Tantech Holdings' 1-for-40 Reverse Stock Split: A Double-Edged Sword

Tantech Holdings Ltd (NASDAQ: TANH) has announced a 1-for-40 reverse stock split, effective February 13, 2025, aimed at regaining compliance with NASDAQ Marketplace Rule 5550(a)(2) to maintain its listing status. While this move will mechanically boost the share price by 40x, it raises several concerns and presents both opportunities and risks for investors.

The 1-for-40 reverse stock split represents a critical but concerning development for Tantech Holdings. The drastic ratio of 1:40 signals significant underlying challenges, as reverse splits of this magnitude are relatively rare and often indicate severe price deterioration. Historical patterns show that companies implementing such aggressive reverse splits frequently continue to face downward price pressure.

For current shareholders, while their ownership percentage remains unchanged, this consolidation presents several risks:

1. Reduced liquidity due to fewer outstanding shares: The number of outstanding common shares will decrease from 47,556,466 to approximately 1,188,911, which is a reduction of over 97%. This reduction in the number of shares outstanding can lead to lower trading volumes and reduced liquidity, making it more difficult for investors to buy or sell shares quickly and at a fair price.
2. Potentially wider bid-ask spreads affecting trading costs: Lower liquidity can result in wider bid-ask spreads, which is the difference between the highest price that a buyer is willing to pay for a share (bid) and the lowest price that a seller is willing to accept (ask). Wider bid-ask spreads can increase trading costs for investors, as they may need to pay a higher price to buy shares or accept a lower price when selling shares.
3. Historical stigma associated with reverse splits often leading to increased selling pressure: Reverse stock splits are often seen as a negative signal by the market, as they can indicate that a company is struggling with its stock price. This can lead to increased selling pressure, as investors may view the company as being in trouble.

The timing of this reverse stock split is particularly noteworthy, as it comes amid broader compliance issues with Nasdaq's minimum bid requirements. While this move may temporarily resolve the listing concern, it doesn't address the fundamental challenges that led to the price decline. The reduction from 47.6 million to 1.2 million shares could significantly impact trading dynamics, potentially creating increased volatility.

The absence of any accompanying strategic initiatives or operational improvements makes this a purely technical move, which historically has rarely been sufficient to create sustainable value. Investors should closely monitor post-split trading patterns and any potential changes in institutional ownership, as these factors often influence medium-term price stability following such corporate actions.

In conclusion, while the 1-for-40 reverse stock split may temporarily boost Tantech Holdings' share price, historical patterns suggest that the company may continue to face downward price pressure in the long term. The split could also lead to changes in institutional ownership due to increased selling pressure and reduced liquidity. Investors should carefully consider these factors and monitor the company's progress closely to make informed investment decisions.