Shares of New Age Beverages Corp. (NASDAQ:NBEV) lost more than a third of their value on Monday, a rude awakening for the cannabis-stock-chasing speculators that bid up the distributor of natural and functional beverages a week earlier. The stock has shed more than 60% of its value since peaking on Friday morning, but it remains one of this month's biggest gainers.
Friday's sell-off was largely inspired by an analyst downgrade, as Maxim lowered its rating on the shares from buy to hold after last week's massive rally. This week's slide is the handiwork of a dilutive secondary offering. A regulatory filing finds New Age Beverages teaming up with Roth Capital for an at-the-market offering of $50 million in freshly minted stock.
Primary concerns about secondary offerings
A company resorting to selling new shares after nearly quadrupling a week earlier is never going to be a good look. Investors will at best worry about the increased float and share count that may sandbag the next rally, and at worst wonder if New Age Beverages was tapping the equity market for funding because it felt its shares were peaking.
It doesn't matter that New Age Beverages teamed up with Roth Capital and Northland just last month to raise $10.5 million with the stock at $1.28. It also sold $4 million worth of stock back in April with the shares at $1.75 through Euro Pacific Capital and Maxim Group. New Age Beverages has a history of these spot secondaries to raise capital and possibly raise interest from underwriters in the process. A much larger $50 million offering after last month's spike in share price is going to draw skepticism, even if most companies would be doing exactly what New Age Beverages is doing right now.
New Age Beverages hit all-time highs last week after announcing that it would introduce its portfolio of cannabidiol (CBD)-infused canned beverages at an upcoming convenience store conference. The news itself wasn't a surprise. New Age Beverages revealed that it was testing its CBD-based beverage in Colorado during the Liolios Gateway Conference two weeks earlier, just as Northland was initiating coverage of the stock with a bullish rating. However, last week was when the developments finally hit home with investors.
There will naturally be plenty of questions about the efficacy and in some markets the legality of CBD-based beverages. It's also worth noting that it's not just New Age Beverages trying to compete in this niche. However, with sales growth of its current product line -- which includes functional teas, coffees, and sparkling coconut water -- stalling in 2018, it's as good a shot as any for the upstart distributor to take.
We'll have a clearer view of New Age Beverages' prospects when the North American Convenience Store show rolls around early next month. Last week's rally has inflated the stock with hype, and the subsequent sell-off since Friday morning's peak is a resetting of expectations. The wild swings will continue, and that's about the only certainty for now.