mCig inc. (OTCBB:MCIG) Crashes On Dilution Terror – HotStocked

mcig_chart_2m.pngAfter a strong bounce back on the stock market last week, mCig inc. (OTCBB:MCIG, MCIG message board) now seems to face new challenges. Yesterday’s session proved to be the worst the company has experienced in months, at one point even reaching $0.40, as opposed to the last closing sum of $0.55. After that, though, company supporters were able to breathe a little bit easier, as the price began emerging to finish at $0.484 when the last bell rang, or 12% in the red. Dollar volumes were registered at 2.03 million, with 4.317 million shares changing hands – the latter being startingly higher than the previous days.

The plausible reason for this seems to be a kneejerk reaction on the part of investors, following an amendment to an 8-K previously filed in September 2013. Back then, MCIG revealed a cancellation of 230 million shares of the company’s common stock, owned by Mr. Paul Rosenberg, CEO of mCig, in exchage for 23 million shares of a new series dubbed Series A Preferred Stock that would be issued to Mr. Rosenberg. The stock would have the special qualities of increased voting rights to 10 votes for every share, and after one year would be convertible to common stock, again on a basis of 1 preferred share for 10 common shares.

Here’s the catch: yesterday’s announcement stated that the 8-K amendment’s sole purpose was “to correct an error found in the Certificate of Designation.” Apparently, under the correct terms “each holder of shares of Series A Preferred Stock shall have the right to convert, at any time and from time to time, all or any part of the Preferred Shares.” This comes some 5 months before the reported one-year period expires.

2mcig.jpgInvestor’s forums are now ablaze with panic of massive dilution, which would rapidly drop MCIG’s share price, and ironically, this probably lead to yesterday’s crash. To be honest, though, the fearful may have a good point. According to their OTC profile, the company has 270,135,000 shares of common stock issued and outstanding on a market cap of $130,745,340. With the full conversion of all Series A stock, that would add another 230,000,000 shares – the potential dilution speaks for itself.

Keep in mind however that to convert any of those, Mr. Rosenberg needs to submit a SEC filing – and since there isn’t one, perhaps there is room for relief. For now. Wise investors should not skip on the due dilligence unless prepared to absorb losses, as the marijuana sector continues to be surrounded by controversy, like, for example, the lawsuit involving CannaVEST Corp. (OTCMKTS:CANV) and Medical Marijuana Inc. (OTCMKTS:MJNA). This could further affect MCIG, so refraining to buy here may be the best bet.

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