What happened

Shares of Dragonfly Energy Holdings (DFLI 3.77%) are plunging today, down more than 25% as of 10:45 a.m. ET. The sharp move lower came after the battery supplier unveiled in an SEC filing that certain security holders intended to sell shares and stock warrants they held. 

So what

Dragonfly Energy Holdings filed a prospectus on behalf of certain security holders to sell up to 38.6 million shares of its common stock, 16.7 million warrants to purchase common stock, and 16.7 million shares issued upon the exercise of stock warrants. 

These shares and warrants were issued to investors in the company as part of its business combination with a special purpose acquisition company (SPAC), Chardan NexTech Acquisition 2 Corp, which closed in October. The transaction provided the company with $250 million of capital, including a private strategic investment by Thor Industries. That transaction gave Dragonfly Energy the capital to accelerate its business and commercialize its all-solid-state battery technology. 

Some legacy investors in Chardan NexTech would like to cash in on their investment by selling a portion of the shares and warrants they received in the deal. They received a significant number of shares related to the business combination. Those shares exceed the number owned by the public that currently trade on the open market. As a result, the company noted in the SEC filing that "the resale of shares of our common stock pursuant to this prospectus could have a significant negative impact on the trading price of our common stock." 

Now what

SPACs like Chardon NexTech raised money from investors to bring companies public and accelerate their growth. These venture capital-like investors usually monetize some of their investments shortly after closing the deal, which is the case with Dragonfly. Those sales can weigh on the stock as ownership transfers from SPAC investors to other public market investors. Given the amount of shares Dragonfly investors hope to sell, this stock will likely remain under pressure until they finish selling.