HEXO Stock: HEXO Announces Public Offering of Common Shares

HEXO stock

HEXO stock is hot in 2019. Since the turn of the calendar, these shares have been steadily increasing. Well, up until yesterday, that is.

HEXO Stock

It seems the company's news has thrown a spanner in the works. HEXO stock dropped 10% suddenly, and today it is dipping a further 5.67% at the time of writing. But what has investors up in arms?

Press Release

HEXO Corp. (TSX:HEXO) (OTC:HYYDF) released a press release detailing an upcoming proposed public offering of common shares. According to HEXO:

"[The company] will be filing a preliminary prospectus supplement to its amended and restated short form base shelf prospectus dated December 14, 2018, relating to a proposed marketed public offering of common shares of the Company for gross proceeds of approximately C$50 million."

So effectively, the company is selling more shares in order to generate more capital. Doing this will dilute the value of its current stock price, and as a result, some investors are understandably unhappy. Today's HEXO stock price decrease reflects this.

Capital

The company is planning to use the net proceeds for "general corporate purposes." This will include funding for "global growth initiatives" along with "research and development to further advance the Company’s innovation strategies."

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It is a common strategy for cannabis companies to gather more revenue via a public stock offering. Especially in the US, where cannabis is illegal under federal law and as a result, companies are unable to look for funding from government bodies or financial institutions. HEXO, which trades on the OTC market in the US (and will soon be trading on the NYSE), may have been up against this roadblock.

HEXO Stock Dilution

Stock offers usually give investors a headache as it means stock dilution. So in this case, HEXO stock will, potentially, be valued less in the short-term, but investors must consider the potential that use of the raised capital may generate even bigger profits in the long-term. 

Any short-sellers in the mix are likely to jump with their profits while they can, and this is usually what leads to a sudden price drop after announcements like these.

 

Featured Image: Depositphotos © Ruslan117

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