Flowr Corp (CAN:FLWR / US:FLWPF) shares are flying today.
They rocketed up 20% within minutes of the start of the trading day.
But the reason why might surprise a lot of investors.
It wasn’t exactly good news that sent shares soaring.
It’s that the news was just not completely awful.
And this trend – where cannabis stocks jump on not-as-bad-as-expected news – signals the downturn in cannabis stocks is coming to an end.
Here’s what I mean.
Flowr Corp is a licensed Canadian cannabis cultivator that builds and operates cultivation facilities.
It holds itself out as an innovator in cultivation technology and processes.
It’s on the bigger side of Canadian cannabis it. It has a market value of more than C$400 million.
And it recently announced it was going to raise C$125 million in capital to fund the acquisition of Holigen Holdings (which Flowr already owns 19.9% stake in). Holigen is an outdoor cultivator with potential partnerships for distribution in Germany, Poland, UK, Ireland and Australia.
The last part – the raising of an additional C$125 million in capital – is at the center of the Flowr’s recent rally.
Flowr first announced the raise near the end of June.
There was no specific price for the offering though where it would be at C$6.50 a share or something like that (it was trading for C$7.10 before the announcement).
Instead, Flowr stated:
“The offering is expected to be priced in the context of the market, with the final terms of the offering to be determined at the time of pricing.”
The key phrase is: in the context of the market.
Flowr stated today:
That’s a signal to big money investors and bankers they can sell out aggressively and easily buy back into the private placement (which is normally discounted to the market price).
That’s exactly what happened too.
Flowr shares were trading at C$7.10 a share before the offering was announced.
Flowr shares dropped 19% at the close of trading on the day the offering was announced.
Then they kept falling steadily until hitting new low yesterday.
At the bottom Flowr shares fell 44% in four weeks because of this offering announcement.
Today though, Flowr cancelled the offering.
Flowr stated today:
“The company is not proceeding with the offering due to prevailing market conditions, which were not conducive to the completion of the offering on terms that would be in the best interest of Flowr’s current shareholders. Flowr will continue to monitor market conditions as it evaluates options to drive long-term growth.”
Typically, this type of announcement is bad news.
It signals there is not enough institutional investor interest to fund the capital raise.
But in this case, despite the relatively bad news that there wasn’t enough demand at current valuation, Flowr shares rocketed higher.
Flowr shares jumped 20% within minutes of the open.
All in all, this is a good and bad news situation.
The bad news is that there wasn’t enough demand to fill the offering even after a 44% drop in price.
The good news, for those of us watching the big picture in cannabis investing world, the fact that this bad news sent shares of a stock climbing is a very positive sign.
It says that current market expectations are too low for cannabis stocks and, when the rally does come, it’s going to be big.
Published at Fri, 19 Jul 2019 18:06:02 +0000