Hemp Inc (OTCMKTS:HEMP) Slides Lower

Out of the last five sessions the stock of Hemp Inc (OTCMKTS:HEMP) has closed in the red four times. Yesterday the company dropped by close to 10% sitting at $0.066 at the time of the closing bell. Investors are continuing to have a hard time getting excited about HEMP.

The quarterly report filed at the end of August did not make the situation any better. According to it the company finished the quarter ended June 30 with:

• $176 thousand cash
• $907 thousand total current assets
• $2.5 million total current liabilities
• $33 thousand sales
• $1.14 million net loss

During the quarter the company’s cash reserves dwindled by $500 thousand compared to the $632 thousand HEMP had at the end of March. As a whole HEMP‘s current assets are down by nearly four times since the start of the year. At the same time almost the entire amount of the reported liabilities consists of debt owed to the CEO of the company. Historically such amounts have been reduced through the issuance of preferred K shares and this is exactly what happened – during the quarter nearly 100 million preferred K shares were issued.

If you are not familiar with HEMP it is important to realize that each preferred share cam be turned into 2.5 common shares while each preferred K share can be converted into 10 common shares. This led to a massive dilution of HEMP‘s common stock and the company found itself forced to increase its authorized shares from 3 BILLION to 5.5 BILLION. Apparently that was not enough though and without any warning at the end of July a 1-for-10 reverse split was performed. As of June 30 HEMP had a split-adjust O/S count of 320 million shares.

So, the authorized shares were increased, a reverse split freed up even more room for the issuance of shares and the company has 81 million preferred shares and 214 million preferred K shares outstanding. It is up to you to decide if the potential dilution is something you could tolerate.

The decortication facility of the company was around 70% complete at the end of August and when it is done the hype could bump the stock up the chart. But will it be enough for a more prolonged recovery? Don’t forget that the equipment will be used to process kenaf only at least until hemp gets legalized in North Carolina. 

In early trading today HEMP is hesitating currently sitting 1.5% in the green at $0.067 per share.