After having gone through a harrowing time for much of 2019, many cannabis stocks have managed to turn a corner in 2020 so far. However, HEXO Corp (TSX:HEXO) (NYSE:HEXO) has had a bit of a setback, and HEXO stock is sliding to a new low on Tuesday following recent events.
Sell-Off Continues
This morning, the cannabis company’s stock has dived by as much as 3% after it emerged that HEXO stock had been downgraded by MKM.
MKM downgraded HEXO stock from buy to neutral due to the fact that HEXO Corp had been sued for breach of contract by MediPharm Labs (TSX:LABS) (OTCQX:MEDIF). The analyst Bill Kirk stated that the troubles within HEXO might have become far more problematic for the company.
In the note from Kirk, he wrote that since the resignation of the company's Chief Financial Officer back in October last year, HEXO missed its own earnings projections, fired staff, closed certain facilities, and eventually diluted equity. He went on to state that this breach of contract lawsuit from MediPharm is the final nail that forced MKM to downgrade the stock. MediPharm has sued HEXO Corp with regard to non-payment of a sum of C$9.8 million.
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HEXO stock is trading lower by 2% to $1.31 after hitting a new low of $1.25.
Equity Dilution
The company’s decision to further liquidate the equity must have come as a bit of a concern for many investors, and it was cited by Kirk as well. Last week, the company announced that that it is going to make a direct offering of its shares in order to raise a further $20 million.
The offering was announced by HEXO Corp on January 17, and that constituted the second instance in a month in which the company sought to raise capital by issuing additional shares. The company announced that it is going to issue as many as 11,976,048 shares at the price of $1.67 per share. The offering was closed on January 22.
HEXO stock has tumbled about 75% over the past year.
Featured image: Canva
