Why this ASX cannabis stock slumped 30% this morning

ASX cannabis stock Creso Pharma Ltd (ASX: CPH) has had its share price hammered nearly 30% at the market open after returning to the ASX.

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Shares in ASX cannabis stock Creso Pharma Ltd (ASX: CPH) have plummeted 30% lower in early trade after emerging from a month-long trading halt.

Why did Creso Pharma enter a trading halt?

The ASX cannabis stock entered a trading halt on 1 November as it sought additional debt and equity capital from investors.

Creso Pharma subsequently rejected a takeover proposal from PharmaCielo Ltd announced on 7 June 2019.

The Scheme Implementation Agreement was terminated on 11 November after a new Independent Expert said the takeover was neither fair nor reasonable and not in the best interests of Creso Pharma shareholders.

Creso Pharma was required to repay the outstanding CDN$3.9 million loans advanced by PharmaCielo by 30 November 2019.

Why is the ASX cannabis stock in freefall?

The ASX cannabis stock plummeted nearly 30% lower at the market open this morning as Creso Pharma shares traded for the first time since 1 November.

Creso released an operational and strategic update to the market this morning. The ASX cannabis group has secured funding to accelerate its global operations with a narrower focus, raising $5.03 million through a $3.45 million issue of convertible securities and a $1.58 million share placement.

The pharmaceuticals company has the ability to raise a further $2.05 million from its additional First Tranche notes.

The group's $0.191 per share raising price was a steep discount on its $0.21 closing price on 1 November. Investors have sold down the company's shares in early trade to as low as $0.14 per share this morning.

Creso Pharma is looking to increase revenue from nutraceuticals and animal health products as part of its renewed strategy. The ASX cannabis group expects to generate more than $3.6 million in revenue in CY 2019 from the segment.

Cost management was highlighted as a priority as Creso Pharma looks to reduce its monthly cash burn.

The group's shares recovered briefly but are trading 26.83% down at $0.15 per share at the time of writing.

Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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