This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
AMC Entertainment (NYSE:AMC), the movie theater chain that ushered in the era of meme stocks along with GameStop (NYSE:GME), has been facing consistent pressure from some of its investors to issue NFT-based dividends. Well, the company's CEO has now shot down that idea for good.
Bear in mind that dividends are, in essence, a division of a company's profit among its shareholders. So, why are AMC Entertainment shareholders demanding dividends in the form of NFTs? When a company issues a dividend, all entities holding a short position in that stock have to replicate that action. For instance, if a hedge fund holds a short position of 1 million shares and the company in question were to declare a dividend of $1 per share, that hedge fund would be forced to pay $1 million to the lender from whom those shares were borrowed. AMC Entertainment shareholders want to see an NFT-based dividend in order to flush out hedge funds that are holding naked and synthetic shorts on the stock. The rationale is based on the idea that the NFTs would only be issued by AMC itself and that the hedge funds with a bearish bet on the stock won't be able to replicate this action, thereby precipitating such actors to close out their respective positions.
Well, the CEO of AMC Entertainment, Adam Aron, does not seem very keen on this idea:
NFTs are a superb idea. But not a 1 per share security token NFT dividend, as repeatedly described on Twitter. It is likely illegal, breaches our debt covenants and/or exposes AMC to huge litigation risk. We can’t do it. Beware of concepts that sound easy and too good to be true.
— Adam Aron (@CEOAdam) December 9, 2021
Readers should note that prima facie, the idea of NFT-based dividends does not appear to be illegal. After all, Overstock (NASDAQ:OSTK) became a pioneer last year when it issued digital dividends, where 1 share of the OSTKO blockchain-based security token was offered for every 10 shares owned. Bear in mind that a security token is simply a digital representation of a security – in this case, a share. However, it must comply with securities laws. As a refresher, the SEC has used the Howey test to stamp the "security" label on various offerings of digital assets and cryptocurrencies, thereby bringing these offerings within the purview of the securities laws. In layman's terms, if an NFT is marketed and sold with the expectation of a future return on investment, it would generally be deemed a security.
Regardless of the supposed legality of this move, AMC Entertainment is delving ever deeper into its newfound NFT push. During its earnings call for Q3 2021, Aron had noted:
"Similarly, I can confirm to you today that we are now in conversation with multiple major Hollywood studios about the concept of joint venturing commemorative NFTs related to major film titles that show in our theaters. This is the 21st Century after all. And it would seem that there may be real opportunity for AMC in these areas."
This idea came from YOU! Partnering with @SonyPictures for #AMCFirstEverNFT. More than 100 unique Spider-Man NFTs, given FREE to the first 86,000 online buyers of U.S. AMC December 16 tickets for Spider-Man No Way Home. Only for Stubs Premiere, A-List & Investor Connect members. pic.twitter.com/VnsMVeR29w
— Adam Aron (@CEOAdam) November 28, 2021
AMC Entertainment had issued its first-ever NFT to commemorate the release of the latest Spider-Man iteration on the big screen. Earlier this week, it also announced "I Own AMC" NFT on the WAX blockchain exclusively for the company's shareholders, entailing various discounts and a host of other benefits.