Cronos Group has 133 million shares outstanding and roughly 52 million of options and warrants, almost all of which are deep in the money and exercisable in the short term
SmallCapPower | June 22, 2017: We are back with our second edition of Warrants Watch, a series of articles where we inform investors about companies with high amounts of outstanding deep-in-the money options and warrants. Not only do options/warrants dilute the existing shareholders’ ownership stakes in the company, they also create selling pressure on the stock. With that said, we found another company that fits this series of articles very well – Cronos Group Inc. (TSXV: MJN) (“Cronos”).
Related: Aurora Cannabis Inc. Stock Could Face Selling Pressure Due to Dilution
Cronos Group is currently trading at $1.72 per share as at market close June 20, 2017. Having 133 million shares outstanding, and roughly 52 million of options and warrants (almost all of which are deep in the money, and exercisable in the short term), we believe Cronos Group may face serious selling pressing in the near future.
Just have a look at the Company’s outstanding options & warrants as at March 31, 2017:
The average exercise price of warrants is a silly $0.23/share, while options are exercisable at an average $1.10/share. Like we stated in the first sentence, Cronos Group is currently trading at $1.72. That’s huge unlocked profits for the holders of those options/warrants. In fact, if all of the options/warrants were to be exercised, the outstanding share count would rise by over 35%!
The severity of these options/warrants on existing shareholders will surely affect the current stock price because when investors exercise the options/warrants, they usually tend to sell them right away due to the deep discount to the current stock price. The exercise of the warrants will also dilute current investors’ ownership stake in Cronos Group, so if you are bullish about the Company, remember that your slice of the pie is going to be greatly reduced upon the exercise of these warrants.
Cronos Group is currently trading at 57x forward EBITDA, which is at the high end of comparable marijuana companies, which trade at 42x forward EBITDA. Overall, the stock looks expensive, and then there is also the kicker from the potential negative selling pressure by option/warrant holders. Cautious investing to all!
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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