Nemus Bioscience Inc (OTCMKTS:NMUS) Should Soar As Dilution Concerns Disappear

Nemus Bioscience Inc (OTCMKTS:NMUS) soared early this week to register highs of just over $1.5 flat, but as the week drew to a close, gave back much of the gains and currently sits somewhere in the region of $0.53 a share. The correction came on the back of some dilution concerns, rooted in a financing effort. These concerns have now been alleviated (at least, that is, near term) however, and we expect a sharp return to the upside for Nemus going forward. Pot is a hot industry right now, and this looks like one of the most potentially rewarding micro cap holdings in the space.Here's why the dilution is no longer an issue, and what we are basing our bullish thesis on.So, the company is a cannabis industry company, with three lead initial indication targets – glaucoma, MS spasticity and chemotherapy induced nausea and vomiting. It's two lead candidates are NB1111 and NB2221, with the former targeting the glaucoma indication and the latter going after MS spasticity and the chemo nausea target.The drugs are rooted in what are called cannabinoids, and act on the two primary cannabinoid receptors that comprise our CNS and immune system (or, to be more specific, our periphery system). The CNS is primarily associated with a receptor called CB1, which is the receptor linked to the psychoactive elements of cannabinoids (making it good for things like nausea, pain, etc.). The periphery system is associated with a receptor called CB2, and it has been shown to be effective in immunomodulary targets – potentially controlling things like CF, psoriasis, that sort of thing.Both candidates are preclinical now, but animal model data is strong, and the transition into the clinic should serve up a host of near term catalysts throughout 2017.So what happened with the latest decline?Well, the company announced early this week that it was set to enter into certain the sale of 500 shares of preferred stock for a raise of $500,000. According to the terms (as initially outlined) each share of preferred stock would be convertible into shares of common stock at a conversion price of $0.40 per share. Obviously, this would have been pretty destructive from a shareholder valuation perspective.The company sold off, and hit the lows discussed in the introduction above.Fast forward to deal close, however, just announced, and the company put out an 8K clarifying some of the details of the raise. Basically, the shares purchased by directors are subject to a lock up agreement, and can't be sold within 90 days, and the shares sold as part of the outside investor agreement (the preferred convertibles) can’t be converted until Nemus files a registration statement for them. This registration has to be filed within 30 days but – and here's a kicker – if the company doesn’t file the registration, it has to pay 2% per month interest on the funds raised until it does.Translation: if Nemus management wants to delay dilution, all it has to do is not file the registration and pay a 2% monthly penalty. For shareholders, this latter option is almost certainly the preferable outcome.Bottom line here is that Nemus now has capital on its balance sheet, with which it can carry forward its development program and – specifically – push its preclinical assets into the early stages of the clinic. Even better, this capital has come at a delayed dilution cost, meaning the company should be able to create some shareholder value before it has to wipe a bit off and accept the dilution.IND applications offer up a potential near term catalyst, as do clinical protocols green lighted by the FDA.One to watch.We will be updating our subscribers as soon as we know more. For the latest updates on NMUS, sign up below!Disclosure: We have no position in NMUS and have not been compensated for this article.