It Wasn't Raining When Noah Built His Ark

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Includes: APHQF, MQTRF, OGRMF, SPRWF, TWMJF
by: Ted Ohashi

Summary

I have been alerting readers to get ready to take some profits in the Canadian cannabis companies.

Today, TWMJF and MQTRF announced significant "bought deal" equity financings as OGRMF did last week.

These are three of the Canadian Licensed Producer leaders and MQTRF tells us why they are acting now.

The urgency to take profits just went up a couple of notches.

According to the weatherman, there are always clouds before the storm. The same is true in the financial markets and now we can see the sky darkening. Canopy Growth (OTC: TWMJF) today (August 8, 2016) announced a $25 million bought deal financing at $3.65 per share with over-allotment options that could make the funding $28.75 million. (TWMJF Financing) Mettrum (OTC: MQTRF) on the same day announced a $10 million bought deal financing at $2.65 per share with an over-allotment option that could make the funding $11.50 million. (MQTRF Financing) Last week Organigram (OTC: OGRMF) announced a $17.5 million bought deal financing at $1.30 per share with over-allotments exercised bringing the amount to $20 million and possibly as high as $23 million. (OGRMF Financing)

I will add that Aphria (OTC: APHQF) arranged a solid debt financing in late July (APHQF Financing) and this week Supreme Pharma (OTC: SPRWF) announced a $4 million "mortgage" that waddles and quacks like a "bridge" financing and possibly a "mezzanine" funding to re-finance a vendor take-back mortgage on their property. At 12% interest on a one year "mortgage," SPRWF must have had some urgency motivating them. (SPRWF Financing)

Here is what MT's management had to say in their announcement:

The Company expects that the Canadian government will announce changes to the MMPR [as I have told you is due no later than August 24, 2016]…in response to the Federal Court decision in February 2016 on the validity and constitutionality of the MMPR. While there is no certainty until such changes have been announced, it is generally anticipated by the industry that the government will likely grant a right for patients to grow a prescribed amount of medical cannabis. The potential impact of these and other changes, as well as the proposed introduction of marijuana legalization in the spring of 2017, cannot be assessed currently. [emphasis added]
- (MQTRF Financing)

This is candid as it gets. Maybe MT is telling you things are uncertain but these three companies are voting with their feet.

The equity raisers represent three of the leading Canadian Licensed Producers. If you agree with me that management of these three companies is the equivalent of cannabis "smart money," what are they doing? They are selling and they are selling before the news! (HC v. Allard) If they collectively thought their share prices would be higher after the Health Canada report, don't you think they would have waited to finance?

In my previous commentary, I said, "Sometimes, when a group of stocks makes such a massive gain there is something else at work we aren't aware of yet." Now we know. Underwriters with a lot of fees and commissions on the line are not above preparing the market for an upcoming financing. This is not illegal or improper. It just means they will talk up the market so the trading price is above the new issue price (it is) and use that to encourage investors to buy (they will).

As clear and direct as this information seems to point, I would not short these companies. They are all Canadian small cap, American micro cap stocks and there is not enough liquidity. But it certainly lends credibility to the idea that you should be looking at some profit taking in advance of the news.

Management is not right 100% of the time. They might be wrong this time but don't bet that way.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.