Timing is everything.
Timing in line and timing in the markets.
Unfortunately for drone company Draganfly (DPRO), its uplist timing couldn't have been much worse.
I'm not one to shy away from speaking out even against my own positions when I feel it is warranted. When I saw the offering price this morning, I immediately felt it warranted speaking out; however, as I have a chance to unwrap some things, I'm adjusting to a position of disappointed and frustrated in the short-term but also accepting "it is what it is" short-term and this event doesn't change much for my long-term view.
Why should you care what I think?
You probably shouldn't. Actually don't. I misjudged the big money demand for both Draganfly and CurrencyWorks ( CWRK) . I definitely overestimated where I thought money could be raised, how it would be raised, and how it would be structured. I link the two because they have some ownership commonalities.
In terms of timing, trying to be a small cap and uplist with a cap raise (essentially an IPO of sorts), I can't think of a worse time to try and do such a thing in years. OK, so maybe March 2020 was worse, but we watched more than a half-dozen IPOs get pulled yesterday, the small cap market has lacked demand for weeks now, and Robinhood's ( HOOD) IPO flopped. Add in the U.S. halting new Chinese IPOs and some illogical trading breaking small caps both on the upside and downside lately and it's an institutional buyer's market.
In short, they can name their price. For Draganfly, that price was $4.00.
The crux of the offering came down to the outstanding $3.55 warrants from a previous Reg A that come unlocked in September and December. Apparently, institutions were hesitant to pay much above that price. Frankly, as I think on it, I'm a little amazed they paid above that level especially when you consider Friday's offering did not come with any warrants.
On the plus side, the company raised an additional $20 million in cash to go along with the $16.45 million from the Reg A earlier this year. There's also a good chance those $3.55 ($0.71 pre-split) warrants may see some exercise if the stock stays above that level come September and December, although I believe we'd really need to see it above $4 for much in the way of exercise.
On the negative side, Friday's raise is going to put a ceiling on the stock in the short-term. It may also cause investors to question how much big money demand exists for Draganfly. Management will also be called into question for selling stock at a 30% discount. From my understanding, it was either take money at $4 or revert back to the pink sheets.
Given the now low float nature and the action of some other drone companies, being on a Big Board gives the opportunity for a squeeze or a momentum play. It also opens up the potential for an options market and provides much more liquidity for the stock. The warrant level may provide support, but if that fails, I would put the downside around $3.25.
The uplist also frees Draganfly from what amounted to a two-month quiet period as it waited for the process to complete. Whether we get news or not is a different question, but at least the possibility exists. Given the poor optics on the pricing, Draganfly needs some solid press here in the form of contract wins and revenue announcements.
The reality is the timing stunk. Had Draganfly done this deal in the summer or fall or winter of 2020, they probably could have raised $50 million at $5.25 and watched the stock take off. Earlier this year, they probably could have done $30 million at $5. Right now, the market simply isn't there. Maybe it presents a long-term opportunity. I kind of think it does, but you shouldn't listen to me. My timing has been off.
