Will the Founders Stock Deal Save TILT Holdings Stock?

Those who hold TILT Holdings [stock_market_widget type="inline" template="generic" color="default" assets="TILT.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] [stock_market_widget type="inline" template="generic" color="default" assets="TLLTF" markup="(OTC: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] can breathe a sigh of relief. The Cambridge, Massachusetts-based cannabis services company spiked on news that the company’s founders will forfeit stock options. This not only relieves TILT of a major expense, but it also offers welcome relief to investors who have only seen TLLTF stock slide throughout the year.

Founders to Forfeit Stock Options

Under a negotiated agreement with six of its founders, they will forfeit 60,217,088 stock options granted at the time of the merger. As part of the deal, these founders will also separate from the company. In return, they will receive warrants for 9,045,690 common shares. Management priced these warrants at C$1.05 (79 cents) per share.

This deal sent shares higher in Wednesday trading by about 32.1%. The current 28.4-cent per share price of TLLTF stock is a far cry from the 52-week high of $3 per share. However, Wednesday’s rally offered welcome relief.

Here’s why.

During the second quarter, stock-based compensation cost the company $47 million. This accounted for the overwhelming majority of the company’s $48.9 million loss in that three-month period. CEO Mark Scatterday said the deal would dramatically reduce the need to dilute the stock.

TILT Remains in a Recovery Mode

TILT is not out of the woods. Stocks do not trade as low as 28.4 cents per share unless investors doubt their ability to survive.

In many respects, the company also continues to recover from the $500 million write-down in the fourth-quarter earnings report. Just five days after this report, Scatterday became the interim CEO. Since that time, he has worked to rebrand TILT, including a change in the website and a new U.S. ticker symbol, TLLTF. The agreement with the founders also removes the most significant obstacle to achieving profitability.

Despite eliminating the stock compensation expense, TILT Holdings investors should not assume TLLTF stock is out of the woods. Stocks do not trade as low as 28.4 cents per share unless investors doubt their ability to survive.

The company would have only suffered a $1.9 million loss in the second quarter if it were not for stock-based compensation. However, as of that same quarter, the company reported cash reserves of just over $4.5 million. Even if profitability comes soon, management may need to raise additional cash to keep the company in business.

Trading TLLTF Stock

TILT Holdings remains in a fight for its survival. Even if it can keep losses to $1.9 million, the $4.5 million in cash will not last long. Moreover, this is a company with a $54 million market cap which holds $36.5 million in debt. This could make raising more capital difficult, and the share price leaves little room for dilution.

Without question, the stock compensation deal has improved confidence. Also, the recent announcement that the temporary vaping ban in Massachusetts should not significantly impact the company also helps.

However, the cash or the profit situation will have to improve to take TILT Holdings stock back to $3 per share and beyond. Given the remaining challenges, investors should still treat TLLTF stock as a speculative play only.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Will Healy is a freelance business and financial writer based in the Dallas area. In addition to marijuana, energy, and mining stocks, he has also written about real estate, insurance, personal finance, and macroeconomics. In addition to Capital 10X, his articles have appeared on sites such as InvestorPlace, Yahoo! Finance, MSN Money, Kiplinger’s Personal Finance, GOBankingRates, and Seeking Alpha. Will holds a B.S. in Journalism from Texas A&M University, an M.S. in Geography from the University of North Texas, and an MBA from the University of Texas at Dallas. Phone: 416-721-8257. Address: 682 Indian Road Toronto, Ontario M6P 2C9.
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