Why Charlotte’s Web Stock Slumped as Much as 5% Today

© Provided by The Motley Fool Why Charlotte’s Web Stock Slumped as Much as 5% Today

What happened

The stock of Charlotte’s Web Holdings (OTC: CWBHF) had a forgettable Friday. At one point, shares of the cannabidiol (CBD) products specialist dipped more than 5% into the red, following the announcement of a new capital-raising effort. They rallied before long, but still closed 0.2% lower on the day.

So what

Charlotte’s Web divulged that it is launching an at-the-market (ATM) equity issue, essentially a rolling share floatation. Under this process, the company will sell common stock worth up to 60 million Canadian dollars ($49.7 million) on the market.

Marijuana companies, frequently unprofitable and cash-hungry, use this form of raising capital from time to time.

Charlotte’s Web said it anticipates using its proceeds from the ATM “for general corporate purposes, which may include general and administrative expenses, working capital needs and other general corporate purposes‎.” 

At this point, marijuana sector investors are used to their companies floating stock to shore up their finances. That doesn’t mean they’re happy about it, though. Any substantial share issue brings up the specter of stockholder dilution; no investors like when their holdings get watered down.

Now what

On the marijuana company dilution scale, however, this ATM isn’t too bad. Just now Charlotte’s Web has a market cap of nearly $643 million. If it manages to draw down less than that $49.7 million maximum, and shows signs that it’s putting the new capital to productive use, shareholders shouldn’t feel too much dilution pain — or at least they’ll be willing to withstand it.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Charlotte’s Web Holdings. The Motley Fool recommends Charlotte’s Web. The Motley Fool has a disclosure policy.