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Why Hexo Stock Plunged Today

By Joe Tenebruso - May 19, 2020 at 1:48PM

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The beleaguered marijuana producer is selling new shares at fire-sale prices.

What happened 

Shares of Hexo (HEXO 2.31%) plummeted on Tuesday after the cannabis company said it planned to raise cash via a stock and warrant sale. As of 1:15 p.m. EDT, the stock was down 29%.  

So what

Hexo announced on Monday that it expected to raise approximately 50 million Canadian dollars by selling units containing stock and warrants. Each unit will contain one share of Hexo common stock and one half of a warrant that gives the holder the right to purchase stock at a preset price in the future.

Each full warrant will give the holder the right to buy one common share of Hexo for C$1.05 ($0.76). Warrant holders will be able to exercise those rights for a period of 5 years following the closing date of the offering, which is expected to be on May 21.

Hexo priced the offering at C$0.90 ($0.65) per unit, which, when factoring in the value of warrants, was significantly below where its shares were trading on Monday.

A downwardly sloping stock chart

Shares of Hexo Corp fell sharply on Tuesday. Image source: Getty Images.

Now what 

Like many cannabis companies, Hexo is facing a cash crunch as it struggles to reach profitability. The beleaguered marijuana producer posted a net loss of nearly $300 million in its fiscal second quarter, which ended Jan. 31 -- and more losses likely lie ahead. Thus, Hexo has no choice but to raise cash by selling its stock at fire-sale prices, much to the chagrin of current shareholders.

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