This morning Crop Infrastructure Corp (CSE: CROP) announced a plan to attempt to blow out paper currently held on the company. Through a just announced early exercise program, the firm is doing what it can to entice shareholders to convert their warrants into company stock as a means of providing additional cash to company coffers.
While the news release is heavily focused on earlier issued common share purchase warrants, which stretch as far back as May 1, 2018, there are provisions at the bottom of the release that also address common share purchase warrants issued in relation to the recent slew of convertible debentures. In total, 31,811,536 warrants in relation to private placements are eligible, in addition to 17,500,000 warrants recently issued with convertible debentures known as the “financing warrants”.
The early exercise period will extend from August 21, 2019, to September 6, 2019. During such time, warrant holders are eligible to exercise their warrants at reduced pricing. Warrants issued between May 1, 2018, and February 5, 2019, who’s price points ranged from $0.50 to $0.75, are now eligible to be exercised at a price of $0.13 during the early exercise period. Those who exercise will receive an “incentive warrant”, which will allow the holder to purchase a common share of Crop Corp at a price of $0.35 per share for a period of two years from date of issuance.
Those who have floated the company via purchasing convertible debentures from February 7, 2019 to June 11, 2019, are in a worse position. They’ll be eligible to exercise their warrants at a reduced price of $0.35.
If holders elect to not exercise their warrants, then the original expiration date and exercise price will apply. However, in the case of the private placement warrants, if the price of Crop Corp exceeds $0.1625 per share during the early exercise period, then the warrants will expire thirty days from the end of the early exercise period, which will commence 7 days after the end of the early exercise period. Which is a really wordy way for the firm to state that the currently outstanding warrants will have their term decrease to 37 days following the end of the early exercise period if the price exceeds a certain threshold. Similar terms apply to the “financing warrants”, however these have a price threshold of $0.4375.
So, why has Crop Corp commenced such a program? The short of it is that a public company typically only does something like this when they are short on, and desperate for, cash. If the firm was solely focused on blowing out its cheap paper, then they would not be offering an incentive warrant for each eligible warrant exercised. Rather, they need funds to continue their operations and are at the end of the line in regards to finding sources of funding. They’ve already sold off assets in the past year, including international operations as well as certain Nevada assets that they talked up as being outstanding, and now they’ve got no other avenue to go down to generate funding for their projects. Desperately, they’ve turned to previous investors as a means of pleading for funding.
If all the eligible warrants were to be exercised, it would bring in $4.13 million for the company to keep its operations going. The financing warrants would bring in an additional $6.12 million, but with an exercise price that is more than double that of the eligible warrants, its highly unlikely that any get exercised. It will be a feat of great proportions for the firm to get the price per share above $0.35 if over 31 million shares are issued at a price of $0.13, thus there is little incentive for these warrant holders to exercise.
Not only will the conversion of these warrants cause pain for current shareholders who bought on the open markets (the price of Crop Corp hasn’t ever hit $0.13 prior to today), but the potential of 31 million additional warrants being issued at $0.35 will potentially cause further issue.
Crop Infrastructure Corp is currently trading at a price of $0.12, down $0.03 per share.
Information for this briefing was found via Sedar and Crop Infrastructure Corp. 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.