Why PEI government invested your money in a zombie company?

 Announcement of investment in penny stock probably money thrown into the wind

PEI and the Federal government announced a tiny investment, by their standards, in a company that has been living off similar investments for more than 14 years.
 

Ask why would a company move across the continent for $150,000. It doesn’t make any sense unless it is the first of many injections of taxpayers money.  Expect the Province to pour more money into Ceapro’s bank account especially before next year’s election adding substance to Premier Ghiz’ economic agenda.
 
In the Venture Capital business, a zombie is a company that is perpetually in growth-stage. Zombie’s never reach profitability and can be constantly seen chasing government grants and investors saying “Feed me, I need more investment.”  If there was a commercial product surely it would have been developed already by Ceapro.
 
The announcement by PEI’s absent-minded minister George Webster is no surprise. Webster, a genial if forgetful man, was able to conveniently forget that farmer’s would be hurt by an increase in their light bills. Webster forgot that he owned the company that purchased Provincial assets at fire sale prices. We doubt he has much expertise in investment banking.
 
Ceapro was formed in 1997 as a bio-tech start-up that would extract industrial value compounds from cereal grains such as oats. The NDP government in Saskatchewan financed the venture from Alberta. Lawsuits over that investment were still working their way through the courts in 2008 much to the embarrassment of the NDP.
 
PEI maybe just the latest home for this venture that has burned a trail through provincial money in western Canada including the infamous Asian investor money.(AKA PNP)
Federal Fisheries Minister Gail Shea could not be more telling or prophetic in her quote for the CBC. “Gail Shea is not concerned about the future of the company. (CBC)”
Ceapro is typical of the bad investment governments make when desperate for growth. PEI’s Bio-Commons Research Park needs tenants. Why not this one?
Ceapro’s stock seems to have benefited from the press release. A thinly traded penny stock, the average trades per day have 15K shares with no trades on some days. The company has reported losses for the past few years and seems to have no long term prospects of profitability. It has traded in a range of 5 cents to 14 cents, although at one time it reached above $8.00.
This is a stock with no market support. If someone tried to sell 1% of the 57 million shares in the float, the stock would tank worse than it has already. The only way they can sell 1/10th of 1% of the shares is to pump the stock with a positive announcement.
For months nothing has happened on this stock and then on Friday the government announces a $150,000 grant. 52,000 shares trade at 7 cents. On Monday 38,000 shares trade. Tuesday another 50,000 shares trade and the price climbs to 10 cents before it settles at 8 cents.
Who benefited from the press release? We don’t know. We don’t know if insiders decided to dump some of their otherwise worthless stock or not.
 
Ceapro stock before and after the announcement

The provincial and federal governments are spending $150,000 to attract a penny stock company to do research on P.E.I.
Ceapro, which extracts compounds from plants to use in personal care products such as toothpaste and shampoo, has set up a lab at the National Research Council on the UPEI campus in Charlottetown. ACOA is investing $50,000 in the operation, and the province $100,000.
“This is a new day for agriculture,” said provincial Agriculture Minister George Webster.
“[It] can lead to significant benefits and get us off the commodity train that we’ve been on for many, many years.”
Ceapro is small company, with a market capitalization under $5 million. Share prices jumped on the news Monday, from five to 9.5 cents.
Ceapro has had some troubles. There was an unsuccessful lawsuit against the government of Saskatchewan in 2008 over a failed venture there. Sales in the last quarter were down 23 per cent.
The company believes there are better times ahead.
“All of the legal ramifications and the baggage that we’ve had as a company in the past are behind us now,” said chief scientific officer David Fielder.
“We’re focusing on the future. The future really is the collaboration of partnerships with various groups. On the Island here, I think there’s a number of different areas where I think we will see some benefits.”
The company is working on three research projects on P.E.I., including field trials to grow spearmint, which has anti-inflammatory properties.
Gail Shea, P.E.I.’s representative in the federal cabinet, said she’s not worried about the company’s past difficulties.
“Our folks in ACOA, as well as the province, always do their due diligence when they are doing business with companies,” said Shea.
“This is a growing sector in the marketplace and we’re confident this will be a success story.”
If any of Ceapro’s research turns in to manufacturing, the company says it is interested in doing that on P.E.I., but it would require more assistance from the government.

Click HERE to read more columns by Stephan Pate.

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