Greenlane Holdings, Inc.’s (NASDAQ: GNLN) highly dilutive offering caused its shares and the cannabis stock group to tumble on Tuesday. The seller of cannabis accessories, child-resistant packaging, and specialty vaporization products announced a sale of $25 million worth of shares priced at $1.19.
The transaction will close on February 19, 2025. Greenlane said it would use the net proceeds from the offering, together with its existing cash, for the repayment of existing indebtedness, general corporate purposes and working capital.
The shares plunged 38% to close at 73 cents per share as investors began to dig into the details. The MSOS ETF also fell by 6.6% on the news.
The offering consists of one share of common stock or one pre-funded warrant, one Series A PIPE warrant to purchase one share of common stock at an exercise price of $1.4875 and one Series B PIPE warrant to purchase one share of common stock per warrant at an exercise price of $2.975.
Apparently, the details of the Series B warrants allow for “cashless exercise.” This type of exercise allows an investor to exercise their warrant without paying the full cash price. Instead, the investor receives a reduced number of shares. According to the American Bar Association, these deals are considered sweeteners to entice buyers.
If Greenlane needed to do this, it signaled to investors that buyers weren’t interested unless they got the extra incentive. If these investors exercise their warrants, there would need to be retail buyers to step in and keep the stock from selling off and that seems unlikely.
Anthony Varrel of The Dales Report said on the social media platform X,
This is one of the more head scratching financings I have seen in quite some time. Company is bonafide dumpster fire.
Just last month Greenlane managed to regain compliance with the NASDAQ exchange. The company named three independent directors to its audit committee. Greenlane last reported earnings in November with total revenue falling to just $4.0 million compared to $11.8 million in the prior year period. The operating loss improved by approximately $6.3 million to $538,000 compared to an operating loss of approximately $6.9 million in the prior year period.
The company reported its earnings as a going concern. As of September 30, 2024, it had approximately $2.3 million of cash, of which none was restricted and $0.1 million was held in foreign bank accounts, and approximately $2.5 million of negative working capital. The company said at the time that it may have “insufficient cash to fund planned operations into the fourth quarter of 2024.”
[[{“value”:”Greenlane’s use of a sweetener to do the deal signaled weak investor interest.
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