On December 18th, STENOCARE announced that the company has resolved a rights issue of up to DKK 20.2m at a subscription price of DKK 0.5. The capital increase is conditional upon a minimum of a total subscription rate of approximately 45 percent, providing the Company with approximately DKK 9.1m before deduction of transaction related costs. STENOCARE has received legally binding written pre-subscription commitments and compensation free guarantees from management and existing shareholders of DKK 1.5m, corresponding to approximately 7.4% of the total Rights Issue.
The rights issue will offer existing shareholders two subscription rights for each share held, with each right enabling the purchase of one new share at a price of DKK 0.5. The subscription period runs from January 7 to January 20, 2025, and the offering is contingent upon a minimum subscription of 18,191,248 shares, equivalent to approximately 45% of the issue, which would provide STENOCARE with approximately DKK 9.1m in gross proceeds before deduction of transaction-related costs estimated at DKK 0.9m. If fully subscribed, the company will raise DKK 20.2m before transaction costs, which are estimated at DKK 1.7m, leaving net proceeds of DKK 18.5m.
The proceeds will be used to fund commercial activities, including the launch of STENOCARE’s innovative ASTRUM 10-10 medical cannabis product in key markets like Australia, Germany, and Norway. The company’s new strategy, STENOCARE 3.0, focuses on becoming a trading entity, ceasing its in-house cultivation to reduce costs significantly. This pivot is expected to save approximately DKK 14m in lease obligations and DKK 4m annually in operating costs. Additionally, the proceeds will be used to service the convertible loan of DKK 2.8m with interests and installments.
Analyst Group’s view of the Rights Issue
Analyst Group has previously highlighted STENOCARE’s strained financial position in earlier updates, where a share issue was regarded as the most likely scenario. The company has also communicated that it has been exploring various financing options, making the announced rights issue no significant surprise. However, the weak stock performance during the last months, which is likely affected by the uncertainty regarding the financial position, and the current financial market environment for capital raises is resulting in a substantial stock dilution of 67% given full subscription for shareholders who chooses not to subscribe, which is not a positive aspect for the shareholders in the short term. Going forward, the proceeds are necessary for STENOCARE to execute on planned commercial activities with the launch of the Astrum oil in several markets seen as the most important growth driver. Given that the net proceeds are expected to be used for commercial activities, except the repayment of debt of DKK 2.8m, the capital raise is expected to strengthen the revenue outlook for the company.
As the STENOCARE 3.0 strategy focuses on becoming a trading company and exit from cultivation activities, we expect a significantly decreased cost base going forward, which is why more focus and capital are expected to be directed toward increasing sales of the products that STENOCARE currently has on the market, comprising 13 products across six countries. The medical cannabis market has proven challenging to penetrate, partly due to high competition and partly due to widespread skepticism toward cannabis among prescribing doctors. STENOCARE is therefore expected to place greater focus on educating doctors about the benefits of medical cannabis treatment, thereby driving growth.
Furthermore, STENOCARE addresses the challenges of high competition and the stigma among doctors regarding medical cannabis with its Astrum oil product. This innovative and patented product is expected to improve the uptake in the blood and deliver a uniform uptake in the blood across individuals and regardless of food consumption, unlike other medical cannabis products. Historically, doctors have encountered challenges when prescribing medical cannabis to patients due to the body’s metabolism, which significantly reduces the uptake of cannabinoids. Astrum oil thereby facilitates decision-making for doctors and differentiates STENOCARE from its competitors, making the product a key growth driver for the company.
In summary, the announced rights issue was anticipated; however, given the weak share price and challenging market conditions for capital raising, it results in a dilution effect of 67% for shareholders who choose not to participate, assuming full subscription. With a subscription price of DKK 0.5 per share, this corresponds to a pre-money valuation of DKK 10.1m. Considering the opportunities associated with an increased commercialization focus on Astrum oil, which is expected to drive expansion into additional markets, Analyst Group views the announced rights issue as an attractive investment opportunity.
