Creso Pharma (ASX:CPH) share price spikes on bonus options issue

An interesting move from the cannabis player’s arsenal today.

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The Creso Pharma Ltd (ASX: CPH) share price is gaining ground in early trading, currently up around 9% at 12 cents apiece.

Creso Pharma shares are on the move as the company released a prospectus today, amid an acquisition that was completed yesterday.

Here are the details out of the medicinal cannabis company’s corner today.

What was announced?

Creso released a ‘bonus issue prospectus’ relating to the issue of ‘bonus options’ to its shareholders which, it suggests, “should be considered as highly speculative”.

Specifically, the document proposes “a bonus issue of one [bonus] option for every three shares held by those eligible [Creso] shareholders registered at the record date”.

Creso will not receive or raise any funds for the offer, which begs the question – why offer the options in the first place?

The company gives a lengthy explanation of this. It states one purpose is to “reward shareholders for supporting the company”. If only more companies did the same.

However, it appears there is a more pertinent reasoning behind the bonus option issuance.

The options can, in fact, act as a potential source of funding for the company if they are exercised. Under the stipulations, Creso will receive 25 cents for each bonus option exercised, with a total of almost 642 million options on issue.

So, while no funds will be raised directly through the issue of the bonus options, if they are all exercised, the company will receive approximately $99.9 million.

That’s a substantial jump from the company’s cash balance of around $16 million recorded in its half-yearly report in August.

One other benefit of the options strategy is it removes any “trading restrictions attaching to shares issued on exercise of the bonus options issued”.

This effectively enables the option holders to trade the securities on any ASX market that allows options trading.

Building from half-yearly headwinds

As a result of its half-year financial performance to 30 June 2021, Creso incurred a substantial net loss and loss on cash flow from operations.

At the time, Creso disclosed there was a material uncertainty related to “events or conditions that may cast significant doubt upon the group’s ability to continue as a going concern”.

Hence, the company has pulled many strings these past few months to ensure it remains afloat and continues trading.

Measures to preserve cash and liquidity have now started to come through. As such, the board “continues to consider that the company will be able to continue” as a going concern.

It appears the company’s move today serves as prudent capital management and gives the company a liquidity buffer if earnings and/or cash levels take a dent.

The announcement also follows an acquisition announcement yesterday where the company is seeking to strengthen its existing business and diversify operations.

Creso purchased Canadian life sciences company ImpACTIVE which has expertise in CBD-based medicinal products.

It acquired the company on a scrip purchase of $217,000 in Creso shares, valued at 11 cents per share.

The deal widens Creso’s footprint in North America and also increases its CBD exposure in those markets.

Creso Pharma share price snapshot

The Creso Pharma share price has struggled this year to date, having posted a loss of 33.3% since January 1.

Despite this, it has still soared by more than 328% in the last 12 months. This return has outpaced the S&P/ASX 200 Index (ASX: XJO)’s climb of around 21% in that time.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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