Aussie licensed producer, supplier and exporter of medicinal cannabis, Althea Group Holdings Ltd [ASX:AGH] are having a difficult day of trading thanks to a company update on the ASX.
Althea issued a trading halt on Wednesday in anticipation of the update.
The update covered Althea’s prescription growth, as well as a share sale by major shareholder Aphria Inc.
It seems the latter news has outweighed company progress, given Althea’s share price has dropped over 17% at time of writing.
Today we discuss whether Althea has the potential to bounce back from this blow.
What is Aphria’s motive? Althea share price reacts…
According to the update, Aphria has committed to a block trade that involves selling 36.697 million AGH shares, which is equivalent to 15.7% of the issued capital.
A major concern might be that Aphria have agreed to offload the shares at 40 cents apiece.
Before today’s share price plummet, AGH shares were trading at 53 cents. This means Aphria intended to sell their shares at almost a 25% discount.
Today’s drop may be a result of investors pricing in this discount to the AGH share value.
Aphria has been recently selling its shares on-market the Australian Financial Review (AFR) reports.
Further details of the block trade are outlined in the update:
‘The block trade, assisted by PAC Partners Securities [a stockbroker] will be purchased by institutional investors. Althea board members will also purchase shares as part of the transaction.
‘The sale of the shares, which are a non-essential holding of Aphria, is in line with Aphria’s commitment to enhance corporate governance practices and a renewed focus on its strategic plan.
‘Following the block trade, Aphria will continue to hold 5.35% (12.25 million shares) of the Company’s issued capital.’
Althea CEO, Josh Fegan noted that the company understand Aphria are ‘readjusting their strategic focus’ and believe they have ‘confirmed their commitment to remain a strong commercial partner of Althea’.
Aphria have been supplying medicinal cannabis to Althea. However, the recent approval for Althea to start growing its own cannabis in South-East Melbourne means this arrangement was set to change next year.
While this could be a factor in Aphria’s decision to back down, the size of the stake they are selling could cause some to speculate that they know something about AGH that retail investors do not.
Is it all bad news for Althea?
If you believe in Althea’s vision for the future, this could be considered a buying opportunity.
After all, the update did reveal that Althea are on track with their 4,000 Aussie patient goal by the end of 2019. And there are now over 2,700 patients being prescribed Althea medicinal cannabis in Oz.
These fundamentals are just a small part of Althea’s market edge in Australia. Check out this free report to see what else makes Althea one of our top three pot stocks for 2020.
It’s worth considering that capital in cannabis stocks has been drying up recently, as seen in the sustained downtrend of ETFMG Alternative Harvest ETF [MJ]:
Being discerning in this market will be key.
We pick three potential winners in this report.
For Money Morning