On January 22nd, STENOCARE announced the outcome of the conditional rights issue, which was subscribed to approximately 37.7%. Moreover, guaranteed commitments from Exelity AB amounting to 7.3% will be activated to achieve a subscription rate of 45%, which will provide STENOCARE with DKK 9.1m in gross proceeds in order to execute on the STENOCARE 3.0 strategy.
Analyst Group’s View of the Outcome
The rights issue will provide STENOCARE with DKK 9.1m in gross proceeds and with estimated transaction-related costs amounting to DKK 0.9m and guarantor compensation of DKK 0.3m, the estimated net proceeds amount to DKK 7.9m. With the new STENOCARE 3.0 strategy the company is transforming into a trading company, focusing on distribution of prescription-based medical cannabis and hence exiting production activities, the proceeds are expected to be used for commercial activities linked to the company’s existing product portfolio, which consists of 13 approved products in six countries. STENOCARE has already established key assets (regulatory, supply chain, commercial, partnerships), that will be the foundation for the new strategy. 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.
We see the company’s premium product Astrum oil as an important growth driver in the coming year, as it distinguishes STENOCARE from competitors as a first mover in the next generation of medical cannabis, providing improved, uniform and faster uptake in the blood. During 2024, STENOCARE announced that the Astrum oil has been approved for sales in three countries, Australia, Germany and Norway, which we see as the most important growth driver, particularly as Australia and Germany are two of the largest medical cannabis markets globally. Furthermore, STENOCARE is expected to receive approvals in additional markets going forward, since the company has a strong track record of market approvals.
In addition to the commercial activities, part of the net proceeds is expected to be used for servicing the convertible loan of DKK 2.8m with interests and installments. Going forward, as STENOCARE has decided to exit its production activities, substantial cost savings are expected going forward, equivalent to DKK 4m annually in 2025 for personnel and other expenses, as well as long-term lease and equipment lease amounting to DKK 14m over the next six years. This is expected to reduce the company’s burn rate going forward and contribute to a shorter path toward achieving positive cash flow.
Considering challenging market conditions, where many smaller companies face difficulties in raising capital under favorable terms, Analyst Group considers the outcome of the rights issue reasonable.
Subscription Rate and Dilution
The rights issue was subscribed to approximately 37.7%, including the pre-subscription commitments and compensation free guarantees of 7.4%. As a result, guarantor commitments of 7.3% will be activated to achieve a subscription rate of 45%, corresponding to 18,191,248 new shares and STENOCARE will receive DKK 9.1m in gross proceeds. Transaction related costs are estimated at DKK 0.9m plus guarantor compensation of DKK 0.3m, which results in estimated net proceeds of DKK 7.9m.
As mentioned, the total number of shares will increase by 18,191,248 new shares, from 20,212,497 shares to 38,403,745 shares, why the dilution effect for shareholders who did not participate in the rights issue amounts to approximately 47.4%.
In summary, we view the outcome of the rights issue as reasonable, given the current market climate. We expect STENOCARE to utilize the net proceeds, in addition to repaying the loan, to scale up sales, including education on the benefits of the new innovative Astrum oil. After several sales-challenging years for STENOCARE, partly due to a more sluggish market than expected, it is critical for the company to prove the company’s ability to increase sales in different markets. We see the new wholehearted focus on becoming a distributor, and the benefits of Astrum oil, as important factors for achieving this success.
