HEXO stock is in the red this week after HEXO Corp (TSX:HEXO) (NYSE:HEXO) announced that it would issue nearly 15 million shares with the aim of raising $25 million USD in financing in order to fund future innovation research.
HEXO Stock Down 20% Since Announcement
The offering was announced on December 26 and will see HEXO Corp issue 14.97 million shares at a price of $1.67 USD per share, which represents a 14% discount on its December 24 closing price of $1.94 on the New York Stock Exchange. The Canadian cannabis firm said it intends to use the raised capital to fund research to advance its "innovation strategies." However, investors greeted the announcement with skepticism, with HEXO stock falling over 20% since. The offering is expected to close by today, December 30.
The announcement of the offering comes just a week after HEXO released its fiscal Q1 results, which saw revenue rocket over 100% year-on-year but also saw a net loss of $62.4 million CAD, almost five times greater than the $12.8 million CAD loss reported a year previously. HEXO Corp has been one of the hardest-hit pot companies in 2019, with HEXO stock falling over 80% from an April peak of $8.28 as the firm struggles to gain a foothold in the struggling market.
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Position of Weakness
Analysts believe that the announcement was poorly timed and highlights that the deal was made from a position of weakness, further reinforcing investors' fears over the struggling firm. Greg Taylor, a portfolio manager at Purpose Investments in Toronto, said, "The fact that a Canadian company would do any sort of deal on a day when the Canadian markets are closed is really not great … and is not normally done from a position of strength.” HEXO shares are currently trading for $1.53 in New York and $2.01 in Toronto.
In addition to the diluted stock offering, HEXO Corp also announced that it would issue common share purchase warrants to purchase almost 7.5 million common shares of the company. The warrants will have a five-year term and an exercise price of $2.45 USD per share.
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