The Good, the Bad, and the Ugly (December 2024)
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Happy New Year Everyone!
Welcome to your monthly recap of the Canadian microcap market. Let's review December to close out what has been a fantastic year!
The concept is simple for those who recently signed up for this newsletter. I feature the news that caught my attention during the previous month after skimming through all the press releases on the Canadian market. Every press release, every single day!
Let's now look at some of the main highlights from last month:
The Good
The flurry of M&A is not over yet! Three more Canadian microcaps announced they would be acquired in December: Ackroo (TSX-V: AKR) for a 25% premium by a strategic, Banxa Holdings (TSX-V: BNXA) for a 33% premium by management, and Payfare (TSX: PAY) for a 90% premium by a strategic. In a rare turn of events, STEP Energy Services (TSX: STEP), which had announced its acquisition in November, terminated the deal when it became clear that minority shareholders would not approve the transaction. Enough with the lowball offers!
In no particular order, a few companies published solid financial results during the month. Progressive Planet Solutions (TSX-V: PLAN) came out with a record quarterly net income following a significant improvement in gross margins. Microbix Biosystems (TSX: MBX) capped off a solid year with revenue growth of 54%, improved gross margins, and a return to steady profitability. Lastly, I was surprised by the turnaround at DAVIDsTEA (TSX-V: DTEA). Following a few years of revenue declines, the Montreal-based tea merchant came out with 16% revenue growth in Q3, alongside significantly improved gross margins and positive adjusted EBITDA. The stock price more than doubled in the days following those results.
Speculation is back on. The trading and financing data on the TSX Venture has been improving significantly over the last few months. The lists of daily 52-week highs are increasingly populated with speculative and pre-revenue companies. You can also see it in the companies raising large financings, such as Light AI (CSE: MOJO), Healwell AI (TSX: AIDX), and BTQ Technologies (CBOE: BTQ). Heck, even Vireo Growth (CSE: VREO), a CANNABIS company, pulled off an oversubscribed US $81 million equity offering! (I'm not picking on Vireo at all. The cannabis space has been extremely depressed, which makes it all the more impressive!)
The Bad
Despite the resurgence in appetite for speculative opportunities, a few companies were still forced to declare bankruptcy or announce restructuring procedures. Pluribus Technologies (TSX-V: PLRB) obtained creditor protection to pursue a restructuring and sales process, Plantify Foods (TSX-V: PTFY) announced insolvency proceedings for its primary operating subsidiary, Lion Electric Company (TSX: LEV) filed for creditor protection, Clear Blue Technologies International (TSX-V: CBLU) announced a proposed financial restructuring, and Entourage Health (TSX-V: ENTG), formerly WeedMD, announced a privatization transaction for $0.005 per share, crystalizing a 99.8% share price decline since its peak in 2018.
Crypto adoption continues at a breakneck pace in Canadian microcaps. What's real, and what's hype? I guess we'll see in a few years. The BC Bud Corporation (CSE: BCBC), a cannabis company, diversified its treasury with a $250k Ripple (XRP) purchase. Leef Brands (CSE: LEEF), another cannabis company, is raising a US $5 million convertible debenture financing to buy Bitcoin. Hello Pal International (CSE: HP) is pausing its core live-streaming operations to focus on crypto mining and trading. Biotech companies Moss Genomics (CSE: MOSS) and Quantum BioPharma (CSE: QNTM) added cryptocurrencies to their balance sheet. Lastly, Matador Technologies (TSX-V: MATA), a digital gold buying platform, is investing $4.5 million in Bitcoin to protect itself against currency debasement. A gold buying platform using Bitcoin as a store of value… that's interesting.
The Ugly
A Google blog post on December 9th about a new Quantum computing chip unleashed a massive wave of speculation in quantum-related stocks. A handful of Canadian microcaps experienced a surge in trading volume and monumental price increases, such as BTQ Technologies (CBOE: BTQ), Quantum Emotion (TSX-V: QNC) and 01 Communique Laboratory (TSX-V: ONE). Those three stocks increased between 700% and 1,400% in less than a month. Is this legit? I don't know. But it sure as hell looks like excessive speculation to me. A few other companies tried to jump on the quantum bandwagon after the fact, like Scope Technologies (CSE: SCPE), Edge Total Intelligence (TSX-V: CTRL), and Alset AI Ventures (TSX-V: GPUS).
Do you remember Genifi (TSX-V: GNFI), which I highlighted earlier in the year as the CEO was trying to lowball shareholders to take the business private for the value of the cash on the balance sheet? Well, shareholders obviously rejected that deal back then. Unfortunately, that wasn't the end of the story. In December, the company sold its remaining customer relationships for $20,000, effectively shutting down operations. Then, the board terminated the CEO and CFO's employment agreements with the company, triggering a severance payment of two years of salary for the CEO and six months for the CFO. This tiny $1.4 million market cap company actually paid its CEO $400,000 annually, so he'll receive an $800,000 severance payment (plus $112,500 for the CFO). Oh, and the company will retain them as contractors for half their salaries, so the CEO will still collect $200,000 per year to manage a company with no operations. I'm shocked that independent board members approved this, and it kind of makes me sad for minority shareholders.
That's it, folks. 2024 is in the books! I hope you enjoyed the monthly recaps throughout the year! They'll keep coming your way in 2025.
Did I miss anything? Let me know in the comments which news or earnings reports caught your attention!
Disclaimer
This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund holds positions in Ackroo (TSX-V: AKR) and Microbix Biosystems (TSX: MBX). Always do your own research and consult a professional before making investment decisions.
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