Hellenic Dynamics (LON: HELD) shares are down 15% today. HELD shares are down on the announcement that Hellenic has been able to borrow money. Unsecured, mezzanine money even. Which is normally a good sign. If someone’s willing to lend unsecured into a business then that’s an affirmation, at least in part, of the business plan. Someone believe it at least. But this does rather depend upon the price being paid for that money.
The announcement: “Hellenic Dynamics Plc (LSE: HELD), a medical cannabis cultivator with a dedicated focus on producing tetrahydrocannabinol ("THC") dominant strains of medical cannabis flowers for the burgeoning European medical cannabis markets, announces it has signed a US$3 million unsecured Mezzanine Loan facility (the "Facility") with RiverFort Global Opportunities PCC Ltd (the "Lender"), an international financial institution. The Facility will provide the Company with a structured medium-term debt facility that offers draw down and repayment flexibility as it enters its cultivation and sales stage of development.”
That should be good news.
Hellenic Dynamics share price from Google Finance
Clearly, from the share price reaction it isn’t good news. So why isn’t it? “The annual interest rate payable by the Company is 15% per annum payable on any outstanding amounts, quarterly in arrears” Ah, yes, we know interest rates are up that that’s near distress levels of interest. Plus there’s another price here: “4,249,291 Warrants granted to the lender exercisable at 9.884p for 36 months, being a 40% premium to the 5-day preceding VWAP” OK, that’s only a minor dilution but it does make it expensive money that’s being borrowed. It’s much more like - note “more like” - a convertible loan which should carry a low, not high, interest rate.
There’s also going to be a consolidation and share split - the reason to do that is so that more shares can be issued in the future. For currently the share price is below the par value, therefore no new equity can be issued. So they’ve just told us that there will be more equity to be issued in the future.
We’ve talked of Hellenic Dynamics before. “But then we're unconvinced about the cannabis market as a whole. Sure, people like it, will pay for it. It's now legal - some places medical, some leisure markets - and so on. It's just that we don't see growing what is, quite literally, a weed in many parts of the world as becoming a wildly profitable occupation.” We’re simply bearish on the entire sector.