SmartKem, Inc. – Material Definitive Agreement and Nasdaq Compliance Update
SmartKem, Inc. Announces Series A Preferred Stock Financing, Nasdaq Compliance Update, and Major Corporate Actions
Key Developments
- SmartKem, Inc. entered into a Securities Purchase Agreement for a private placement of Series A Convertible Preferred Stock and warrants, raising capital and providing for potential additional tranches.
- Restrictive covenants and shareholder approval requirements were introduced, including a proposed increase in authorized common shares from 30 million to 5 billion and the possibility of a reverse stock split.
- The company also secured an Equity Line of Credit (ELOC) for additional fundraising flexibility.
- SmartKem believes it now meets the Nasdaq minimum stockholders’ equity requirement due to the private placement, following a prior delisting notice.
- A new Certificate of Designations was filed, establishing the rights and preferences of the Series A Preferred Stock, with detailed conversion and anti-dilution provisions.
Details of the Series A Preferred Stock Offering
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On March 30, 2026, SmartKem, Inc. signed a Securities Purchase Agreement (“Preferred Stock Purchase Agreement”) with institutional investors, including certain noteholders. The company agreed to issue and sell, in a private placement, Series A Convertible Preferred Stock and warrants.
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Key features of the transaction:
- Initial Closing: Details of the initial number of shares and proceeds were not specified, but the agreement allows for up to 10,000 additional shares of Series A Preferred and related warrants in subsequent closings within 12 months, subject to conditions.
- Waivers: Noteholders provided limited waivers to allow the new financing to proceed without violating prior agreements.
- Investor Protections: The company cannot issue additional Series A Preferred Stock to any party other than the buyers without written consent from the required holders.
- Lock-Up and Anti-Dilution: For at least 90 trading days post-registration or until all securities are eligible for Rule 144 resale, SmartKem and subsidiaries are restricted from directly or indirectly issuing, offering, or selling any equity or equity-linked securities, except for employee plans, conversions, or under the ELOC.
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Stockholder Approval Required for:
- Increase in the authorized common shares from 30,000,000 to 5,000,000,000.
- Removal of the restriction on stockholder action by written consent.
- Issuance of all securities under the Preferred Stock Purchase Agreement in accordance with Nasdaq rules.
- Reverse stock split, at a ratio determined by the Board.
- Increase in shares issuable under the 2021 Equity Incentive Plan.
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Other Notable Restrictions:
- The company cannot redeem or pay cash dividends on any securities, or effect a reverse split, without Required Holders’ consent, except as needed to maintain Nasdaq listing.
- SmartKem must retain a consultant recommended by the Required Holders for strategic acquisitions and new business development, with compensation not to exceed \$240,000, within 30 days of closing.
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Registration Rights: The company must file a registration statement with the SEC for the resale of shares issuable upon conversion of the Series A Preferred Stock and exercise of the warrants, aiming for effectiveness within 60 days after the 10-K for FY2025.
Equity Line of Credit (ELOC) Secured
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On March 30, 2026, SmartKem entered into a Common Stock Purchase Agreement for an ELOC, providing the ability to raise additional capital by selling common stock to the investor, subject to conditions.
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Registration Agreement: The ELOC shares must also be registered with the SEC, with the same 60-day timeline for effectiveness after the 10-K filing.
Nasdaq Compliance Update
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Background: On August 15, 2025, SmartKem received a Nasdaq delisting notice due to non-compliance with the \$2.5 million minimum stockholders’ equity requirement (Rule 5550(b)).
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Current Status: The company believes, as a direct result of the private placement, its stockholders’ equity is now at least \$2.5 million and thus meets the requirement. Nasdaq’s formal confirmation is pending.
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Shareholder Impact: Ongoing compliance will be monitored by Nasdaq. If subsequent filings do not evidence compliance, the company may be subject to delisting again.
Certificate of Designations: Series A Preferred Stock Rights and Preferences
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Authorization: 31,412 shares of Series A Convertible Preferred Stock, par value \$0.0001, stated value \$1,000 per share.
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Conversion Rights:
- Convertible by holders at any time at a price of \$0.5812 per share of common stock, subject to alternate conversion options after shareholder approval or certain trigger events.
- Anti-dilution and beneficial ownership limitations apply (no conversion if it would result in the holder owning more than 4.99% of common stock).
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Liquidation Preference:
- In a liquidation, Series A holders get paid before junior stock, receiving the Black-Scholes value of outstanding warrants and the greater of 125% of the conversion amount or the amount due upon conversion.
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Voting Rights:
- No regular voting rights, but approval of holders is required for changes affecting Series A Preferred, including amendments, creation of senior securities, and other key corporate actions.
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Triggering Events and Protections:
- List of “Triggering Events” (including registration defaults, payment failures, material adverse events, and changes of control) that can result in mandatory redemption or other remedies.
- Mandatory redemption at 125% of conversion amount upon certain bankruptcy events.
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Other Covenants:
- Restrictions on dividends, redemption, asset transfers, changes to business, affiliate transactions, and future equity issuances without Required Holders’ consent.
- Requirement to maintain PCAOB-registered auditor and allow for independent investigations by investment banks if requested by Required Holders.
Potential Share Price Impact
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The massive proposed increase in authorized shares (from 30 million to 5 billion) and the potential for a reverse stock split are highly significant and can materially affect share price, both through potential dilution and market perception.
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Restoration of Nasdaq compliance and the capital raise may provide short-term support to the share price, but investors should be aware of the risk of future dilution and the need for ongoing compliance.
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The restrictive covenants and investor protections may limit management flexibility, but provide some reassurance to new investors.
Summary for Investors
- This transaction provides critical funding for SmartKem, supports continued Nasdaq listing, and introduces significant changes to the capital structure and corporate governance.
- Shareholders should closely monitor upcoming shareholder votes, the effectiveness of registration statements, and further updates from Nasdaq regarding compliance.
- The possibility of significant dilution and/or a reverse split are material risks and should be considered in any investment decision.
Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own due diligence and consult with their financial advisors before making investment decisions. The information herein is based on public filings and may be subject to change. Neither the author nor this publication guarantees the accuracy or completeness of the information.
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