKK 16.326m is strategically important. If the company had waited until the warrants expired, there is a large risk that investors would have sold off the share in expectation of a share issue.
We think that the management of DanCann has shown good judgement in its pre-emptive action. The company now has the funds necessary to accomplish the goals it set out in the IPO prospectus.
On the other hand, there is also a cost involved. The main part of the money injected comes in the shape of a loan from Modelio Equity and Gerhard Dal with a monthly interest rate of 1,5%. This corresponds to an almost 20% yearly accrual rate. Management believes that the share price is too low for a common share issue and that this non-dilutive form of financing is superior. A share issue at a lower share price would be more expensive in the form of dilution. Eventually, it is likely that the company will have to raise money through a share issue to repay this debt, but it should be possible at a higher share price if the company succeeds with its business plan.
The shares issued worth DKK 6.375m were subscribed largely part by management and long-term investors. At DKK 3.745, no discount was given. We find it positive that management believes in the company and invests in it at market price. A warrant that can be subscribed at DKK 4.8685 was included in the direct share issue.
Carlsquare published the latest research update on DanCann Pharma on June 3, 2021, with a fair value per share of DKK 7.0. Read the full report here.
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