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Why HEXO Stock Is Tumbling Today

By Keith Speights – Jun 17, 2020 at 11:03AM

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More dilution could be on the way.

What happened

Shares of HEXO (HEXO 17.05%) (HEXO 20.00%) were tumbling 9.8% as of 10:43 a.m. EDT on Wednesday. The decline came after the Canadian cannabis producer announced that it has established an at-the-market (ATM) equity program that will allow it to issue common shares worth up to 34.5 million in Canadian dollars.

So what

HEXO hasn't issued any new shares yet. The ATM program that the company set up merely gives it the ability to raise cash as needed. It will determine if and when to tap the ATM to issue additional shares.

Cannabis leaf in front of a Canadian flag

Image source: Getty Images.

But the marijuana stock fell today because investors know more dilution is likely on the way. As of April 30, HEXO's cash position totaled CA$112.6 million, including cash, cash equivalents, restricted cash, and short-term investments. The company could easily burn through that amount by the second half of 2021.

Now what

HEXO reported better-than-expected revenue growth with its fiscal 2020 Q3 results. Investors will want to watch to see if the company can keep its momentum going and make progress toward profitability. But don't look for profits anytime soon. HEXO's new ATM program will almost certainly be needed over the next year.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. The Motley Fool has a disclosure policy.

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Stocks Mentioned

HEXO Corp. Stock Quote
HEXO Corp.
$0.21 (17.05%) $0.03
HEXO Corp. Stock Quote
HEXO Corp.
$0.30 (20.00%) $0.05

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