Friday morning brought modest gains for the stock market at the open, as a generally upbeat move continued to lift many major market benchmarks to new highs. Between a favorable start to earnings season and the improvement in trade relations between the U.S. and China, investors seem satisfied that things are generally going well. As of 10 a.m. EST, the Dow Jones Industrial Average (^DJI 0.03%) was up 29 points to 29,327. The S&P 500 (^GSPC 0.01%) was higher by 6 points to 3,323, and the Nasdaq Composite (^IXIC -0.30%) picked up 11 points to 9,368.
However, some parts of the stock market didn't follow the general upward trend. Marijuana stock HEXO (HEXO -5.11%) led cannabis stocks lower as it once again said it would need to do a stock offering to raise capital. Meanwhile, Vail Resorts (MTN -0.03%) gave an early report on the 2019-20 ski season that raised some concerns among its shareholders.
Shares of HEXO were down 7% Friday morning, creating negative sentiment that seemed to send several other marijuana stocks lower in sympathy. The Canadian cannabis company once again said it would sell stock in order to raise cash.
The latest offering's terms indicated that HEXO was looking to raise another $20 million, which is in the same neighborhood as previous offerings it's made. The company said it would sell just under 12 million shares at $1.67 per share as part of the offering to institutional investors. As previous offerings have done, HEXO also included provisions that allowed for the issuance of nearly 6 million warrants to purchase additional shares at $2.45 per share over the next five years.
The main problem with offerings like HEXO's is that they dilute the interest of existing shareholders. In particular, anyone who owns stock in the hopes that the price will rise well above the $2.45 per share mark will have to deal with the fact that if the stock moves that high, institutional investors will exercise their warrants and buy more shares. That will decrease the proportional share of rising profits that HEXO shareholders will get.
Moreover, no one likes seeing HEXO selling stock at current prices when the shares fetched more than $8 last April. Unfortunately, HEXO isn't alone in needing capital right now, and other cannabis companies could see the same pressures in the months to come.
Vail deals with disappointment
Shares of Vail Resorts were down 2% Friday morning. The ski resort operator gave its initial report on how the 2019-20 ski season is proceeding, and investors weren't pleased with the performance so far compared to their initial expectations.
Vail said the ski season started slow, with extremely low snow levels in the Pacific Northwest affecting performance at its key Whistler Blackcomb resort along with Stevens Pass. Whistler reported 60% less snow than usual, posting the lowest total in 30 years, and only in recent weeks have conditions improved to allow for the opening of nearly all of its runs.
Overall, Vail saw total skier visits fall 7.8% through Jan. 5 compared to the same period during the 2018-19 ski season. Lift ticket revenue was up slightly, and ski schools saw a 2% rise in sales, but dining revenue and retail/rental sales were down year over year.
Vail has done a good job of emphasizing season pass sales that can cushion the blow of poor early conditions, but the resort operator still counts on getting cooperation from the weather. Investors will want to watch snow conditions closely to see if Vail gets a break that could help it catch up to its prior-year numbers over the remainder of the ski season.