Eve & Co Inc (TSXV: EVE) has seen intense selling pressure over the last couple of months. From a one year high of $0.61 experienced in March, the equity has seen a steady decline save for a quick five day green spell in August after announcing the completion of its 780,000 square foot facility in Southwestern Ontario.
While many investors were scrambling for an answer as to why the equity has continued to fall, it appears the reasoning for the endless sell off may have been filed with regulators last night. As it turns out, MMCAP International Inc is a large investor in the firm – at one point owning upwards of 27% of Eve and Co.
For those unaware, MMCAP is a notorious firm in the industry for providing financing to issuers, often at the expense of share price. Essentially, its a hedge fund that is in the game to make money for its investors, typically at the expense of retail investors. The Financial Post did a story on them and a few similar firms last year highlighting their tactics within the public cannabis sector.
MMCAP’s initial investment in Eve and Co took place in pre-public rounds, when they purchased a number of 10% convertible debentures in the security as well as shares. When Eve and Co went public, MMCAP held $10 million in convertible debentures, which convert to 33.3 million shares, as well as 33.3 million purchase warrants at a conversion of $0.35, and 10 million common shares.
The firm also invested in the recent special warrant offering back in May, to the tune of $9.0 million for 18,000,000 special warrants. Each special warrant comes with one unit, comprising of one share, and one common share purchase warrant with an exercise price of $0.60. Special warrants can be converted to units on September 11, 2019. The associated share purchase warrants are anticipated to trade under the symbol “EVE.WT” beginning September 12, 2019.
To get a sense of how much selling pressure MMCAP has placed on Eve and Co, here’s a timeline of the data contained within each alternative monthly report filed by the firm. Each report is for the month prior.
|Report Date||Position Change|
|October 2018||• Converted $3m debentures for 10m shares|
• Sold 20m shares open market
|November 2018||• Converted $3m debentures for 10m shares|
• Sold 9.71m shares open market
|April 2019||• Converted $4m debentures for 13.33m shares|
• Sold 10.95m shares open market
|May 2019||• Exercised 16.67m warrants for shares at $0.35|
• Sold 5.98m shares open market
|June 2019||• Acquired 18m special warrants|
• Sold 2.33m shares open market
|September 2019||• Sold 8.93m shares open market|
In total, since Eve and Co went public MMCAP has sold approximately 57.9 million shares on the open market, which has largely been soaked up by retail investors – a tough figure for a firm that has seen its average volume drop from 1.1 million shares per day to 522k as of late. The result is an impressive return for the funds investors, however this is largely at the expense of retail. The other side of the coin, is that the investment by MMCAP as well as the exercise of warrants is what has enabled Eve and Co to progress on its business strategy to this point in time.
Eve and Co’s special warrants unlock today, allowing holders to convert their special warrants to units. It should be noted that warrants will be listing on the TSX Venture under symbol “EVE.WT”, allowing investors to dispose of their warrants without converting.
With units originally purchased at a price of $0.50 each that comprised of one common share and one common share purchase warrant, the ability to sell the warrant for a small premium effectively lowers the cost basis of the share as well in terms of break even which investors should note. For instance if a warrant is able to be sold at a price of $0.10 on the open market, it effectively lowers the cost basis of the common share to that of $0.40, as combined the total unit was purchased at a price of $0.50. Thus if warrants are priced high on the market, investors that purchased special warrants will see the cost basis for their shares effectively drop.
Eve and Co is currently trading at a price of $0.305 on the TSX Venture Exchange.
Information for this briefing was found via Sedar and Eve & Co Incorporated. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.