CannaBusiness Group (OTCMKTS:CBGI) Inches Down

On February 18, CannaBusiness Group (OTCMKTS:CBGI) announced their entrance into the marijuana industry and if the press releases are to be believed, things have been moving along at breakneck speed since then. Two new subsidiaries were added to the portfolio and 17.3 acres of land were acquired . This should all mean a lot of revenue sources and an extremely bright future for the company.

At first, the market was convinced about CBGI‘s success. In fact, the ticker managed to run from a little over $0.02 per share to more than $0.40 in just a month, all the while logging some substantial volumes. On March 19, however, momentum ran out and CBGI started sliding towards the bottom. Out of the eighteen sessions that followed, only four ended in the green and the cumulative losses after less than a month of trading amount to a whopping 76%. So, what went wrong?

Nobody can say for sure, but CBGI did publish their report for the first quarter of 2014 on Sunday and we should note that it contains some disturbing facts. The balance sheet, for example, shows that two weeks ago, the company had:

• current assets: $25 thousand
• current liabilities: $162 thousand
• quarterly revenues: $30 thousand
• quarterly net income: $438

It’s clear that CBGI‘s financial situation is far from perfect. The cash reserves are limited, there’s plenty of debt, and the profit margins are not spectacular. It should be noted, however, that the company is still a newcomer into the fiercely competitive marijuana industry. If they continue working at the same speed, they should be able to present us with some more respectable results over the following quarters.

All in all, there might be a light at the end of the tunnel and the current levels could even be perceived as a great buying opportunity by the more forward-looking investors. If you are one of them, however, you should bear in mind that one factor could put a rather big spanner in the works.

It is to be found under Item 4 of the latest report. In there, you’ll see that between February 15, 2013 and March 13, 2014, CBGI converted old debt into nearly 70 million common shares. The conversion rates range from $0.0001 to $0.00285 per share and even a month ago, when the ticker was hovering comfortably above $0.10, millions of shares were being issued at well under $0.01 a piece.

Despite the horrific drop experienced over the last couple of weeks, the note holders can still decide to cash in and take some healthy profits. The report doesn’t say what portion of the current debt is convertible, but if the discounted stock issuance continues, things could get even uglier. Doing a lot of due diligence and carefully considering the risks is, as always, absolutely essential.

CBGI wasn’t the only OTC stock to experience a significant drop at the end of last week. Neutra Corp (OTCMKTS:NTRR) managed to shift more than $500 thousand worth of shares while losing around 16% of its value. Altn Fuels America (OTCMKTS:AFAI), on the other hand, jumped up by nearly 60% and registered a dollar volume of around $890 thousand.